[Federal Register Volume 62, Number 232 (Wednesday, December 3, 1997)]
[Notices]
[Pages 64034-64035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31684]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39369; File No. SR-NASD-97-51]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving a Proposed Rule Change Regarding the
Transfer of Securities of Issuers Listed on the Nasdaq Stock Market
That Are Held Pursuant to a Direct Registration Program
November 26, 1997.
I. Introduction
On July 16, 1997, The Nasdaq Stock Market, Inc. (``Nasdaq'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change (File No. SR-NASD-97-51) pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'').\1\ The rule change will
amend Rules 4200, 4310, 4320, and 4460 of the National Association of
Securities Dealers, Inc. (``NASD'') to require Nasdaq issuers that
elect to offer a direct registration program \2\ to shareholders to
participate, either directly or through the issuer's transfer agent, in
an electronic link with a securities depository registered under
Section 17A of the Act.\3\ Notice of the proposal was published in the
Federal Register on September 23, 1997.\4\ 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\ New section (j) of NASD Rule 4200 defines a direct
registration program as any program by an issuer, directly or
through its transfer agent whereby a shareholder may have securities
registered in the shareholder's name on the books of the issuer or
its transfer agent without the need for a physical certificate to
evidence ownership.
\3\ 15 U.S.C. 78q-1.
\4\ Securities Exchange Act Release No. 39082 (September 16,
1997), 62 FR 49719.
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II. Description of the Proposal
In 1994, the Commission requested comments on the establishment of
a transfer agent operated direct registration system (``DRS'') for
securities which would allow investors to have their securities
registered in book-entry form directly on the books of
[[Page 64035]]
the issuer and to receive a statement of ownership instead of a
certificate.\5\ Since issuance of the Concept Release, a basic
structure for DRS has been developed and implemented by a joint
committee of representatives of the Securities Industry Association,
the Securities Transfer Association, the Corporate Transfer Agents
Association, and the registered securities depositories. Using DRS,
investors have a new way, in addition to holding a certificate or
holding in street name at a broker-dealer, to hold their securities
positions.
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\5\ Securities Exchange Act Release No. 35038 (December 1,
1994), 59 FR 63652 (``Concept Release'').
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A key component of DRS is the electronic linkage of issuers or
their transfer agents with broker-dealers through registered securities
depositories. Assuming an issuer and its transfer agent participate in
DRS, this link allows a broker-dealer to deliver to a transfer agent on
customer's request that his purchased securities be registered on the
books of the issuer in book-entry form. The linkage also provides for
the book-entry movement between broker-dealers and issuers of
customers' existing positions.
The Depository Trust Company (``DTC'') has received Commission
approval of its procedures implementing DRS.\6\ Under DTC's procedures,
to participate in DRS a transfer agent needs to become a DRS ``limited
participant'' at DTC.\7\
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\6\ Securities Exchange Act Release No. 37931 (November 7,
1996), 61 FR 58600 [File No. SR-DTC-96-15].
\7\ According to DTC, a party wishing to be a ``limited
participant'' must: (1) be registered as a transfer agent with the
SEC; (2) participate as a transfer agent in DTC's Fast Automated
Securities Transfer (``FAST'') program; (3) provide ``direct mail
service'' on transfers; and (4) communicate with DTC through a
computer-to-computer interface using DTC's CCF platforms. Id. The
Philadelphia Depository Trust Company has received Commission
approval of similar DRS procedures. Securities Exchange Act Release
No. 37933 (November 8, 1997), 61 FR 59269 [File No. SR-Philadep-96-
14]
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Therefore, Nasdaq proposed to amend NASD's rules to establish a
qualification requirement for all securities to be included in Nasdaq
that if the issuer establishes a direct registration program it shall
participate in an electronic link with a securities depository in order
to facilitate the electronic transfer of securities held pursuant to
the direct registration program. The electronic link may be direct or
through the issuer's transfer agent.
III. Discussion
Section 15A(b)(6) of the Act \8\ requires that the rules of a
national securities association be designed to foster cooperation with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities. The Commission believes that the proposed rule change is
consistent with Section 15A(b)(6) because it requires Nasdaq issuers
participating in DRS to establish a link with a registered securities
depository before operating DRS services. This requirement should
increase cooperation among Nasdaq issuers, their transfer agents,
broker-dealers, and DTC.
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\8\ 15 U.S.C. 78o-3(b)(6).
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IV. 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-NASD-97-51) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-31684 Filed 12-2-97; 8:45 am]
BILLING CODE 8010-01-M
