[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55623-55624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27131]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36425; File No. SR-DTC-94-16]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of Amendment to a Proposed Rule Change Clarifying the
Depository Trust Company's Policy on Depository-to-Depository Services
and Fees
October 26, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on 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. Notice of the proposal was
published in the Federal Register on January 9, 1995.\2\ One comment
letter was received.\3\ On October 11, 1995, DTC filed an amendment to
clarify the filing.\4\ Because the amendment changes the substance of
the filing, the Commission is publishing this notice to solicit
comments on the amended proposed rule change from interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\Securities Exchange Act Release No. 35186 (December 30,
1994), 60 FR 2418.
\3\Letter from J. Craig Long, Foley and Lardner [on behalf of
the Midwest Securities Trust Company], to Jonathan G. Katz,
Secretary, Commission (February 3, 1995).
\4\Letter from Richard B. Nesson, Executive Vice President and
General Counsel, DTC, to Jerry W. Carpenter, Esq., Assistant
Director, Division of Market Regulation, Commission (October 11,
1995).
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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:
With respect to any other securities depository that is
registered as a clearing agency under Section 17A of the Securities
Exchange Act of 1934 (a ``depository''), neither DTC nor the other
depository shall be obligated to pay each other the fees charged to
participants by virtue of having executed participant agreements
with one another. DTC shall provide services to the other
depository, charges fees for those services, and pay for the
services provided to DTC, all in accordance with the terms of a
separate agreement, if any, between DTC and the other depository
respecting such matters.
In the absence of any such separate agreement, however:
1. DTC shall make available to any other 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.
2. DTC (i) shall not charge for the book-entry delivery services
provided to the other depository nor pay for the book-entry delivery
services provided by the other depository, (ii) shall charge DTC
participant fees for services relating to the physical handling of
certificates rendered by DTC to such depository and pay the other
depository its participant fees for services relating to the
physical handling of certificates rendered to DTC and (iii) shall
charge the other depository and pay the other depository for
``linked services'' provided, if any.\5\ [Footnote original]
\5\The Commission has described linked services as arrangements
where one depository (``servicing depository'') performs for another
depository (``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.
Securities Exchange Act Release No. 23083 (March 31, 1986), 51 FR
12421.
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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 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.\6\
\6\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
The purpose of the proposed rule change is to state DTC's policy
with respect to 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-
1970's 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 (``Philadep'') covering
custody-related services. DTC and Philadep charge each other their
published fees for these services.
DTC states that the Commission has been aware of and has commented
in its
[[Page 55624]]
releases on the practice followed by DTC 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 the 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.\7\
\7\Securities Exchange Act Release No. 20461 (December 7, 1983)
at footnote 34.
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DTC believes the proposed rule change is consistent with Section
17A(b)(3)\8\ 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.\9\ 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.
\8\15 U.S.C. 78q-1(b)(3) (1988).
\9\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 promote competition
among depository users.
(C) Self-Regulatory Organization's Statement on Comments on the
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, N.W., Washington, D.C. 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 Section, 450 Fifth Street, N.W.,
Washington, D.C. 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 November 22, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
\10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27131 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M
