Federal Register: November 21, 2008 (Volume 73, Number 226)
DOCID: fr21no08-101 FR Doc E8-27674
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
DOCUMENT ID: [Release No. 34-58944; File No. SR-DTC-2008-09]
NOTICE: NOTICES
DOCID: fr21no08-101
ACTION: Self-Regulatory Organizations; Proposed Rule Changes:
SUBJECT CATEGORY:
Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of a Proposed Rule Change to Expand DTC's Debit Cap Look-Ahead Processing
DOCUMENT SUMMARY:
November 13, 2008.
I. Introduction
On September 12, 2008, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SRDTC200809 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal
was published in the Federal Register on March 7, 2008.\2\ No comment
letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change.
\1\15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 58730 (October 3, 2008), 73 FR 59694 (October 9, 2008).
II. Description
The proposed rule change amends the LookAhead Process in DTC's Settlement Services Guide to allow Money Market Issuance Deliveries pending for a Custodian's or Dealer's net debit cap to complete against Maturity Presentments pending for an Issuing/Paying Agent's net debit cap. DTC's processing system will calculate the net effect of the dollar amount of offsetting transactions in the accounts of the two Participants involved. If the net of the transactions result in positive risk management controls in those two accounts, the transactions will be completed.
On June 10, 2003, the Commission approved a proposed rule change to
establish a transaction LookAhead Process which became available for
municipal and corporate bonds, including Money Market Instruments
(``MMIs'').\3\ On August 11, 2004, the Commission approved another
proposed rule change which expanded the application and extended the
benefit of the LookAhead Process to all equity transactions.\4\ With
this proposed rule change, DTC is proposing to expand the LookAhead Process to MMIs.
\3\Securities Exchange Act Release No. 48007 (June 10, 2003), 68 FR 35744 (June 16, 2003) (File No. SRDTC200307).
\4\Securities Exchange Act Release No. 50182 (August 11, 2004), 69 FR 51341 (August 18, 2004) (File No. SRDTC200405).
The purpose of DTC's LookAhead Process is to reduce the number of
recycling transactions in the system caused by the Net Debit Cap Risk
Management Control.\5\ The existing LookAhead Process finds delivery
transactions that are pending because the Receiving Participant has
reached its net debit cap.\6\ It then looks to see whether the
Receiving Participant has a pending delivery for the same security to
another Participant.\7\ In such a situation, DTC's Account Transaction
Processor (``ATP'')\8\ will calculate the net effect to the collateral
\9\ and net debit cap controls for all three Participants involved. If
the net effect will not result in a deficit in the collateral or net
debit cap controls for any of the three Participants, ATP processes the
transactions simultaneously. Without the LookAhead Process, the
transaction would pend in DTC's system until another transaction
created sufficient credit in the Receiving Participant's account. Most
credits are generated when a Participant delivers securities versus
payment, pledges securities for value, receives principal, dividend or
other interest allocations, or wires funds (a Settlement Progress
Payment (``SPP'')) to DTC's account at the Federal Reserve Bank of New York in order to reduce its DTC net debit.
\5\Net debit caps help ensure that DTC can complete settlement, even if a Participant fails to settle.
\6\Before completing a transaction in which a Participant is the
receiver, DTC calculates the resulting effect the transaction would
have on the Participant's account and determines whether the
resulting net balance would exceed the Participant's net debit cap.
Any transaction that would cause the Participant's net settlement
debit to exceed its net debit cap is placed in a pending (recycling)
queue until another transaction creates credits in the Participant's account.
\7\For example, Participant A is delivering shares to
Participant B and Participant B has a delivery obligation of shares with the same CUSIP to Participant C.
\8\ATP is the core processing system for all transaction activity affecting security positions held at DTC.
\9\DTC tracks collateral in a Participant's account through its
Collateral Monitor (``CM''). At all times, the CM reflects the
amount by which the collateral in the account exceeds the net debit
in the account. When processing a transaction, DTC verifies that the
deliverer's and receiver's CMs will not become negative when the
transaction completes. If the transaction would cause either party
to have a negative CM, the transaction will recycle until the
deficient account has sufficient collateral for the transaction to complete.
In order to further reduce the number of recycling transactions in the system and to further improve the timeliness and certainty of transactions completing, DTC is expanding the LookAhead Process beyond same securities for MMIs to allow pairs of money market instrument transactions between two Participants (i.e., an Issuing Paying Agent [``IPA''] and a custodian or dealer) that are pending for both parties' net debit caps to complete. This situation occurs when an IPA has a delivery of a new money market instrument to a custodian or a dealer for X dollars and that same custodian or dealer has a maturity of a money market instrument of equal or greater value awaiting acceptance by the same IPA. The proposed rule change will allow ATP to process those transactions simultaneously, as long as neither Participant's risk management controls were overridden.
This enhancement to the LookAhead Process will reduce the number of MMI recycling transactions. The LookAhead enhancement to DTC's processing system will not result in any systematic changes for Participants.
III. Discussion
Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to assure the
[[Page 70687]]
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\10\ When
the Commission approved DTC's Debit Cap LookAhead Process in 2003 for
municipal and corporate debt transactions and the expansion of the
process to include all equity transactions, all valued pledge
transactions, and all valued release transactions in 2004, the
Commission found that the LookAhead Process was consistent with DTC's
obligations under Section 17A(b)(3)(F) to promote the prompt and
accurate clearance and settlement of securities transactions.\11\
Similarly, the expansion of the LookAhead Process beyond same
securities for MMIs is designed to reduce the number of pending MMI
transactions at DTC without compromising DTC's risk management
controls. Accordingly, based on this and the earlier findings, we find
that the expansion of the Debit Cap LookAhead Process for MMIs should
promote the prompt and accurate clearance and settlement of securities transactions.
\10\ 15 U.S.C. 78q1(b)(3)(F).
\11\ Securities Exchange Act Release Nos. 48007 and 50182. IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 17A of the Act and the rules and regulations thereunder.\12\
\12\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SRDTC200809) be and hereby is approved.
\13\ 17 CFR 200.303(a)(12).
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\13\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E827674 Filed 112008; 8:45 am]
BILLING CODE 801101P
SUMMARY:
Depository Trust Co.,
DOCUMENT BODY 2:
November 13, 2008.
I. Introduction
On September 12, 2008, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SRDTC200809 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal
was published in the Federal Register on March 7, 2008.\2\ No comment
letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change.
\1\15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 58730 (October 3, 2008), 73 FR 59694 (October 9, 2008).
II. Description
The proposed rule change amends the LookAhead Process in DTC's Settlement Services Guide to allow Money Market Issuance Deliveries pending for a Custodian's or Dealer's net debit cap to complete against Maturity Presentments pending for an Issuing/Paying Agent's net debit cap. DTC's processing system will calculate the net effect of the dollar amount of offsetting transactions in the accounts of the two Participants involved. If the net of the transactions result in positive risk management controls in those two accounts, the transactions will be completed.
On June 10, 2003, the Commission approved a proposed rule change to
establish a transaction LookAhead Process which became available for
municipal and corporate bonds, including Money Market Instruments
(``MMIs'').\3\ On August 11, 2004, the Commission approved another
proposed rule change which expanded the application and extended the
benefit of the LookAhead Process to all equity transactions.\4\ With
this proposed rule change, DTC is proposing to expand the LookAhead Process to MMIs.
\3\Securities Exchange Act Release No. 48007 (June 10, 2003), 68 FR 35744 (June 16, 2003) (File No. SRDTC200307).
\4\Securities Exchange Act Release No. 50182 (August 11, 2004), 69 FR 51341 (August 18, 2004) (File No. SRDTC200405).
The purpose of DTC's LookAhead Process is to reduce the number of
recycling transactions in the system caused by the Net Debit Cap Risk
Management Control.\5\ The existing LookAhead Process finds delivery
transactions that are pending because the Receiving Participant has
reached its net debit cap.\6\ It then looks to see whether the
Receiving Participant has a pending delivery for the same security to
another Participant.\7\ In such a situation, DTC's Account Transaction
Processor (``ATP'')\8\ will calculate the net effect to the collateral
\9\ and net debit cap controls for all three Participants involved. If
the net effect will not result in a deficit in the collateral or net
debit cap controls for any of the three Participants, ATP processes the
transactions simultaneously. Without the LookAhead Process, the
transaction would pend in DTC's system until another transaction
created sufficient credit in the Receiving Participant's account. Most
credits are generated when a Participant delivers securities versus
payment, pledges securities for value, receives principal, dividend or
other interest allocations, or wires funds (a Settlement Progress
Payment (``SPP'')) to DTC's account at the Federal Reserve Bank of New York in order to reduce its DTC net debit.
\5\Net debit caps help ensure that DTC can complete settlement, even if a Participant fails to settle.
\6\Before completing a transaction in which a Participant is the
receiver, DTC calculates the resulting effect the transaction would
have on the Participant's account and determines whether the
resulting net balance would exceed the Participant's net debit cap.
Any transaction that would cause the Participant's net settlement
debit to exceed its net debit cap is placed in a pending (recycling)
queue until another transaction creates credits in the Participant's account.
\7\For example, Participant A is delivering shares to
Participant B and Participant B has a delivery obligation of shares with the same CUSIP to Participant C.
\8\ATP is the core processing system for all transaction activity affecting security positions held at DTC.
\9\DTC tracks collateral in a Participant's account through its
Collateral Monitor (``CM''). At all times, the CM reflects the
amount by which the collateral in the account exceeds the net debit
in the account. When processing a transaction, DTC verifies that the
deliverer's and receiver's CMs will not become negative when the
transaction completes. If the transaction would cause either party
to have a negative CM, the transaction will recycle until the
deficient account has sufficient collateral for the transaction to complete.
In order to further reduce the number of recycling transactions in the system and to further improve the timeliness and certainty of transactions completing, DTC is expanding the LookAhead Process beyond same securities for MMIs to allow pairs of money market instrument transactions between two Participants (i.e., an Issuing Paying Agent [``IPA''] and a custodian or dealer) that are pending for both parties' net debit caps to complete. This situation occurs when an IPA has a delivery of a new money market instrument to a custodian or a dealer for X dollars and that same custodian or dealer has a maturity of a money market instrument of equal or greater value awaiting acceptance by the same IPA. The proposed rule change will allow ATP to process those transactions simultaneously, as long as neither Participant's risk management controls were overridden.
This enhancement to the LookAhead Process will reduce the number of MMI recycling transactions. The LookAhead enhancement to DTC's processing system will not result in any systematic changes for Participants.
III. Discussion
Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to assure the
[[Page 70687]]
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\10\ When
the Commission approved DTC's Debit Cap LookAhead Process in 2003 for
municipal and corporate debt transactions and the expansion of the
process to include all equity transactions, all valued pledge
transactions, and all valued release transactions in 2004, the
Commission found that the LookAhead Process was consistent with DTC's
obligations under Section 17A(b)(3)(F) to promote the prompt and
accurate clearance and settlement of securities transactions.\11\
Similarly, the expansion of the LookAhead Process beyond same
securities for MMIs is designed to reduce the number of pending MMI
transactions at DTC without compromising DTC's risk management
controls. Accordingly, based on this and the earlier findings, we find
that the expansion of the Debit Cap LookAhead Process for MMIs should
promote the prompt and accurate clearance and settlement of securities transactions.
\10\ 15 U.S.C. 78q1(b)(3)(F).
\11\ Securities Exchange Act Release Nos. 48007 and 50182. IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 17A of the Act and the rules and regulations thereunder.\12\
\12\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f).
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SRDTC200809) be and hereby is approved.
\13\ 17 CFR 200.303(a)(12).
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.\13\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E827674 Filed 112008; 8:45 am]
BILLING CODE 801101P