99-27600. Self-Regulatory Organizations; The Depository Trust Company; Order Approving a Proposed Rule Change Relating to Liability With Respect to Affiliated Entities

[Federal Register Volume 64, Number 204 (Friday, October 22, 1999)]
[Notices]
[Page 57168]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27600]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42013; File No. SR-DTC-99-11]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Relating to Liability With 
Respect to Affiliated Entities

October 15, 1999.
    On May 12, 1999, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change (File No. SR-DTC-99-11) 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 August 3, 1999.\2\ On August 
9. 1999, DTC amended the proposed rule change.\3\ No comment letters 
were received. For the reasons discussed below, the Commission is 
approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 41663 (July 27, 1999), 
64 FR 42157.
    \3\ The amendment represented technical amendments to the 
proposed rule change and as such did not require republication of 
notice.
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I. Description

    The Boards of Directors of DTC and the National Securities Clearing 
Corporation (``NSCC'') have initiated a plan to integrate DTC and NSCC. 
As a step in the integration plan, a holding company has been 
established which will own DTC and NSCC as operating subsidiaries.\4\ 
DTC has informed the Commission that a consideration in the DTC/NSCC 
integration plan is to insulate DTC and NSCC from the risks and 
obligations of the other.
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    \4\ For a description of the holding company structure, refer to 
Securities Exchange Act Release No. 41786 (August 24, 1999), 64 FR 
47882 [File No. SR-DTC-99-17].
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    The rule change adds a new section 7 to DTC Rule 2 to provide that 
notwithstanding any affiliation between DTC and any other entity, 
including any clearing agency, except as otherwise expressly provided 
by written agreement: (1) DTC shall not be liable for any obligations 
of such other entity; (2) the participants fund or other assets of DTC 
shall not be available to such other entity; (3) such other entity 
shall not be liable for any obligations of DTC; and (4) any assets of 
such other entity shall not be available to DTC. The Commission has 
approved similar revisions to NSCC's rules.\5\
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    \5\ Securities Exchange Act Release No. 42014 (October 15, 
1999), [File No. SR-NSCC-99-07]
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    As a separate matter, DTC's rules currently provide that if it were 
to cease providing some or all of its services, DTC's participants fund 
would be available to cover any DTC wind down costs not otherwise 
defrayed by service fees or other available resources. The rule change 
amends Section 1 of DTC Rule 4 to make it clear that the required funds 
deposits of participants would be increased if necessary to cover such 
costs.

II. Discussion

    Section 17A(b)(3)(F) of the Act\6\ requires that the rules of a 
clearing agency assure the safeguarding of securities and funds which 
are in the custody of control of the clearing agency or for which it is 
responsible. The Commission believes that the proposed rule change is 
consistent with DTC's obligations under Section 17A(b)(3)(F) because it 
should ensure that DTC's assets, including it participants fund, are 
not diminished as a result of its affiliation with NSCC. In addition, 
the proposed rule change should ensure that DTC would have available to 
it funds sufficient to cover its costs if it were to voluntarily cease 
operations. This should help to ensure that any voluntary liquidation 
of DTC would be carried out in an orderly manner.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that DTC's 
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-99-11) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 99-27600 Filed 10-21-99; 8:45 am]
BILLING CODE 8010-01-M