[Federal Register Volume 64, Number 31 (Wednesday, February 17, 1999)]
[Notices]
[Pages 7931-7932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3772]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41032; File No. SR-DTC-99-01]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Allowing DTC to Charge a Low Volume Tender Offer Processing
Fee
February 9, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 1, 1999, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-DTC-99-01) as described in Items I and II below, which items have
been prepared primarily by DTC.\2\ The Commission is publishing this
notice and order to solicit comments from interested persons and to
grant accelerated approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ On February 5, 1999, DTC supplemented the proposed rule
change. Letter from Carl H. Urist, Deputy General Counsel, DTC
(February 5, 1999).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change will allow DTC to charge a processing fee
of $2,700 in connection with low volume tender offers processed through
DTC's facilities.\3\ The low volume tender offer processing fee will be
payable by the offeror in advance of DTC's processing the offer.
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\3\ A low volume tender offer is an offer in which the offeror
is seeking to purchase for cash up to 5% of the outstanding shares
of an equity issue or any amount of a debt issue. Low volume tender
offers do not include exchange offers or offers by the issuer of the
target security.
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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.\4\
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\4\ 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
When DTC receives offering materials from an offeror making a
tender offer, DTC first reviews the materials to ascertain the basic
terms of the offer such as the target security, the identities of the
offeror and its agent, the offer price, and any limitations on the
quantity of the securities to be purchased. DTC also discusses the
terms of the offer with the offeror or its agent. If DTC determines
that the offer can be processed through its facilities, DTC announces
the offer to its participants by entering the basic terms of the offer
into DTC's Reorganization Inquiry for Participants service, an
electronic announcement system. DTC and the offeror's agent enter into
an agreement to make the offer eligible for the processing of
acceptances by participants at DTC through DTC's Automated Tender Offer
Program.
In charging fees in connection with tender offers, DTC's overall
objective is to recover the cost of processing the offers. At present,
DTC recovers its costs in processing a tender mostly through the fees
paid by its participants when they accept the offer. The fee for
accepting a tender at DTC is currently $31.10 per acceptance submitted
by a participant. (DTC will soon propose revisions to its fee schedule,
and the tender offer acceptance fee will increase to $32.30.)
Participants have been willing to pay DTC's tender offer acceptance fee
because of the efficiencies and cost savings for participants that
result from accepting tender offers by book-entry delivery at DTC
instead of through the delivery of physical certificates outside of
DTC.
In the 2,127 tender offers processed by DTC in 1997 (which included
39 low volume tender offers), participants submitted an average of 85
acceptances
[[Page 7932]]
in each offer. The fees paid by the participants that submitted
acceptances in those offers covered DTC's costs in processing the
offers. Recently, DTC has processed an increased number of low volume
tender offers.\5\ In the 170 low volume tender offers processed by DTC
in the month of December 1998, participants submitted an average of
only 1.5 acceptances in each offer. As a result, the fees paid by the
participants that submitted acceptances in those low volume tender
offers fell short of covering DTC's costs in processing the offers.
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\5\ In 1997, DTC processed 39 low volume tender offers, in 1998,
DTC processed 537 low volume tender offers. To date in 1999, DTC has
received offering materials for over 300 low volume tender offers.
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In order to recover its costs in processing low volume tender
offers, DTC will require an offeror making such an offer to pay the low
volume tender offer processing fee of $2,700 to DTC before DTC
announces the offer to its participants or conducts any other
processing activities for the offer. The proposed low volume tender
offer processing fee of $2,700 is intended to make up for the current
difference in revenues to DTC between regular tender offers and low
volume tender offers. The low volume tender offer processing fee plus
participants' tender offer acceptance fees from the average of 1.5
acceptances in low volume tender offers should approximately equal
participants' tender offer acceptance fees from the average of 85
acceptances in regular tender offers. The fee, which can be paid by
certified check or by wire payment, will apply to each security issue
for which the offer is making a low volume tender offer. DTC will
continue to charge the tender offer acceptance fee to any participants
who submit acceptances in such offers.
DTC will apply the low volume tender offer processing fee to all
low volume tender offers that DTC announces on or after the date of
this order. However, if DTC receives more than $27,000 from the tender
offer acceptance fees paid by participants in a low volume tender
offer, DTC will refund the entire low volume tender offer processing
fee of $2,700 to the offeror after the conclusion of the offer.
DTC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \6\ and the rules and
regulations thereunder applicable to DTC since the low volume tender
offer fee equitably charges most of DTC's costs in processing such
offers to the offerors making the offers and not to DTC's participants,
which rarely submit acceptances in such offers.
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\6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no impact on competition by reason of the proposed
rule change.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
Written comments from DTC participants or others have not been
solicited or received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(D) of the Act \7\ requires that the rules of a
clearing provide for the equitable allocation of reasonable dues, fees,
and other charges among its participants. The Commission believes that
the proposed rule change is consistent with DTC's obligations under the
Act because the low volume tender offer processing fee should allow DTC
to more equitably allocate and recover its costs in processing low
volume tender offers.
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\7\ 15 U.S.C. 78q-1(b)(3)(D).
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The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing. Approving prior to the thirtieth day after
publication of notice will allow DTC to immediately implement the low
volume tender offer acceptance fee which should allow DTC to
immediately avoid incurring unrecovered processing costs that would
otherwise be passed on to its participants.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 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, NW,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of DTC. All submissions
should refer to File No. SR-DTC-99-01 and should be submitted by March
10, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-99-01) 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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3772 Filed 2-16-99; 8:45 am]
BILLING CODE 8010-01-M
