[Federal Register Volume 71, Number 191 (Tuesday, October 3, 2006)]
[Notices]
[Pages 58457-58458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-16251]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54521; File No. SR-DTC-2006-11]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Proposed Rule Change To Allow the Inventory
Management System To Accept Real-Time and Late Affirmed Trades From
Omgeo
September 27, 2006.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 11, 2006, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') and on September 20, 2006, amended
the proposed rule change 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 parties.
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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
DTC is seeking to expand its Inventory Management System (``IMS'')
to accept in real-time non-Continuous Net Settlement (``non-CNS'')
institutional trades from Omgeo LLC (``Omgeo'') and to accept late
affirmed trades into IMS for automated settlement at DTC.
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 these
statements.\2\
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\2\ 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
1. Current Process for IMS
Omgeo's TradeSuite system currently feeds DTC a batch file of
approximately 320,000 eligible affirmed institutional trades at
approximately 1 p.m. on T+2. Delivering DTC participants then authorize
or exempt these trades in IMS for automated settlement to be attempted
at DTC. Any trades affirmed after 12 p.m. on T+2 are ineligible for
automated settlement at DTC via the TradeSuite interface. These late
affirmed trades are typically settled by the broker-dealer or custodian
by processing a DTC Delivery Order (``DO''). These DOs experience a
higher reclaim rate than deliveries of eligible affirmed trades.
2. Proposed Changes
DTC is proposing to enhance its interface with Omgeo to accept
eligible affirmed non-CNS trades from Omgeo's TradeSuite system in
real-time. Although DTC would receive affirmed trades from Omgeo's
TradeSuite system in real-time as they are affirmed, participants would
still have the ability to process authorizations and exemptions as they
do today. Participants would be able to authorize trades as they are
received into IMS through the existing options (i.e., globally or on a
trade-for-trade basis). Omgeo would continue to produce the Cumulative
Eligible Trade report/file at approximately 1 p.m. on T+2. This batch
report/file notifies participants of affirmed MITS trades sent to IMS
for the following settlement date. However, IMS would continue the
current practice of applying a participant's authorization profile
(delivery order) for Matched Institutional Trades (``MITS'') after the
midday cut-off on T+2 (at approximately 1 p.m.).
In addition, some new functionality is also being introduced
through the enhanced Omgeo and DTC interface. Omgeo would send ``late
affirmed'' \3\ trades to IMS. Late affirmed trades would be stored and
identified in IMS as a new transaction type, Late Matched Institutional
Trades (``LMIT''). These trades are currently ineligible for automated
settlement at DTC. This functionality will allow participants to
eliminate settling these transactions as DOs at DTC, which experience a
higher reclaim rate than affirmed eligible
[[Page 58458]]
trades, and will provide for the automated settlement of these
transactions.
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\3\ Late affirmed trades are defined as trades affirmed after
the 12:00 p.m. cutoff on T+2 until 12:00 p.m. on settlement date.
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For the new LMITs, IMS would default to the ``active''
authorization mode (i.e., deliveries would not be processed unless they
are authorized). Unauthorized ``late affirmed'' trades would remain in
IMS until settlement date + 21 days (the current IMS trade retention
time frame). For authorized LMIT items, IMS would apply a participant's
authorization profile as the items are received from Omgeo. LMITs would
bypass DTC's Receiver Authorized Delivery (``RAD'') processing as do
all Omgeo deliveries.
Omgeo would notify both IMS and DTC participants directly using a
status message of any Change of Eligibility (``COE'').\4\ COE (i.e.,
DTC-eligible to DTC-ineligible) messages would be passed to IMS by
TradeSuite up until midnight of T+1. IMS would process COE related
messages on a real-time basis for both authorized and yet to be
authorized trades. IMS would ``reauthorize'' a previously authorized
DTC-eligible trade in the event the trade becomes DTC-eligible, again.
In addition, an appropriate audit trail would be provided by IMS for
participants. Ineligible MITS transactions in IMS would be cancelled at
end of day on settlement date.
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\4\ COE related messages can be sent for the following reasons:
(1) When a DTC eligible trade changes to CNS eligible, the trade is
re-sent to IMS by Omgeo with an indicator that it is now ineligible
(IMS status becomes ineligible). Omgeo will then send the trade to
NSCC for settlement via CNS. A trade can become CNS eligible after
being DTC eligible, if the security, ID Agent (a prime broker),
Clearing Agent, and Clearing Broker all are CNS eligible.
(2) When a DTC eligible trade subsequently becomes ineligible
for settling at DTC, the trade is re-sent to IMS by Omgeo with an
indicator that it is now Ineligible (IMS status updated to
ineligible). A Trade may become ineligible for DTC settlement
processing if prior to settlement date, the participant, security,
or ID Agent become ineligible for DTC processing.
(3) If a previously sent DTC eligible trade changed to
ineligible becomes eligible for settling at DTC, again, the trade is
re-sent to IMS by Omgeo with an indicator that it is now eligible
(IMS status is updated to eligible from ineligible).
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DTC would charge the following delivery fees for LMITs:
$0.17 (current Night Delivery Order fee) if authorized by
the participant before the night cycle.
$0.45 (current day DO fee) if authorized by the
participant after the night cycle.
$0.006 per delivery (current IMS delivery fee) for every
trade that is processed through the IMS authorization profile.
Participants that currently submit machine-readable authorization/
exemption instructions could choose to continue to process their Omgeo
deliveries as they do today. The proposed change is scheduled to be
implemented in November 2006.
DTC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \5\ and the rules and
regulations thereunder applicable to DTC because it should promote the
prompt and accurate clearance and settlement of securities transactions
by allowing IMS to enhance its interface with Omgeo to accept eligible
affirmed trades from Omgeo's TradeSuite system in real-time and to
accept late affirmed trades into IMS for automated settlement at DTC.
In addition, the proposed rule change should provide for the equitable
allocation of reasonable dues, fees, and other charges among DTC's
members.
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\5\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC does not believe that the proposed rule change will have any
impact or impose any burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
DTC has not solicited or received any written comments on this
proposal. DTC will notify the Commission of any written comments it
receives.
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, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
Send an e-mail to [email protected]. Please include
File Number SR-DTC-2006-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-DTC-2006-11. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of DTC and on DTC's
Web site at https://login.dtcc.com/dtcorg/. All comments received will
be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-DTC-2006-11 and should be submitted on
or before October 24, 2006.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-16251 Filed 10-2-06; 8:45 am]
BILLING CODE 8010-01-P