[Federal Register Volume 61, Number 222 (Friday, November 15, 1996)]
[Notices]
[Pages 58600-58601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29349]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37931; File No. SR-DTC-96-15]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Accelerated Approval of a Proposed Rule Change Relating
to the Procedures to Establish a Direct Registration System
November 7, 1996.
On September 17, 1996, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') the
proposed rule change (File No. SR-DTC-96-15) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ On
October 11, 1996, DTC filed an amendment to the proposed rule
change.\2\ Notice of the proposal was published in the Federal Register
on October 9, 1996.\3\ Notice of the amendment to the proposed rule
change was published in the Federal Register on October 18, 1996.\4\ No
comment letters were received. For the reasons discussed below, the
Commission is granting approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ Letter from Larry Thompson, Senior Vice President and Deputy
General Counsel, DTC, to Jerry Carpenter, Assistant Director,
Division of Market Regulation, Commission (October 10, 1996).
\3\ Securities Exchange Act Release No. 37778 (October 3, 1996),
61 FR 52985.
\4\ Securities Exchange Act Release No. 37800 (October 9, 1996),
61 FR 54473.
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I. Description
The proposed rule change will establish procedures for the Direct
Registration System (``DRS''). DRS permits an investor to hold a
security as the registered owner of the security in electronic form on
the books of the issuer rather than (1) indirectly through a financial
intermediary that holds the security in street name or in an account
with a depository or (2) in the form of a certificate. An investor will
have the right at any time to transfer its DRS position from the issuer
to a financial intermediary through the facilities of DTC in order to
sell or pledge the security. Alternatively, an investor will have the
right at any time to request a certificate.\5\
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\5\ For a complete description of DRS, refer to Securities
Exchange Act Release No. 35038 (December 1, 1994), 59 FR 63652
(concept release on a transfer agent operated book-entry
registration system) and DTC Important Notice B# 1811-96 (October 7,
1996) and Important Notice B# 1841-96 (October 7, 1996), which are
attached as Exhibits A and B to Securities Exchange Act Release No.
37800 (October 9, 1996), 61 FR 54473, supra note 4.
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In addition, the proposed rule change permits DTC to establish a
new category of participant, a ``limited participant,'' which will be
authorized to use only certain services of the depository related to
DRS. In order to become a DRS limited participant, the party must be
registered as a transfer agent with the Commission, must participate in
DTC's FAST program, must provide Direct Mail Service on transfers, must
communicate with DTC through a computer-to-computer interface using
DTC's CCF platforms, and must execute a limited participant account
agreement.
To qualify as an eligible security for DRS, a security must be
eligible for DTC's FAST program. DRS issuers or their transfer agents
must provide DTC notification of their intent to include an issue in
DRS thirty to sixty days before inclusion.
Once the issue becomes DRS eligible, DTC will notify its
participants and limited participants by important notices and will add
a DRS indicator to its eligible corporate securities files.
A DRS limited participant will be charged the following fees: (1) A
limited
[[Page 58601]]
participant accountholder fee of $225 per month and (2) a delivery
order transaction processing fee of $.45 per transaction. DTC
participants also will charge $.45 per transaction. When a DTC
participant instructs a transfer agent to establish a DRS account for a
shareholder and the transfer agent subsequently mails a transaction
advice to the shareholder confirming that such an account has been
established at the transfer agent, the transfer agent's fee of $.55 for
mailing and handling the DRS transaction advice will be charged to the
DTC participant directly by DTC. DTC will collect the advice fees and
will periodically remit such fees to the transfer agent.
II. Discussion
Section 17A(a)(1)(A) \6\ of the Act sets forth Congress's findings
that the prompt and accurate clearance and settlement of securities
transactions, including the transfer of record ownership and the
safeguarding of securities and funds related thereto, are necessary for
the protection of investors and persons facilitating transactions by
and acting on behalf of investors. Section 17A(b)(3)(F) provides that
the rules of a clearing agency must be designed to promote the prompt
and accurate clearance and settlement of securities transactions.\7\
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\6\ 15 U.S.C. 78q-1(a)(1)(A) (1988).
\7\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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Currently, individual investors have the option of either holding a
physical certificate or allowing broker-dealers to hold the securities
for them in street name. Some investors do not want to hold through a
broker-dealer because, among other reasons, of possible delays in
receiving correspondences from issuers or because of fees that may be
incurred by investors who do not make purchases and sales of securities
on a regular basis. However, holding a physical certificate may slow or
impede an investor's ability to deliver the security after the sale. By
providing individual investors that do not want to have broker-dealers
hold their securities for them in street name the option of holding in
book-entry form on the books of the issuers and to subsequently have
such positions transferred electronically to banks or broker-dealers in
connection with the sales or other dispositions of the securities, the
Commission believes that DTC's DRS should help promote efficiencies in
the prompt and accurate clearance and settlement of securities
transactions and is consistent with DTC's obligations under Section
17A.
DTC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing. The Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
the date of publication because accelerated approval will allow DTC to
implement its DRS pilot program on its scheduled date of November 11,
1996.
III. 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,
that the proposed rule change (File No. SR-DTC-96-15) be and hereby is
approved.
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) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29349 Filed 11-14-96; 8:45 am]
BILLING CODE 8010-01-M
