[Federal Register Volume 60, Number 54 (Tuesday, March 21, 1995)]
[Notices]
[Pages 14990-14991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6841]
[[Page 14990]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35484; File No. SR-MSTC-94-21]
Self-Regulatory Organizations; Midwest Securities Trust Company;
Order Granting Accelerated Approval of a Proposed Rule Change
Establishing an Automated Program for the Transfer of Certain
Securities Between the Midwest Securities Trust Company and Transfer
Agents
March 14, 1995.
On December 28, 1994, the Midwest Securities Trust Company
(``MSTC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-MSTC-94-21) under
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')\1\ to
establish an automated program for the transfer of certain securities
between MSTC and transfer agents. Notice of the proposal was published
in the Federal Register on March 6, 1995.\2\ No comment letters were
received. For the reasons discussed below, the Commission is approving
the proposed rule change on an accelerated basis.
\1\15 U.S.C. 78(b)(1) (1988).
\2\Securities Exchange Act Release No. 35424 (February 28,
1995), 60 FR 12258.
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I. Description
MSTC is establishing an automated program, to be known as ATS, for
the transfer of certain securities between MSTC and transfer agents.
Under MSTC's program, MSTC and the transfer agents participating in the
program will use a master balance certificate\3\ to evidence the number
of securities of a particular issue transferred into or out of MSTC and
through the transfer agents. The transfer agents will have custody of
the securities in the form of balance certificates registered in MSTC's
nominee name. The balance certificates will be adjusted daily to
reflect MSTC's withdrawal and deposit activity.
\3\For the purpose of the ATS program, ``balance certificates''
shall mean a certificate registered in the name Kray & Co., which is
MSTC's nominee name, which evidences (1) record ownership by Kray &
Co. of the number of shares or units of the issue shown from time to
time on the records of the issuer thereof or (2) the duties of the
issuer thereof to perform the obligations shown from time to time on
the records of the issuer thereof, which records are maintained by a
transfer agent, as being evidenced by such certificate, which
certificate shall be retained by a transfer agent.
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Previously, if a participant requested the withdrawal of one
hundred shares of a security from MSTC, MSTC would send an electronic
or written instruction to the transfer agent followed by a physical
transfer of the shares from MSTC to the transfer agent. The transfer
agent would reissue the shares in the requested name and would send the
shares back to MSTC. Using the ATS program, an electronic instruction
will immediately effectuate the withdrawal transfer, eliminating the
extra step of physically transferring the security from MSTC to the
transfer agent.
For issues eligible for ATS, MSTC will deliver to participating
transfer agents nominee and/or non-nominee certificates\4\ for each
issue. The transfer agent will cancel the certificates delivered and
issue one or more balance certificates per issue in the name of Kray &
Co. The transfer agent will retain possession of the balance
certificates, holding them in a secured area at all times, and MSTC
will be provided a sample balance certificate for each issue.
\4\For the purpose of the ATS program, the term ``nominee
certificates'' shall mean a certificate of an issue registered in
the name of Kray & Co. The term ``non-nominee certificate'' shall
mean a certificate of an issue registered in a name other than Kray
& Co.
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MSTC will deliver to participating transfer agents nominee
certificates and/or non-nominee certificates with the instructions to
register the non-nominee certificates into the name of Kray & Co. and
to include the securities evidenced by the non-nominee and/or nominee
certificates in the balance certificate for the issue represented by
such balance certificate. MSTC also may issue instructions to the
transfer agent to register the transfer of securities evidenced by a
balance certificate to a name other than Kray & Co. or to issue a
certificate to a name other than Kray & Co.
After issuing a balance certificate, the transfer agent will
increase or decrease the number of securities evidenced by the balance
certificate so that at the end of each day it will evidence the number
of securities equal to the previous balance plus any securities
received from MSTC to be registered in the name Kray & Co. less any
transfers and issuance of certificates in a name other than Kray & Co.
The transfer agent will confirm in writing, on a daily or other
periodic basis as MSTC may reasonably request, the number of securities
evidenced by each balance certificate.
The obligations of the ATS transfer agents and MSTC will be set
forth in a Balance Certificate Agreement (``Agreement'') executed by
each ATS transfer agent and MSTC.\5\ The Agreement provides that all
shares or units or the amount of any obligations evidenced by the
balance certificate which come into possession of the transfer agent
pursuant to ATS will be the sole property of MSTC. The transfer agent
will not obtain any legal or equitable right, title, or interest in or
to such securities evidenced by the balance certificates.
\5\If a transfer agent employs a processor to perform the
transfer agent's duties in ATS, the transfer agent and processor
must enter into a separate agreement obligating the processor to
perform the duties described in the Agreement. The transfer agent
must notify MSTC if there is any material change to the terms of the
agreement between the transfer agent and processor, if there is a
termination or anticipated termination of the agreement, or if there
is breach of the agreement or an event that will affect or might
reasonably be expected to affect the processor's ability to perform
any of its obligations under the agreement. MSTC only will permit a
transfer agent to employ a processor as its agent if the transfer
agent represents and warrants that it will bear any and all
liability and responsibility for all securities held by, all actions
taken by, and all obligations assigned to the processor with the
same force and effect as if the securities were held by, the actions
were taken by, or the obligations were those of the transfer agent.
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The Agreement also provides that upon request from MSTC, the
transfer agent will be obligated to deliver, within twenty-four hours,
all securities evidenced by a balance certificate. If the transfer
agent determines that any security held by it is lost, destroyed,
stolen, or otherwise unaccounted for, the transfer agent must notify
MSTC immediately and issue a replacement certificate.
The Agreement provides that the transfer agent must maintain an
insurance policy in the form of a customary bankers blanket bond to
cover any securities received from MSTC or held by the transfer agent
pursuant to ATS. The bond must be in the maximum amount of one hundred
million dollars. The Agreement further states that the transfer agent
must provide annually to MSTC's satisfaction evidence that such blanket
bond or comparable plan of insurance is in full effect.\6\ When the
transfer agent is responsible for the shipment of securities, the
Agreement requires that the transfer agent provide adequate insurance
coverage or require coverage from the carrier to cover losses that
occur while in transit to and until received by MSTC. The amount of
coverage must be equal to or exceed 110% of the fair market value of
the securities shipped. The transfer agent is not obligated to deliver
shares evidenced by balance certificates within twenty four hours of
such a request from MSTC if the aggregate value of the shares to be
delivered exceeds the amount of the bankers blanket bond. The transfer
agent will instead deliver [[Page 14991]] or make available the
certificates as promptly as possible.\7\
\6\The transfer agent may limit, decrease, or cancel the blanket
bond protection upon thirty days prior notice of such action to
MSTC.
\7\Before delivering to MSTC certificates with an aggregate
current market value in excess of the maximum amount of the blanket
bond, the transfer agent may not create or maintain certificates,
other than any balance certificate, having a value in excess of the
blanket bond.
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Instructions from MSTC to register the transfer of securities
evidenced by a balance certificate in a name other than MSTC will
constitute a presentation of the balance certificate to the transfer
agent under applicable law. The same warranties that would apply if
MSTC physically presented the balance certificate to the transfer agent
will be applicable in this instance.
II. Discussion
The Commission believes that MSTC's proposal is consistent with
Section 17A of the Act\8\ and specifically with Sections 17A(b)(3)(A)
and (F).\9\ Sections 17A(b)(3)(A) and (F) require that a clearing
agency be organized and its rules be designed to facilitate and promote
the prompt and accurate clearance and settlement of securities
transactions and to assure the safeguarding of securities and funds in
its custody or control or for which it is responsible.
\8\15 U.S.C. 78q-1 (1988).
\9\15 U.S.C. 78q-1(b)(3)(A) and (F) (1988).
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Under MSTC's proposed rule change, an electronic instructions will
replace the physical transfer of securities between MSTC and transfer
agents. The proposal should help alleviate the inefficiencies
associated with the physical transfer of securities and should help
reduce the possibility of loss while securities are in transit between
MSTC and the transfer agent. The transfer of securities will be factor
and more efficient with the likely effect of reducing costs related to
the preparation of written instructions and physical delivery of the
securities. MSTC's proposed rule change also should help MSTC fulfill
its safekeeping obligations by allowing MSTC to maintain securities in
a form which should reduce the chances of loss and theft.
MSTC's proposed rule change requires that the transfer agent be
insured by a customary bankers blanket bond which will cover any
securities received from MSTC and/or held by the transfer agent or
processor on behalf of MSTC under the Agreement. Where balance
certificates have an aggregate current market value in excess of the
maximum value of the bankers blanket bond, the transfer agent will not
create or maintain certificates in excess of that value, other than any
balance certificate, prior to delivery to MSTC. These insurance
requirement should better enable MSTC to safeguard securities which are
at the transfer agent or are in transit from the transfer agent to MSTC
and should aid in the safekeeping of securities with a market value in
excess of the bankers blanket bond.
MSTC 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 so approving the proposed rule change because the ATS program
allows for an electronic communication between brokers and transfer
agents through MSTC. Such communication will be necessary for transfer
agents to participate in the direct registration system (``DRS'')
recently proposed by the Commission.\10\ The Commission believes it is
prudent to allow MSTC to begin use of the ATS as soon as possible in
order that MSTC and its participants will have time to become
proficient in using such a system before a DRS is implemented. The
Commission also believes that accelerated approval will allow MSTC
participants to utilize and to take full advantage in a more timely
fashion of the benefits of the ATS service.
\10\For a complete description of DRS, refer to Securities
Exchange Act Release No. 35038 (December 1, 1994), 59 FR 63652 [File
No. S7-34-94] (concept release soliciting comment on a transfer
agent operated book-entry registration system).
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III. Conclusion
The Commission finds that MSTC's proposal is consistent with the
requirements of the Act and particularly with Section 17A 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-MSTC-94-21) be, and hereby
is, approved on an accelerated basis.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-6841 Filed 3-20-95; 8:45 am]
BILLING CODE 8010-01-M
