# Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to the Modification of DTC's Reclamation Procedures

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URL: https://www.frixlaw.com/law-library/documents/fr%3A95-28397

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** November 17, 1995
- **Citation:** 60 FR 57728

## Text

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36476; File No. SR-DTC-95-16]

Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of a Proposed
Rule Change Relating to the Modification of DTC's Reclamation
Procedures

November 9, 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

[[Page 57729]]
change (File No. SR-DTC-95-16) as described in Items I and II below,
which items have been prepared primarily by DTC. The Commission is
publishing this notice and order to solicit comments on the proposed
rule change from interested persons and to grant accelerated approval
of the proposed rule change.

\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 purpose of the proposed rule change is to modify DTC's
reclamation procedures as part of the conversion of DTC's money
settlement system to an entirely same-day funds settlement (``SDFS``)
system. The proposed rule change will affect reclamations that are
processed in both the SDFS system and the next-day funds settlement
(``NDFS'') system.\2\ The revisions include (1) extending the period
DTC will match reclaims with deliveries from the business day the
reclaim is submitted to the business day the reclaim is submitted and
the prior business day and (2) processing unmatched reclaims instead of
rejecting them.

\2\ The changes described in this notice and order apply to both
NDFS and SDFS reclaims unless specified as otherwise.
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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 that 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.\3\

\3\ The Commission has modified the text of the summaries
submitted by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

DTC planned to implement modifications to its reclamation
procedures in the second quarter of 1995, but the implementation was
postponed until the third quarter of 1995 at the request of
participants.\4\ Some participants were concerned that the modified
reclamation procedures would be implemented at a time when the number
of reclamations might increase as a result of the implementation of the
shortened settlement time frame required under Commission Rule 15c6-1,
which became effective on June 7, 1995.\5\

\4\ A reclaim is the return of a delivery order or a payment
order by a participant.
\5\ Securities Exchange Act Release Nos. 33023 (October 6,
1993), 58 FR 52891 (adoption of Rule 15c6-1) and 34952 (November 9,
1994) 59 FR 59137 (changing the effective date of Rule 15c6-1).
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Furthermore, after additional discussions with participants, The
Cashiers Association of Wall Street, the Securities Lending Division of
the Securities Industry Association, and the New York Clearing House
Association, DTC revised the planned modifications to the reclamation
procedures as discussed below. The revisions include (1) extending the
period for matching reclaims with deliveries from the business day the
reclaim is submitted to the business day the reclaim is submitted and
the prior business day and (2) process unmatched reclaims instead of
rejecting them.
The reclaim matching period is the period in which DTC's system
will search for the original securities delivery or payment order being
reclaimed in order to determine whether the reclaim should be processed
as a matched reclaim or as an unmatched reclaim. The original version
of the revised reclaim procedures provided for a reclaim matching
period of sixty business days in certain cases. DTC later concluded
that almost all reclaims are likely to be matched using two business
days, and any complications presented by a longer period for matching
reclaims are unnecessary. Therefore, under the porposed rule change DTC
will attempt to match reclaims to transactions processed either on the
same day the reclamation is entered or on the prior business day. All
reclaims with a corresponding orginal transaction that completed on the
current or the preceding business day will be processed as ``matched
reclaims.''
Matched SDFS reclaims will not be subject to Receiver-Authorized
Delivery (``RAD'') processing, which means that the receiver of a
matched SDFS reclaim will not have the opportunity to review and
approve the reclaim before it is processed. All matched SDFS reclaims
with a settlement value less than $15 million will not be subject to
participants' risk management controls (i.e., collateral monitor and
net debit caps). Matched SDFS reclaims with a settlement value of $15
million or more will be subject to normal risk management controls.
The receiver of a matched reclaim will not be able to enter a
reclaim reversal through DTC's automated reclamation facility. If a
matched reclaim needs to be reversed, it must be entered through the
free form mode and it will be treated as an unmatched reclaim.\6\

\6\ A reclaim submitted in a free form mode refers to a reversal
submitted as a deliver order or a payment order through either
Mainframe Dual Host, Computer-to-Computer Facility, or Participant
Terminal System and identified as a reclaim by its reason code,
which returns the securities or payment order to the original
delivering party.
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Under the proposed rule change, DTC will process unmatched reclaims
subject to certain controls instead of rejecting them. Unmatched
reclaims are those that cannot be matched to a completed original
transaction. Unmatched reclaims also include partial reclaims, reclaims
received by DTC during the night cycle, and reclaims of transactions
that were processed more than one business day prior to the day on
which the reclaim is submitted. All unmatched SDFS reclaims will be
subject to RAD processing, which means the receiver of an unmatched
reclaim will have an opportunity to review and approve the reclaim
before it is processed. Unmatched SDFS reclaims also will be subject to
participants' collateral and risk management controls regardless of the
settlement value.
DTC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because the rule proposal will facilitate the processing of
reclaims of securities deliveries and payment orders which were made
through DTC's facilities. DTC believes the proposed rule change will be
implemented consistently with the safeguarding of securities and funds
in DTC's custody and control or for which it is responsible because the
proposed rule change modifies DTC's existing reclamation procedures.

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

DTC perceives no adverse impact on competition by reason of the
proposed rule change.

(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others

DTC informed participants of the proposed revisions to the
reclamation procedures by a DTC Important Notice dated June 22, 1995.
No written comments have been received.

[[Page 57730]]

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

Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions and to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible.\7\ The
Commission believes that DTC's reclamation procedures are consistent
with DTC's obligations under section 17A(b)(3)(F) to promote the prompt
and accurate clearance and settlement of securities transactions
because the proposed procedures extend the period in which reclaims are
matched and processed from one business day to two business days, which
should reduce the number of unmatched or rejected reclaims. DTC
believes that almost all reclaims will be processed within the two
business day period. In addition, under the proposal DTC will process
unmatched reclaims subject to certain risk management controls rather
than rejecting them thus further reducing the number of rejected
reclaims.

\7\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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The Commission also believes the proposal is consistent with DTC's
obligation to safeguard securities and funds in its custody or control
or for which it is responsible because the processing of matched
reclaims with settlement values exceeding $15 million will be subject
to DTC's risk management controls and unmatched reclaims will be
subject to DTC's risk management controls and RAD processing. Matched
reclaims with settlement values exceeding $15 million and all unmatched
reclaims that violate receiving or delivering participants' net debit
caps or collateral monitors will not be completed and will await
processing until sufficient collateral or credits are applied to the
participants' accounts. Unmatched reclaims also will be subject to RAD
processing. Therefore, receiving participants will have the opportunity
to review and approve unmatched reclaims of $15 million or more before
they are processed.
DTC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing. The Commission finds good cause
for so approving the proposed rule change because accelerated approval
will allow DTC participants to benefit from the expanded reclamation
matching period and the processing of unmatched reclaims subject to
certain controls immediately upon implementation of the necessary
system changes. The Commission also believes that accelerated approval
will provide DTC participants with ample time to become familiar with
the new reclamation procedures prior to final implementation of SDFS on
February 22, 1996.

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 DTC. All submissions
should refer to the File Number SR-DTC-95-16 and should be submitted by
December 8, 1995.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-95-16) be, and hereby
is, approved.

For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\

\8\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28397 Filed 11-16-95; 8:45 am]
BILLING CODE 8010-01-M

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-28397. Public record. Not legal advice.