Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of a Proposed Rule Change To Implement Phase II of the IMS Service, 1927 [E5-47]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 7 (Tuesday, January 11, 2005)]
[Notices]
[Page 1927]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-47]



[[Page 1927]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50944; File No. SR-DTC-2004-10]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change To Implement Phase II 
of the IMS Service

December 29, 2004.

I. Introduction

    On September 10, 2004, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change File No. SR-DTC-2004-10 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposed 
rule change was published in the Federal Register on November 29, 
2004.\2\ No comment letters were received. For the reasons discussed 
below, the Commission is now granting approval of the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 50690 (November 18, 
2004), 69 FR 69433.
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II. Description

    DTC is seeking to implement Phase II of its Inventory Management 
System (``IMS'').\3\ Currently, IMS allows DTC participants to:
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    \3\ The Commission approved a proposed rule change implementing 
Phase I of the IMS. Securities Exchange Act Release No. 48176 (July 
14, 2003), 68 FR 43244 [File No. SR-DTC-2002-19]
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    (1) Stage their institutional deliveries received from a matching 
utility system (such as Omgeo's TradeSuite system) for automated 
settlement;
    (2) Establish a predefined profile to allow greater control over 
the timing and order of their deliveries by transaction type and asset 
class;
    (3) Reintroduce drop deliveries for night deliver orders 
(``NDOs''), broker-to-broker balance orders, and all other participant 
deliveries; and
    (4) Warehouse deliveries with future settlement dates through the 
NDO function.
    Today, deliveries from the National Securities Clearing 
Corporation's (``NSCC'') Continuous Net Settlement (``CNS'') system are 
automatically processed unless a participant otherwise instructs NSCC 
through an exemption. Other deliveries such as NDOs, along with 
authorized institutional and CNS deliveries, are processed by DTC at 
predefined times. All of these transactions may recycle (i.e., pend) in 
the event of a position deficiency or a problem with system controls. 
These recycles are processed based on one of two recycle options: a 
``first in first out'' process or a DTC preestablished recycle queue.
    DTC is now seeking to implement Phase II to allow participants to 
customize the order in which their authorized night cycle deliveries, 
such as CNS and institutional deliveries, are submitted for processing 
and to provide participants with the ability to create profiles that 
instruct DTC's processing system how to attempt to complete their 
recycling deliveries that are recycling for insufficient position.
    DTC currently recycles deliveries for insufficient position in a 
prescribed order based on transaction type and settlement value. To 
address their unique delivery requirements for recycling deliveries, 
some participants withhold their deliveries to DTC. For other 
participants, deliveries may not complete in their desired order.
    IMS Phase II permits a participant to prepopulate a profile that 
``customizes'' its position recycle order for settlement related 
transactions. Transactions will be processed in the prescribed order if 
there are sufficient shares. If there are insufficient shares to 
complete a high priority transaction, then transactions with a lower 
priority but with sufficient shares will be processed subject to other 
controls. This service will be optional, and the current recycle order 
will remain in effect unless profile changes are made.\4\
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    \4\ For example, unless a participant customizes its position 
recycle order, CNS will continue to have the highest priority, 
followed by value releases, etc.
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    Participants will be able to promote their recycling transactions 
through 15022 messages or a new PBS screen in IMS if they have update 
capability. Participants will be able to promote transactions to the 
top of the recycle queue. Once a transaction is promoted, a participant 
will be able to promote another transaction higher or lower than the 
previously promoted transaction.
    In order to recoup the costs of this development, participants will 
be billed $.045 for each delivery that is promoted. Participants will 
be charged $0.06 for each delivery that is ``customized'' by these 
profiles, including deliveries that are submitted using the current 
active to passive functionality. If a delivery is submitted and 
recycles based upon profile selection, the participant will not be 
double charged for the delivery.\5\
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    \5\ It will cost $0.06 to have a delivery submitted and recycled 
by IMS based upon the profile created.
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    Participants will not be required to make systemic changes and will 
be able to continue processing their deliveries as they do today. All 
IMS features will be optional, and participants will be able to migrate 
to any or all features they deem valuable.
    The new enhancements to the IMS service will extend and will 
improve participants' ability to control their deliveries and will 
permit users to determine how their deliveries should recycle in the 
system based on participant-defined profiles.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires among other things that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\6\ The 
Commission finds that DTC's proposed rule change is consistent with 
this requirement because the Phase II enhancements to the IMS service 
will extend a participant's ability to control its deliveries and will 
permit participants to determine how their deliveries recycle. This 
should increase efficiency in processing member transactions.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-DTC-2004-10) be and 
hereby is approved.
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    \7\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-47 Filed 1-10-05; 8:45 am]
BILLING CODE 8010-01-P