Self-Regulatory Organizations; Filing of Proposed Rule Change by Participants Trust Co. Relating to the Percentage Margin Applied by PTC With Respect to GNMA Project, Construction, and Mobile Home Securities

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33513; File No. SR-PTC-93-04]

Self-Regulatory Organizations; Filing of Proposed Rule Change by

Participants Trust Co. Relating to the Percentage Margin Applied by PTC

With Respect to GNMA Project, Construction, and Mobile Home Securities

January 24, 1994.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on November 8, 1993,

Participants Trust Company (``PTC'') filed with the Securities and

Exchange Commission (``Commission'') the proposed rule change as

described in Items I, II, and III below, which Items have been prepared

primarily by the self-regulatory organization. The Commission is

publishing this notice to solicit comments on the proposed rule change

from interested persons.

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\1\ 15 U.S.C. 78s(b)(1).

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The purpose of the proposed rule change is to obtain permanent

approval of the percentages to be deducted from the market value of

certain securities to determine how those securities should be valued

for purposes of participants' net free equity. The securities and

percentages are as follows:

GNMA Project Loan Securities--10%

GNMA Project Note Securities--10%

GNMA Construction Loan Secjurities--12%

GNMA Mobile Home Securities--20%

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

included statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at

the places specified in Item IV below. The self-regulatory organization

has prepared summaries, set forth in sections A, B, and C below, of the

most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to obtain permanent

approval of the percentage margin applied by PTC with respect to GNMA

Project, Construction, and Mobile Home securities for the purpose of

calculating a participant's net free equity.\2\ These margin levels

were approved by the Commission on a temporary basis on October 7,

1991\3\ in order to allow PTC to obtain and evaluate historical data

regarding the level of price volatility of Project, Construction, and

Mobile Home GNMA securities prior to the Commission approving such

margins on a permanent basis. The historical data on price movements

collected by PTC confirms the price volatility assumptions that were

applied in establishing the margin levels in October 1991; this

historical data is summarized below. PTC, therefore, seeks permanent

approval of these margin levels as follows:

\2\``Net Free Equity`` represents PTC's calculation of the

amount of excess equity, available in a participant's account, which

PTC may borrow against or liquidate in the event a participant's

debit balance is not satisfied at the end of the day.

\3\Securities Exchange Act Release No. 29793 (October 7, 1991),

56 FR 51732.

GNMA Project Loan Securities--10%

GNMA Project Notice Securities--10%

GNMA Construction Loan Securities--12%

GNMA Mobile Home Securities--20%

Under PTC's rules, a certain percentage determined by PTC (referred

to in PTC's rules as the ``Applicable Percentage'') of the market value

of a participant's securities is included in the computation of a

particpant's net free equity. Net free equity of zero or greater is

required to be maintained by participants in each of its agency,

pledgee, or proprietary accounts in order for transactions to be

processed. PTC has the right to borrow against or liquidate the assets

that comprise the net free equity computations of those accounts should

a participant fail to pay the account debit balance at the end of the

day. By including only a portion of the market value of securities in

net free equity, PTC attempts to limit the risk that could be caused by

fluctuations in market value of these securities held in those

accounts.

PTC deducts 5% from the market value of GNMA single family

securities to arrive at their Applicable Percentage. That percentage is

based upon historical price volatility figures. Historical volatility

of the Project, Construction, and Mobile Home GNMA securities is

similar to the single family securities, but the market for those

securities is less liquid. Therefore, the enhanced margin levels for

these securities provide PTC with greater protection should PTC need to

borrow against or liquidate these assets.\4\

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\4\The margin levels for Project, Construction, and Mobile Home

GNMA securities were approved in 1991 by PTC's Risk Management

Committee and by PTC's Board of Directors.

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As stated above, the Commission approved the enhanced margin levels

for Project, Construction, and Mobile Home GNMA securities on a

temporary basis in October, 1991.\5\ In conjunction with the original

filing, PTC submitted historical data on price volatility of these GNMA

securities.\6\ This data had indicated that the price movements of GNMA

Project, Construction, and Mobile Home securities tracked those of GNMA

single-family securities. These price movement comparisons were based

on prices on GNMA Construction Loan, Project Loan, and single-family

securities, over the period from December 1989 to December 1990, and

prices on GNMA Mobile Home and single-family securities over the period

from March 1990 to February 1991.\7\

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\5\Securities Exchange Act Release No. 29793, supra note 3.

\6\Letter from Alison N. Hoffman, Assistant Counsel, PTC, to

Scott Wallner, Staff Attorney, Division of Market Regulation,

Commission, dated August 1, 1991.

\7\Id.

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In conjunction with the present filing, PTC has submitted tables

relating daily, weekly, and monthly prices and price movements of GNMA

Construction Loan, Project Loan, Project Note, and Mobile Home

securities for the period October 1, 1991 to June 30, 1993, as compared

to the prices and price movements of GNMA single-family securities over

the same period.\8\ This data supports the conclusion that the price

volatility of these GNMA securities continues to be similar to the

price volatility of GNMA single-family securities, as the price

movements of the GNMA Project, Construction, and Mobile Home securities

closely track the price movements of the GNMA single family securities

over this period. Because the historical data collected since the

Commission granted PTC temporary approval of the enhanced margin levels

supports those margin levels, PTC asks for permanent approval of these

margin levels.

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\8\File No. SR-PTC-93-04, Appendix A.

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The proposed rule change promotes the prompt and accurate clearance

and settlement of securities transactions and assures the safeguarding

of securities and funds in PTC's custody or control by limiting the

risk caused by fluctuations in the market value of securities when used

to collateralize intraday processing of securities transactions. It is

therefore consistent with section 17A of the Act and the rules and

regulations thereunder applicable to PTC.

B. Self-Regulatory Organization's Statement on Burden on Competition

PTC does not believe that the proposed rule change will have an

impact on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received from Members, Participants or Others

PTC has not solicited, and does not intend to solicit, comments on

this proposed rule change. PTC has not received any unsolicited

comments from participants or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

Within 35 days of the date of publication of this notice in the

Federal Register or within such longer period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) By order approve such proposed rule change, or

(B) Institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

Copies of the submission, all subsequent amendments, all written

statements with respect to the proposed rule change that are filed with

the Commission, and all written communications relating to the proposed

rule change between the Commission and any person, other than those

that may be withheld from the public in accordance with the provisions

of 5 U.S.C. 552, will be available for inspection and copying in the

Commission's Public Reference Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such filing will also be available for

inspection and copying at the principal office of PTC. All submissions

should refer to File Number SR-PTC-93-04 and should be submitted by

February 21, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-2012 Filed 1-28-94; 8:45 am]

BILLING CODE 8010-01-M