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Self-Regulations Organizations; The Depository Trust Company; Order Approving a Proposed Rule Change Relating to Revisions to the Procedures for Running Call Lotteries for Book Entry Only Securities

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Start Preamble March 28, 2000.

On September 23, 1999, the Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-DTC-99-22) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).[1] Notice of the proposal was published in the Federal Register on December 28, 1999.[2] No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

I. Description

Currently, DTC's call lottery process allocates called book-entry only (“BEO”) securities among participants having positions in the called securities as of the close of business on the day DTC announces the call lottery (“DTC call announcement date”). DTC adopted these procedures in March 1998 with the approval of the Commission and the endorsement of the Corporate Actions Division of the Securities Industry Association (“Corporate Actions Division”). [3] Prior to March 1998, DTC ran its lotteries based on participants' positions as of the close of business on the day prior to the publication date (“call publication date”). [4]

At times, DTC receives notice of a call of BEO securities after the redemption date. Under DTC's current BEO call lottery procedures, the DTC call announcement date in such a situation will necessarily be after the date as of which the called securities are deemed to have been redeemed by the issuer. Use of the DTC call announcement date in these instances can have an adverse impact on participants and their customers who have acquired a security position during the period between the redemption date and the DTC call announcement date because they have acquired the called security without notice that the security has been redeemed. Therefore, for call notices received after the redemption date, DTC is amending its BEO securities call lottery procedures so that the allocation lotteries will be run using participants' positions as of the close of business on the day prior to the call publication date. Use of the call publication date to determine lottery allocations for calls of BEO securities where DTC receives notice of the call after the redemption date is consistent with DTC's procedures for lotteries in certificated issues. Allocation lotteries for other calls of BEO securities, where notice is received on or before the redemption date, will continue to be run using participant's positions as of the DTC call announcement date.

II. Discussion

Section 17A(b)(3)(F) [5] 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. The Commission believes that DTC's rule change is consistent with DTC's obligations under the Act because the new procedures will mitigate the negative impact of calls of BEO securities that are processed through DTC's lottery process where DTC receives the notification of the call after the redemption date.

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III. Conclusion

On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act and the rules and regulations thereunder.

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-DTC-99-22) be, and hereby is, approved.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority. [6]

Margaret H. McFarland,

Deputy Secretary.

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2.  Securities Exchange Act Release No. 42257 (Dec. 20, 1999), 64 FR 72709 (Dec. 28, 1999).

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3.  See Securities Exchange Act Release No. 39658 (Feb. 12, 1998), 63 FR 8726 (Feb. 20, 1998) [File No. SR-DTC-97-14].

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4.  For a history of DTC's call lottery process, refer to Securities Exchange Act Release Nos. 21523 (Nov. 27, 1984), 49 FR 47352 [File No. SR-DTC-84-09] (notice of filing and immediate effectiveness of proposed rule change); 30552 (Apr. 2, 1992) 57 FR 12352 [File No. SR-DTC-90-02] (order temporarily approving a proposed rule change by DTC relating to the establishment of a procedure to recall certain deliveries which have created short positions as a result of call lotteries); 35034 (Nov. 30, 1994) 59 FR 63396 [File Nos. SR-DTC-94-08 and SR-DTC-94-09] (order granting temporary approval of proposed rule changes to establish procedures to recall certain deliveries which have created short positions as a result of call lotteries and rejected deposits); 36651 (Dec. 28, 1995) 61 FR 429 [File No. SR-DTC-21] (order granting accelerated permanent approval of a proposed rule change concerning short position reclamation procedures); and 39658 (Feb. 20, 1998) 63 FR 8726 [File No. SR-DTC-97-14] (order approving proposed rule change regarding call lottery procedures for BEO securities).

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[FR Doc. 00-8648 Filed 4-6-00; 8:45 am]