Self-Regulatory Organizations; Participants Trust Company; Notice of Filing of Proposed Rule Change Establishing Early Principal and Interest Distribution on Government National Mortgage Association II Securities

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34846; File No. SR-PTC-94-05]

Self-Regulatory Organizations; Participants Trust Company; Notice

of Filing of Proposed Rule Change Establishing Early Principal and

Interest Distribution on Government National Mortgage Association II

Securities

October 14, 1994.

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

(``Act''),\1\ notice is hereby given that on October 11, 1994, the

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

Exchange Commission (``Commission'') the proposed rule change (File No.

SR-PTC-94-05) 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) (1988).

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

of the Proposed Rule Change

The proposed rule change will establish early principal and

interest (``P&I'') distribution on Government National Mortgage

Association (``GNMA'') II securities.

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 the

Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to extend the program

for the early distribution of P&I to GNMA II P&I distributions. Under

the proposal, all of the P&I on GNMA II securities will be distributed

by PTC to its participants by Fedwire early in the day of distribution

rather than by credit to the participants' cash balances payable at end

of day settlement.\2\

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\2\PTC's present program for the early distribution of P&I

permits the distribution of up to 50% of P&I payable on GNMA I

securities by intraday Fedwire transfer of funds on the distribution

date, the 15th day of the month, with the balance distributed by

credit to the participants' cash balances payable at end of day

settlement. PTC intends to continue the intraday distribution of

GNMA I P&I as currently constituted subject to its discretion to

suspend the program if it is deemed necessary or advisable at any

time in the future.

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Background

Before November 1993, PTC's rules and procedures provided that PTC

disburse P&I on securities deposited at PTC by means of a credit to the

participant's applicable account cash balance. This resulted in the

participant's receipt of available funds in the amount of the P&I net

of any account debits and/or credits at the end of the day as part of

the settlement process. In November 1993, PTC's rules were amended to

eliminate the requirement that P&I be disbursed by means of a credit to

a participant's cash balance and to permit PTC to make payment of P&I

either by intraday Fedwire transfer of immediately available funds or

by means of a credit to the applicable cash balance, as PTC deems

advisable from time to time.

At that time, the Commission required PTC to limit intraday

disbursement of P&I to the amount of collected and available P&I

payments without recourse to funds available to PTC from other sources

for P&I disbursement such as PTC's own funds, the cash portion of the

mandatory deposits to the participant's fund, and borrowed funds

secured by the P&I receipts.\3\ PTC then began a pilot program to

distribute up to 50% of the P&I payable with respect to GNMA I

securities subject to the requirement that the intraday distribution be

made from collected and available GNMA I P&I only.

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\3\Refer to Securities Exchange Act Release Nos. 33132 (November

9, 1993), 58 FR 59501 and 33586 (April 12, 1994), 59 FR 59501.

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PTC now seeks to expand its intraday P&I disbursement program to

permit intraday disbursement of all GNMA II P&I to participants who

elect to receive the intraday distribution subject to retaining

discretion to suspend the program if it is deemed necessary or

advisable in the future.

GNMA II P&I Proposal

Currently, Chemical Bank as central paying and transfer agent for

the GNMA II program credits PTC's account on Chemical Bank's books in

the amount of the GNMA II payment. PTC transfers the funds via Fedwire

transfer into PTC's account at the Federal Reserve Bank of New York on

the GNMA II distribution date.\4\ PTC credits the GNMA II P&I to its

participants' accounts at PTC on the day of receipt and disburses the

payment in same-day funds net of any intraday account debits and

credits as part of the end-of-day settlement. PTC does not use its

uncommitted line of credit to fund the GNMA II P&I disbursement.\5\

Under the proposal, PTC anticipates passing-through all GNMA II P&I

upon its receipt from Chemical Bank. This will result in the intraday

disbursement of all payable GNMA II P&I by Fedwire transfer at or

before approximately 12 noon to all participants who elect to receive

it intraday.

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\4\The GNMA II distribution date is generally the 20th day of

the month. If the 19th day of the month is not a business day but

the 20th day of the month is a business day, then the distribution

date is the first business day after the 20th day of the month. If

both the 19th and 20th days of the month are not business days, the

first business day thereafter is the distribution date.

\5\During the period from January 1994 through August 1994, the

amount of the GNMA II monthly P&I has averaged just under $1

billion. The largest monthly P&I amount was in April 1994 in the

amount of $1.2 billion, and the lowest monthly P&I amount was in

August 1994 in the amount of $800 million.

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PTC believes that because the proposed rule change facilitates the

prompt and accurate clearance and settlement of securities transactions

and provides for the safeguarding of securities and funds in PTC's

custody or control or for which it is responsible, it is 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 impose any

burden on competition.

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

Rule Change Received From Members, Participants, or Others

PTC has neither solicited nor received comments on the proposed

rule change.

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

Commission Action

Within thirty-five 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 ninety 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-94-05 and should be submitted by

November 14, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-26168 Filed 10-20-94; 8:45 am]

BILLING CODE 8010-01-M