[Federal Register Volume 59, Number 235 (Thursday, December 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30124]
[[Page Unknown]]
[Federal Register: December 8, 1994]
_______________________________________________________________________
Part V
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Parts 200 and 240
Transfer Agents Operating Direct Registration System, Assumption or
Termination of Transfer Agents Services and Transfer Agents Rules; Rule
and Proposed Rules
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-35038; File No. S7-34-94]
Transfer Agents Operating Direct Registration System
AGENCY: Securities and Exchange Commission.
ACTION: Concept release.
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SUMMARY: The Securities and Exchange Commission is soliciting comment
on the policy implications of, and the regulatory issues raised by, a
transfer agent operated book-entry registration system (hereinafter
referred to as the ``direct registration system'' or ``DRS'').
Investors who choose to participate in a direct registration system
could have their securities registered in book-entry form directly on
the books of the issuer and could receive a statement of ownership in
lieu of a securities certificate. The direct registration system would
extend book-entry registration to corporate equity and debt
securityholders; book-entry registration is currently offered to
dividend reinvestment plans and shares of registered investment
companies. This system is being considered by issuers and transfer
agents in preparation for faster trade settlements which will be
required on June 7, 1995.
DATES: Comments should be submitted on or before February 6, 1995.
ADDRESSES: Interested persons should submit three copies of their
written data, views, and opinions to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Mail Stop 6-
9, Washington DC 20549. Comment letters should refer to File No. S7-34-
94. All comment letters will be available for public inspection and
copying at the Commission's Public Reference Room, 450 Fifth St., NW.,
Washington DC 20549.
FOR FURTHER INFORMATION CONTACT:
Ester Saverson, Jr., Senior Counsel, or Michele J. Bianco, Attorney, at
202/942-4187, Office of Market Supervision, Mail Stop 5-1, Division of
Market Regulation, Securities and Exchange Commission, Washington, DC
20549.
SUPPLEMENTARY INFORMATION: In October 1993, the Commission adopted Rule
15c6-1 under the Securities Exchange Act of 1934 (``Exchange Act'')
which, effective June 7, 1995, will shorten the standard timeframe for
settling securities transactions from five to three business days. The
shorter settlement period will, among other things, reduce the
potential for systemic risk, promote efficient and liquid markets, and
foster investor confidence in the U.S. securities markets. The
Commission took this step recognizing that the implementation of faster
settlement of securities transactions would require considerable
effort, including other changes in the clearance and settlement
process. Moreover, the Commission recognized that these changes would
have wider implications for investors, securities markets, and
financial intermediaries.\1\ Even before the Commission proposed to
require faster settlement of securities transactions, commenters
overwhelmingly expressed concern that changes in the settlement cycle
should not also result in mandatory elimination of the stock
certificate.\2\ In response to these concerns, the Commission noted in
the release proposing Rule 15c6-1 that ``the proposed rule should not
affect the ability of individual investors to obtain a physical
certificate. Individual investors who desire to maintain record
ownership in certificate form still will be able to do so.''\3\
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\1\See Securities Exchange Act Release No. 33023 (October 6,
1993), 58 FR 52891 (October 13, 1993) (hereinafter cited as ``T+3
Adopting Release'').
\2\See Securities Exchange Act Release No. 31904 (March 1,
1993), 58 FR 11806, 11808. The stock certificate evidences that the
owner is registered on the books of the issuer as a shareholder.
Because the certificate is a negotiable instrument under state
commercial laws, it allows the registered owner to deliver the
bundle of rights it represents to a third party without first having
to change the registration on the books of the issuer. Guttman,
Modern Securities Transfer, 1.01 at 1-2 (Warren, Gorham & Lamont
1987).
State commercial laws specify rules concerning the transfer of
the rights that constitute securities and the establishment of those
rights against the issuer and other parties. Official comment to
Sec. 8-101, The American Law Institute and National Conference of
Commissioners of Uniform State Laws, Uniform Commercial Code, 1990
Official Text with Comments, Article Eight at 708 (West 1991).
The American Law Institute and National Conference of
Commissioners on Uniform State Laws recently approved a revision to
Uniform Commercial Code (``UCC'') Article Eight. See Mooney, Jr.,
Rocks, Schwartz, An Introduction to the Revised U.C.C. Article 8 and
Review of Other Recent Developments with Investment Securities, 49
The Business Lawyer 1891 (August 1994).
\3\Securities Exchange Act Release No. 31904 (February 23,
1993), 58 FR 11806.
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Sparked by investor trends away from requesting physical
certificates,\4\ several corporations and transfer agents\5\ that
maintain their shareholder records want to expand their use of
automated systems for recording ownership of securities and related
transfer processing. As described below, they would offer shareholders
who opt for direct registration the opportunity to receive an account
statement instead of a negotiable certificates,\6\ the opportunity to
obtain a certificate upon demand, and the opportunity to direct the
transfer of the underlying position to a broker-dealer upon request.
For this system to be successful, broker-dealers, transfer agents and
clearing agencies must cooperate to establish the systems and
communication facilities to facilitate these services.
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\4\Individual investors can choose to be registered directly on
the issuer's register or they can engage a broker-dealer or bank to
act as the custodian of their investment portfolios. The use of a
broker-dealer or bank as a custodian typically is referred to as
``street name'' registration. See Final Report of the Securities and
Exchange Commission on The Practices of Recording the Ownership of
Securities in the Records of the Issuer in Other Than the Name of
the Beneficial Owner of Such Securities (December 3, 1976); Report
on Improving Communication Between Issuers and Beneficial Owners of
Nominee held Securities (June 1982). Securities held in street name
typically are on deposit with a securities depository where the
broker-dealer or bank (or its agent) participate. Securities
depositories for corporate equity securities include The Depository
Trust Company, The Depository Trust Company of Philadelphia, and The
Midwest Securities Trust Company. These depositories are limited
purpose trust companies, members of the Federal Reserve System, and
registered clearing agencies under the Exchange Act. In addition to
holding securities for their members (accepting deposits and
processing withdrawals), depositories provide book-entry delivery
and dividend and interest collection and payment services. In 1992,
the ratio of book-entry deliveries to certificate withdrawals was
12.9:1, almost six times greater than the 1982 ratio (2.3:1). See
U.S. Securities and Exchange Commission, 1993 Annual Report (1994)
at 125.
\5\Transfer agents are an integral component of the clearance
and settlement process. There are approximately 1,576 registered
transfer agents that maintain, on behalf of the issuers of
securities, the official register of stockholders or bondholders.
Transfer agents issue negotiable certificates evidencing security
ownership, communicate on behalf of issuers with securityholders,
and record changes in security ownership as a result of securities
transactions.
\6\The use of account statements instead of negotiable
instruments is commonplace for investment products, such as
securities issued by open-ended investment companies, and is
mandatory for investors who own U.S. Treasury bills, bonds, and
notes. Many open-end investment companies deal directly with
investors. They or their transfer agents maintain automated
ownership records and issue periodic statements to the owners
indicated on those records. Most of these companies also have
broker-dealers and other financial intermediaries as registered
owners who act as nominees for their customers. Under this
arrangement, the ultimate investor receives a statement reflecting
his or her portfolio from the nominee. The U.S. Department of the
Treasury no longer issues negotiable certificates evidencing
ownership of negotiatiable bonds, bills, and notes. Instead,
individual investors seeking direct registration can open accounts
under the ``Treasury Direct'' program. See Department of the
Treasury Direct Program, 31 CFR 357.
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The Commission is encouraged by these developments and believes
that in general, the direct registration concept is consistent with
Congressional objectives in section 17A(a)(1) of the Exchange Act.\7\
The Commission is soliciting comment on what steps are necessary to
further such initiatives, including whether it would be appropriate to
estabish turnaround, audit, or other standards to foster investor
confidence in the safety and efficiency of resulting systems.
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\7\See 15 USC 78q-1(a)(1).
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I. The Direct Registration Concept
A. Historical Background
Over the past ten years, regulators, representatives of private
industry, and the transfer agent community have worked together to
explore alternatives to maintaining ownership interest in securities
without reliance on negotiable securities certificates. For example, on
February 25 and 26 and March 8, 1985, the Division of Market Regulation
(``Division'') held ``Securities Immobilization Workshops'' to discuss
the use of central depositories to immobilize securities certificates
and the development of book-entry systems to register securities
ownership. Workshop participants were of the view that an alternative
to street name registration was needed to allow direct registration
evidenced by a negotiable securities certificate.\8\ Among other
things, workshop participants recognized the desirability of issuing
uncertificated securities through issuer or transfer agent operated
book-entry systems.
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\8\Progress and Prospects: Depository Immobilization of
Securities and Use of Book-Entry Systems, Draft Staff Report,
Division of Market Regulation, U.S. Securities and Exchange
Commission (June 14, 1985) (hereinafter cited as ``Immobilization
Report'').
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On November 27, 1990, the Commission held a Roundtable on Clearance
and Settlement to discuss the implementation of, and the status reports
of, the recommendations of the Group of Thirty U.S. Working Committee
regarding clearance and settlement.\9\ Participants at the Roundtable
discussed, among other things, ways in which investors could obtain the
benefits of direct registration without the issuance of securities
certificates and without street name registration. Participants noted
that the pressure to have securities available for settlement in a
three-days after trade date (``T+3'') environment will increase the
need for immobilizing securities certificates and the use of book-entry
transfer at the retail level. Thus, participants recognized the value
of developing a transfer agent operated book-entry registration system
as an alternative to street name registration.
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\9\In March 1989, the Group of Thirty released a report which
offered nine recommendations for reducing risk and improving
efficiency in the clearance and settlement systems in the world's
corporate securities markets. Clearance and Settlement Systems in
the World's Securities Markets, Group of Thirty New York and London
(1989). Those recommendations are described in an appendix to the
T+3 Adopting Release. Supra note 1, at Appendix 2 at n.6, 58 FR
52905 n.6. Subsequently, U.S. Steering and Working Committees were
formed to study the existing systems in the United States and to
recommend appropriate changes based upon the Group of Thirty's nine
recommendations. In November 1990, the U.S. Working Committee, Group
of Thirty, Clearance and Settlement Project issued a report,
entitled Implementing The Group of Thirty Recommendations in the
United States. In that report, the U.S. Working Group concluded that
the U.S. corporate clearance and settlement systems were not in
compliance with two of the recommendations, moving to a three
business day settlement period and adopting a same-day funds payment
system, and that these two recommendations should be implemented in
the U.S.
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In August 1991, the U.S. Working Committee, Group of Thirty
Clearance and Settlement Project, issued a report which, among other
things, identified the DRS as an alternative to owning certificated
securities.\10\ The report was promulgated by a Subcommittee of the
U.S. Working Committee of the Group of Thirty, the T+3 Direct
Registration Subcommittee, co-chaired by representatives of the
Securities Transfer Association (``STA'') and the American Society of
Corporate Secretaries (``ASCS''). This subcommittee viewed the DRS as
offering investors an additional choice of security ownership in the
form of an account statement, in which the securities would be
registered in the name of the investor and maintained on the books of
the issuer in a book-entry format.\11\
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\10\Providing Alternatives to Certificates For the Retail
Investor, U.S. Working Committee, Group of Thirty, Clearance and
Settlement Project (August 1991).
\11\As described in the subcommittee report, the DRS would allow
individual investors to hold securities in electronic form, without
putting those securities in street name at a financial intermediary,
by providing those investors who choose to be registered on the
books of the issuer with an optional custody arrangement with the
transfer agent. Under DRS, if a security is registered on the books
of the issuer, the investor would receive a statement reflecting his
or her ownership interest. An investor would retain the option of
selling securities through the broker of his or her choice by
notifying the transfer agent to move the securities from the books
of the issuer to the books of a broker-dealer. Certificates also
would be available on request.
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Although the U.S. Working Committee of the Group of thirty views
DRS as an alternative form of securities ownership, it decided that
elimination of certificates was not necessary at that time to achieve a
shorter settlement cycle, and thus did not endorse the DRS or any
specific book-entry system. The U.S. Working Committee, however,
encouraged the securities transfer agent community to continue its work
on developing a book-entry registration system.
In 1992, the STA, the Corporate Transfer Agents Association
(``CTAA''), and the Securities Industry Committee of ASCS formed the
Investor Registration Option Implementation Committee (``IRO/IC'') to
develop an issuer/transfer agent operated book-entry registration
system. The IRO/IC developed the concept of a book-entry direct
registration system operated by transfer agents (``DRS Concept''),
modeling it after the systems used in dividend reinvestment and stock
purchase programs (``DRSPPs'')\12\ which are currently offered by many
issuers or their transfer agents. This concept would allow any retail
investor who wants his or her securities to be registered directly on
the books of the issuer, but does not necessarily want to receive a
certificate, to register those securities in book-entry form directly
on the books of the issuer.
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\12\DRSPPs are programs offered by corporations or closed-end
investment companies that allow participants to purchase additional
shares of common stock by reinvesting their cash dividends and, in
many cases, by making optional cash payments. Certain DRSPPs permit
dividends on preferred stock and interest earned on debt securities
to be reinvested in shares of common stock. The earliest DRSPPs were
dividend reinvestment plans (``DRIPS'') in which participation was
limited to issuers' shareholders and employees and through which
additional shares could be purchased only with reinvested dividends.
Since the first DRIPS were introduced in the last 1960s, the
greatest changes have been in the method by which participants can
accumulate shares (i.e., optional cash payments), and the types of
persons that are permitted to participate (e.g., non-shareholders of
the corporation).
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B. The DRS Concept and Cross-Industry Consensus
After a series of discussions, the IRO/IC and the Securities
Industry Association (``SIA'') agreed in 1994 to the basis structure of
the DRS Concept.\13\ Agreement among transfer agents, corporations,
broker-dealers, and banks regarding the basic structure and operational
flows is critical because its implementation and operation must be
efficient, safe, and largely transparent to investors. At the same
time, issuers and transfer agents would be free to decide for
themselves whether they wanted to offer investors the services that
comprise DRS.
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\13\Letter from Raymond J. Riley, Co-Chair, IRO/IC and James J.
Volpe, Director, IRO/IC (February 16, 1994), to Jonathan Kallman,
Associate Director, Division of Market Regulation, Commission;
Letter from George McNamee, Chairman of Clearance and Settlement
Committee, and John Sanders, Chairman of Operations Committee, SIA
to Al DeMaio, et al (October 18, 1994).
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The agreement between the IRO/IC and the SIA calls for the
formation of a joint advisory committee to work with the registered
securities depositories to develop an electronic communication system
between transfer agents and depositories.\14\ This proposed system will
allow a broker-dealer to deliver electronically to a transfer agent a
customer's request that the securities be registered on the books of
the issuer in book-entry form. The proposed electronic system also will
allow the transfer agent to send an electronic acknowledgment to the
broker-dealer that the securities have been registered in the
customer's name on the books of the issuer in book-entry form.
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\14\The IRO/IC and the SIA agreed to the following six points:
1. Customers will be able directly or through their broker-
dealers to request a certificate electronically or otherwise at the
time of initial purchase.
2. Electronic acknowledgment that the securities have been
registered in book-entry form will be provided to the broker-dealer
with a written record of ownership forwarded to the customer.
Electronic communications between the issuer/transfer agent and the
depositories must be standardized.
3. Investor direct movement of securities will be provided in
electronic form from the books of the issuer to the books of the
investor's broker-dealer (which may not be the same broker-dealer
that initially purchased the shares on behalf of the customer).
4. Transfer agents will not use the shareholder list of one
issuer to solicit those shareholders to buy shares of other issuers
for which they act as transfer agent.
5. The IRO/IC and the SIA will form a joint advisory group to
work with the depositories to identify and design a process that
will allow the investor to instruct the transfer agent, through the
broker-dealer, to register shares on the books of the issuer in
book-entry form or to request a certificate. If an investor fails to
choose an option, the transfer agent will register the securities on
the books of the issuer in book-entry form.
6. The IRO/IC and the SIA will develop educational materials and
the programs to inform the brokerage community and customers about
the various forms of registration options, e.g., direct registration
evidenced by negotiable certificates, direct registration evidenced
by account statements, and indirect registration through a broker-
dealer.
The Commission invites comment as to whether the terms of the
agreement are consistent with the Exchange Act and whether any of
these terms impose a burden on competition. If commenters believe
one or more of these terms imposes a burden on competition, please
describe whether that burden is nonetheless necessary or appropriate
to achieve the goals of the Exchange Act.
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Under the DRS Concept, assuming the issuer and transfer agent elect
to offer DRS services, an investor may instruct the broker-dealer at
the time of purchase to register the securities directly on the books
of the issuer, to leave the securities with his broker in street name,
or to request a certificate.\15\ If an investor does not choose an
option, the securities will be registered on the books of the issuer in
book-entry form as the default form of registration. Assuming DRS
services are offered, an investor also may establish a DRS account, or
credit additional securities to his or her DRS account, by submitting
physical certificates to the transfer agent. In addition, issuers and
transfer agents could offer an option to non-shareholders to make
initial cash payments to the transfer agent thereby allowing an
investor with no prior relationship to the issuer to purchase shares
and participate in the DRS.\16\
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\15\If the issuer and transfer agent determines to provide DRS
services, investors could still choose between street name and
direct registration. Investors who choose direct registration would
receive negotiable certificates as a matter of course.
\16\Where an issuer or affiliate is offering securities,
compliance with the registration provisions of the Securities Act of
1933 (``Securities Act'') is required absent an exemption (e.g.,
section 5 of the Securities Act (15 U.S.C. 77e (1993)), as in
compliance with such other requirements as section 15(a) of the
Exchange Act (15 U.S.C. 78o(a) (1993)) and Rule 10b-6 under section
10(b) of the Exchange Act (17 CFR 240.10b-6). See also Letter re:
The Securities Transfer Association, Inc. (December 1994) Letter re:
First Chicago Trust Company of New York (December 1994).
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Under the DRS Concept the broker-dealer would communicate its
customers' registration option to the transfer agent through an
electronic communication link (e.g., computer to computer
transmissions) established with the depositories. Once the transfer
agent registers the securities on the books of the issuer, the transfer
agent would send an electronic acknowledgement of the registration to
the broker-dealer through the depository and would send an account
statement directly to the investor reflecting the number of securities
purchased. All subsequent securityholder communications, including
proxy solicitations, would be sent directly to the investor from the
transfer agent. The transfer agent would vote the securities in
accordance with the instructions received from the DRS participant. DRS
participants would have the option of either receiving their cash
dividends, or, if the issuer offers a DRSPP, reinvesting their cash
dividends in the purchase of new securities. Any dividends in the form
of securities, or any securities resulting from a stock split owed to a
DRS participant, would be credited to the DRS participant's account. As
with other DRSPPs today, no certificates would be issued unless the DRS
participant makes a specific request for certificates by phone,
facsimile, or mail.
II. Discussion
In light of the faster settlement processing standards that will be
imposed on retail customers in the T+3 environment, the Commission
believes that investors should have the choice to register their
securities in book-entry form directly on the books of the issuer
evidenced by an account statement.\17\ The Commission believes that
such an alternative is consistent with Congressional objectives in
section 17A(a)(1)(C) of the Exchange Act;\18\ new data processing and
communication techniques create the opportunity for more efficient,
effective, and safe procedures for clearance and settlement. Although
the SIA and the transfer agent community have agreed on the general
design of the electronic communication system, the Commission
understands that they have technical issues to resolve before the
securities depositories can provide the specifications to build the
electronic communication system that would allow the movement of
securities between transfer agents and broker-dealers.\19\ The
Commission urges the SIA, the transfer agent community, and the issuer
community, in cooperation with the depositories, to design the
electronic communication system, to build and test that system, and to
implement the DRS prior to the June 7, 1995 implementation date for T+3
settlement.\20\
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\17\Subject to an issuer's determination of whether to make
certificates available shareholders, the Commission believes
investors should be able to obtain negotiable certificates on
request. (State corporate laws generally entitle shareholders to
obtain certificates evidencing their investment. See e.g. 8 Del.
Code Ann. General Corporation Law Sec. 158 (1991); N.Y. Bus. Corp.
Law Sec. 508 (McKinney 1986)). The Commission continues to believe
that faster trade settlements should not require investors to forego
the benefits or direct registration or the opportunity to receive a
negotiable certificate evidencing their investment. The Commission
notes that Rule 15c6-1 does not require customers to leave funds,
securities, or both subject to the broker-dealers' possession or
control. Although in announcing the adoption of Rule 15c6-1, the
Commission noted that broker-dealers ``could encourage clients to
deposit funds or securities * * * upon placing an order, or to send
funds and securities that day,'' and although financial management
accounts have gained in popularity for various reasons, the
Commission advises broker-dealers to be careful not to represent to
their customers that the rule requires customers to leave securities
or funds with broker-dealers after trade settlement.
\18\See 15 USC 78q-1(a)(1)(C).
\19\The SIA stated that while there are unresolved technical
questions, none appear insurmountable. Letter from John J. Sanders,
Jr., Chairman, Operations Committee, SIA, and George C. McNamee,
Chairman, Clearance and Settlement Committee, SIA, to Al DeMaio, The
Midwest Securities Trust Company; Ron Burns, The Depository Trust
Company; and Keith Kessel, Philadelphia Depository Trust Company
(October 18, 1994).
\20\The Commission notes that Division staff today have issued
correspondence regarding a proposed expansion of shareholder
services that incorporates some of the DRS features. See Letter re:
First Chicago Trust Company of New York (December 1994).
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The Commission believes that the proposed agreement on the DRS
concept and the electronic link between transfer agents and
depositories necessary for timely and effective communication with
broker-dealers should enhance the efficiency of the clearance and
settlement system. Because the Commission is concerned about the
parties' ability to implement the system promptly and to follow through
on their commitments, the Commission invites commenters to address
whether the Commission or the self-regulatory organizations should take
a more active role in facilitating education regarding the registration
and safekeeping alternatives available to investors. Comments are also
requested as to whether the Commission should require broker-dealers to
disclose to customers at the time an account is opened that direct
registration is available as an alternative to street name
registration; what that disclosure might include; and whether
additional periodic disclosures should be required after the account is
opened.
In addition, the Commission requests comment as to whether transfer
agents that provide the DRS or other uncertificated recordkeeping
functions should be subject to increased regulatory oversight to
minimize any disruption of the marketplace and to provide greater
efficiency to the clearance and settlement system. For example, is
there a need for a Commission rule to prevent transfer agents from
using shareholder lists without issuer consent for any purpose other
than the transfer of that company's securities? To foster the efficient
operation of the DRS and to minimize any adverse effects on the
secondary market and the national clearance and settlement system,
should transfer agents that participate in the DRS be required to join
at least one of the registered securities depositories for the purposes
of performing the DRS functions?
The Commission believes that safe and efficient transfer agent
performance is critical to efforts by the securities industry to
provide alternative registration options. Transfer agent operated book-
entry systems, including the DRS, pose different and potentially
increased risks to investors. For example, increased reliance on the
records of transfer agents may place additional burdens on transfer
agents and could increase the risks to investors arising from
substandard transfer agent performance. Accordingly, commenters are
urged to review the companion release issued today, which invites
comment on the need for new and revised rules governing transfer agent
activities in light of the proposed DRS Concept, DRSPPs, and custodial
arrangements with registered securities depositories to hold securities
registered in the name of those depositories in book-entry form
(``uncertificated recordkeeping functions'').\21\ For example, the
companion release invites comment on whether the Commission should
develop additional processing, bookkeeping, net worth, and insurance
requirements for transfer agents that perform uncertificated
recordkeeping functions.
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\21\See Securities Exchange Act Release No. 35040 (December 1,
1994) (hereinafter referred to as ``companion release''). This
discussion is limited to transfer agent regulation and does not
address the application of the broker-dealer registration provisions
of the Exchange Act to the DRS or DRSPPs. Some of the activities in
connection with the DRS or DRSPPs may raise broker-dealer
registration issues under section 15(a) of the Exchange Act.
Section 15(a) of the Exchange Act generally provides that a
``broker'' or ``dealer'' that uses the mails or any means of
interstate commerce to effect transactions in, or to induce or
attempt to induce the purchase or sale of, any security must
register with the Commission, unless an exemption applies. Section
3(a)(4) of the Exchange Act defines a ``broker'' as any person
(other than a bank) engaged in the business of effecting
transactions in securities for the account of others. A ``dealer''
is defined in section 3(a)(5) of the Exchange Act as any person
(other than a bank) engaged in the business of buying and selling
securities for its own account, whether through a broker or
otherwise.
Broker-dealer registration serves to minimize the risks
typically associated with the execution of securities orders and the
handling and custody of funds and securities. The Commission's
financial responsibility rules applicable to registered broker-
dealers, for example, are designed to provide safeguards with
respect to customer funds and securities held by broker-dealers by
ensuring the accountability of those funds and securities and by
requiring the maintenance of accurate books and records and
sufficient liquid assets. See, e.g., 17 CFR 240.15c3-3 (prohibiting
a broker-dealer from using customer funds to finance its business,
except as related to customer transactions); 17 CFR 240.15c3-1
(prescribing minimum capital standards for broker-dealers).
In general, registered broker-dealers also must become members
of the Securities Investor Protection Corporation (``SIPC''). SIPC
was established by Congress as a means to protect investors' funds
and securities held by broker-dealers that undergo liquidation. In
addition, registered broker-dealers are subject to the rules of the
self-regulatory organizations (``SROs'') of which they are required
to be members under section 15(b)(8) of the Exchange Act. SRO rules,
among other things, are designed to ensure the maintenance of high
standards of ethical conduct and the observance of just and
equitable principles of trade.
In instances where an issuer performs some of the functions
discussed above in connection with its DRSPP, the staff has
determined that registration as a broker-dealer is not necessary if
the issuer limits its activities as described in Letter re:
Securities Transfer Association (December 1994) or if the issuer
delegates such functions to a registered broker-dealer or to a
``bank,'' as that term is defined in section 3(a)(6) of the Exchange
Act.
Questions concerning broker-dealer registration should be
directed to the Office of Chief Counsel, Mail Stop 7-10, Division of
Market Regulation, Securities and Exchange Commission, Washington,
DC 20549.
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III. Request for Comment
The Commission is interested in receiving comment on all aspects of
the DRS Concept in addition to the specific requests for comment made
in this release.
Dated: December 1, 1994.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30124 Filed 12-17-94; 8:45 am]
BILLING CODE 8010-01-P
