95-381. Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of a Proposed Rule Change Clarifying the Depository Trust Company's Policy on Depository-to-Depository Services and Fees  

  • [Federal Register Volume 60, Number 5 (Monday, January 9, 1995)]
    [Notices]
    [Pages 2410-2412]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-381]
    
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-35186; File No. SR-DTC-94-16]
    
    
    Self-Regulatory Organizations; The Depository Trust Company; 
    Notice of Filing of a Proposed Rule Change Clarifying the Depository 
    Trust Company's Policy on Depository-to-Depository Services and Fees
    
    December 30, 1994.
        Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
    (``Act''),\1\ notice is hereby given that on [[Page 2411]] November 29, 
    1994, The Depository Trust Company (``DTC'') filed with the Securities 
    and Exchange Commission (``Commission'') the proposed rule change (File 
    No. SR-DTC-94-16) 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 proposes to clarify its policy regarding depository-to-
    depository services and fees by filing the following statement:
    
        DTC shall make available to any other securities depository that 
    is registered as a clearing agency under Section 17A of the 
    Securities Exchange Act of 1934 (a ``depository'') any service that 
    DTC makes available to its Participants generally, provided that 
    such depository makes its services available to DTC on the same 
    basis.
        DTC shall charge such depository for the services rendered by 
    DTC and shall pay such depository for services rendered to DTC only 
    such fees as DTC and the depository negotiate, but if DTC and such 
    depository do not have an agreement on fees, DTC shall (i) render 
    book-entry delivery services to such depository without charge if 
    and so long as such depository shall render book-entry delivery 
    services to DTC on the same basis and (ii) charge its published fees 
    for services relating to the physical handling of certificates 
    rendered by DTC to such depository and pay such depository its 
    published fees for custody-related services rendered by such 
    depository to DTC.\2\
    
        \2\This policy statement does not apply to ``linked services,'' 
    which the Commission has described as arrangements where one 
    depository (the ``servicing depository'') performs for another 
    depository (the ``using depository''( the core tasks necessary to 
    deliver the services to the using depository's participants. The 
    Commission has cited as examples of linked services DTC's processing 
    of ID confirmations and affirmations and DTC's fourth-party delivery 
    service. The Commission has expressed the view that a servicing 
    depository should be permitted to charge a using depository the same 
    fee it charges its participants for the same or a similar service. 
    See Securities Exchange Act Release No. 23083 (March 31, 1986) at 
    15-23.
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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.
    
    (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 state DTC's policy 
    respecting depository-to-depository services and fees. DTC states that 
    this policy statement reflects the practices that have been followed by 
    DTC and the other depositories since the beginning of interdepository 
    processing and is consistent with the Commission's expressed views 
    concerning these matters.
        From the very beginning of interdepository processing, in the mid-
    1970s and through the present, DTC and the other depositories have 
    charged and paid each other for services rendered only such fees that 
    have been negotiated. For example, in 1975, Pacific Securities 
    Depository Trust Company (``PSDTC'') declared that it would not pay or 
    levy charges on the other depositories. In September 1976, DTC was 
    informed of the unilateral determination by the Midwest Securities 
    Trust Company (``MSTC'') Board that as a matter of principle MSTC would 
    discontinue paying DTC for services other than for physical withdrawals 
    of certificates. In 1977, DTC, PSDTC, and MSTC formally agreed to 
    provide most services to each other without charge (``no charge 
    agreement'').
        At the present time, DTC has an informal agreement with the 
    Philadelphia Depository Trust Company covering custody-related 
    services. Each depository charges the other its published fees for 
    these services. In June 1992, DTC and MSTC entered into an agreement 
    that provided for depository-to-depository charges for certain 
    services. This agreement was terminated by DTC on June 1, 1994, 
    effective August 1, 1994, in accordance with the procedure set forth in 
    the agreement for termination by either party upon sixty days 
    notice.\3\ DTC has advised MSTC that if a new agreement is not reached 
    between DTC and MSTC, after November 30, 1994, DTC will continue to 
    provide services to MSTC but in the manner and on the terms described 
    in the policy statement,\4\ which is the subject of the proposed rule 
    change.
    
        \3\See letter from Richard B. Nesson, Executive Vice President 
    and General Counsel, DTC, to Jerry W. Carpenter, Assistant Director, 
    Division of Market Regulation, Commission (November 11, 1994).
        \4\Letter from William F. Jaenike, Chairman of the Board and 
    Chief Executive Officer, DTC, to Robert J. McGrail, Executive Vice 
    President and Chief Operating Officer, MSTC (November 17, 1994).
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        DTC states that the Commission has been aware of and has commented 
    in its releases on the practice followed by FTC and other depositories 
    of paying each other only such fees as are negotiated rather than all 
    fees charged to participants generally. DTC states that the Commission 
    in its releases has never expressed the view that one depository, by 
    virtue of executing a participant agreement with another depository in 
    order to establish the legal framework for an interface relationship, 
    thereby becomes subject to all of that other depository's published 
    participant fees. DTC states that the Commission has expressed that 
    belief that:
    
    
        [R]egistered securities depositories are not similar to ordinary 
    participants. Registered securities depositories are subject to 
    special regulation that no other participants face including a 
    specific statutory charge to cooperate with other registered 
    securities depositories. Thus, the Commission believes that a ``no-
    charge'' policy with respect to interface account activity does not 
    result in an inequitable allocation of fees.\5\
    
        \5\Securities Exchange Act Release No. 20461 (December 7, 1983) 
    at footnote 34.
    
        DTC believes that the proposed rule change is consistent with 
    Section 17A(b)(3)\6\ of the Act. DTC believes that implementation of 
    the subject policy will help assure that depository interface services 
    are available to participants of any depository thereby promoting the 
    goal of one-account settlement. DTC also states that the policy will 
    enable DTC to avoid paying another depository inappropriately high fees 
    that might effect its inefficient operation and to avoid paying another 
    depository higher per-unit fees than such depository charges its 
    participants generally.\7\ DTC believes that managing the fees paid to 
    other depositories, which currently account for approximately 60% of 
    DTC's total cost of providing interface services to its participants, 
    will help reduce the fees that DTC must charge its participants to 
    recover those costs.
    
        \6\15 U.S.C. 78q-1(b)(3) (1988).
        \7\DTC states that the Commission has indicated that where one 
    depository is entitled to charge another (e.g., for linked 
    services), it expects that any offer of volume discounts to 
    participants generally would also be made available to the other 
    depository. Securities Exchange Act Release No. 23803 (March 31, 
    1986) at page 21.
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    (B) Self-Regulatory Organization's Statement on Burden on Competition
    
        DTC believes that by promoting the goal of one-account settlement 
    and by enabling DTC to control the interface costs that are paid by its 
    participants, the proposed rule change would help [[Page 2412]] promote 
    competition among depository users.
    
    (C) Self-Regulatory Organization's Statement on Comments on that 
    Proposed Rule Change Received From Members, Participants, or Others
    
        DTC has not sought or received comments on the proposed rule 
    change.
    
    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
        (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, 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 Room, 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-94-16 and should be submitted by 
    January 30, 1995.
    
        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. 95-381 Filed 1-6-95; 8:45 am]
    BILLING CODE 8010-01-M
    
    

Document Information

Published:
01/09/1995
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
95-381
Pages:
2410-2412 (3 pages)
Docket Numbers:
Release No. 34-35186, File No. SR-DTC-94-16
PDF File:
95-381.pdf