Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of a Proposed Rule Change Relating to Processing Securities With Indexed Principal Features Through the Receiver Authorized Delivery Facility

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36437; File No. SR-DTC-95-15]

Self-Regulatory Organizations; The Depository Trust Company;

Notice of Filing of a Proposed Rule Change Relating to Processing

Securities With Indexed Principal Features Through the Receiver

Authorized Delivery Facility

October 30, 1995.

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

(``Act''),\1\ notice is hereby given that on August 23, 1995, The

Depository Trust Company (``DTC'') filed with the Securities and

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

SR-DTC-95-15) as described in Items I, II, and III below, which items

have been prepared primarily by DTC. The Commission is publishing this

notice to solicit comments on the proposed rule change from interested

persons.

\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

DTC is filing the proposed rule change to require transactions in

securities issued under a Money Market Instrument (``MMI'') program

having an indexed principal \2\ feature and settling in DTC's Same Day

Funds Settlement (``SDFS'') system to be directed to DTC's Receiver

Authorized Delivery facility (``RAD'').\3\ RAD requires the receiver to

authorize the transaction prior to it being processed by DTC.

\2\ An ``indexed principal'' is principal directly derived by

reference to a currency, composite currency, commodity, or other

financial index.

\3\ For a description of DTC's RAD facility, refer to Securities

Exchange Act Release Nos. 25886 (July 8, 1988), 53 FR 26698 [File

No. SR-DTC-88-07] (notice of filing and immediate effectiveness of

the RAD facility) and 35720 (May 16, 1995), 60 FR 27360 [File No.

SR-DTC-95-07] (order granting accelerated approval of a $15 million

per transaction minimum threshold to utilize the RAD facility for

approval or cancellation of deliveries).

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

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, DTC 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. DTC has prepared summaries, set forth in sections (A),

(B), and (C) below, of the most significant aspects of such

statements.\4\

\4\ The Commission has modified the text of the summaries

prepared by DTC.

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(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 ensure that DTC

participants receiving a valued delivery of MMI securities with an

indexed principal feature will receive complete and accurate

information about whether or not such securities have an indexed

principal feature. The value of MMI securities with an indexed

principal feature may change dramatically in a short period of time;

therefore, DTC's participants have asked DTC to develop controls to

ensure that participants have accurate information about this feature

before accepting delivery of such a security. DTC has responded to

these concerns by developing procedural changes that will reduce the

likelihood that a DTC participant will purchase this type of security

without full knowledge of its indexed principal feature.

Under the proposal, DTC will require mandatory authorization from

receivers of securities having an indexed principal feature before DTC

will process the transaction. DTC participants will transmit such

authorization via DTC's RAD facility.\5\ In addition, DTC will revise

its twenty and forty-eight character CUSIP descriptions to include a

unique identifier that will indicate that an issue has an indexed

principal feature.

\5\ The transactions will be directed to DTC's existing RAD

facility; however, they will be subject to a separate approval and

reporting process.

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DTC believes the proposed rule change is consistent with the

requirements of Section 17A of the Act \6\ and the rules and

regulations thereunder because it promotes the prompt and accurate

clearance and settlement of transactions in securities that settle in

same-day funds. The proposed rule change will be implemented in a

manner designed to safeguard the securities and funds in DTC's custody

or under its control.

\6\ 15 U.S.C. 78q-1 (1988).

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(B) Self-Regulatory Organization's Statement on Burden on Competition

DTC does not believe that the proposed rule change will impose any

burden on competition not necessary or appropriate in furtherance of

the purposes of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received From Members, Participants, or Others

In June 1995, DTC released a memorandum to its participants about

DTC's efforts to provide more complete information regarding the

indexed principal feature of MMI securities. Written comments from DTC

participants or others have not been solicited on the proposed change;

however, State Street Bank and Trust Company (``State Street'')

submitted a comment letter to DTC expressing two concerns regarding the

proposed rule change. First, State Street wrote that it currently uses

DTC's Main Frame Dual Host System (``MDH'') for daily settlement

purposes rather than DTC's Participant Terminal System (``PTS''). State

Street explained that because the new RAD authorization function only

is available on PTS and not MDH, it would be forced to process the new

RAD authorizations manually. DTC responded to State Street's concern by

agreeing to enable them to process the new RAD authorizations through

MDH.

Secondly, State Street commented that DTC should be able to provide

accurate and complete issuance information without the need for an

additional RAD control. DTC responded in its letter to State Street

that DTC participants and the Public Securities Association (``PSA'')

asked DTC to develop a method of identifying securities with an indexed

principal feature and a procedure to affirmatively notify participants

when they take delivery of securities having such a feature. DTC

participants and the PSA requested the development of these procedures

to ensure that DTC participants know before taking delivery that a

particular security has an indexed principal feature. DTC believes that

the proposed rule change effectively addresses these requests.

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 DTC consents, the Commission will:

(a) By order approve such proposed rule change or

[[Page 56082]]

(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, D.C. 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 Room, 450 Fifth Street, NW., Washington,

D.C. 20549. Copies of such filing will also be available for inspection

and copying at the principal office of DTC. All submissions should

refer to the file number SR-DTC-95-15 and should be submitted by

November 27, 1995.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\7\

\7\ 17 CFR 200.30-3(a) (12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-27427 Filed 11-3-95; 8:45 am]

BILLING CODE 8010-01-M