[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Notices]
[Pages 26243-26244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13140]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37229; File No. SR-PHILADEP-95-12]
Self-Regulatory Organizations; The Philadelphia Depository Trust
Company; Notice of Filing of a Proposed Rule Change Seeking To
Establish a Centralized Office Processing System
May 20, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 19, 1995, the
Philadelphia Depository Trust Company (``Philadep'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-PHILADEP-95-12), which Philadep amended on March
20, March 27, March 28, and April 1, 1996,\2\ as described in Items I,
II, and III below, which items have been prepared primarily by
Philadep. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Letters from J. Keith Kessel, Esq., Compliance Officer,
Philadep, to Peter R. Geraghty, Esq., Senior Counsel, Division of
Market Regulation, Commission (March 20, March 22, March 28, and
April 1, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Philadep proposes of offer to its participants a customer name
safekeeping and branch receive processing service known as the
Centralized Office Processing Service (``COPS'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Philadep included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments that it received on the proposed rule change.
The text of these statements may be examined at the places specified in
Item IV below. Philadep has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of such
statements.\3\
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\3\ The Commission has modified the text of the summaries
submitted by PHILADEP.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
COPS is a customer name \4\ safekeeping and branch receive
processing service that Philadep proposes to offer to interested
participants for both depository eligible and ineligible securities
provided that all such securities have a valid CUSIP number. The
primary objective of COPS is to allow Philadep participants to utilize
Philadep as a custodial agent for customer name securities.
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\4\ Customer name securities refer to securities that are
registered in the name of the beneficial owner.
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COPS is designed to offer broker-dealers the opportunity to
eliminate a labor intensive, low profit service from the broker-
dealers' operations. Philadep believes COPS will serve several
functions including relieving Philadep participants from the processing
and auditing responsibilities associated with receiving customer name
securities, reducing the costs Philadep participants bear in connection
with maintaining safekeeping for physical certificates, and
centralizing more securities certificates in a depository environment.
Under COPS, deliveries of customer name certificates from Philadep
participants will be deposited into Philadep's vault for
safekeeping.\5\ Upon an appropriate instruction from the submitting
participant to withdrawn positions held in customer name or if a
participant's customer wishes to sell the securities, Philadep may
either (i) send these certificates to the participant or (ii) if the
securities are depository eligible and possess all necessary
endorsements and stock or bond powers, forward them to the transfer
agent for reregistration into Philadep's nominee name and subsequently
deposit them into the participant's general Philadep account.\6\
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\5\ Philadep will segregate all customer name certificates from
nominee name certificates in its vault.
\6\ For customer name securities that are not depository
eligible at the time a transfer request is made, Philadep will
perform all necessary due diligence on such securities to make them
depository eligible so that the securities can be registered in
Philadep's nominee name and subsequently available for book-entry
delivery into the participant's general Philadep account.
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As proposed, COPS also will permit Philadep participants to
collect, process, and forward certificates and related documentation
directly to Philadep from their branch offices. This enables Philadep
to operate as the participants' central processing office. Thus, COPS
will eliminate steps in the ordinary certificates routing process by
allowing participants' branch offices to forward these documents
directly to Philadep. The branch receive processing facility will apply
to both customer name safekeeping positions and to ordinary deposits
that participants will forward to the depository to be placed in
Philadep's nominee name.
The COPS program will require Philadep participants utilizing the
new service to send their securities to Philadep through Philadep's
Automated Deposit System (``ADS''). This will allow Philadep
participants to report their deliveries to Philadep in advance of the
physical delivery.\7\ Philadep will verify the contents of the incoming
deliveries and will provide intraday reconciliation through computer-
to-computer capabilities. Philadep will endeavor to resolve with the
delivering participant any discrepancies between the ADS transmission
and the contents of the packages. If the participant does not properly
reconcile its submissions with Philadep or supply the proper
instructions regarding these items within thirty days, Philadep will
automatically send these exception items back to the respective
participant's branch or central office. Philadep has not established
fees for COPS; therefore, prior to its implementation, Philadep will
file a proposed rule change with the Commission setting forth the fees
for COPS.
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\7\ In addition to reporting incoming deposits prior to physical
delivery, ADS will check securities against Philadep's certificate
master file to ascertain whether the securities possess a valid
CUSIP number.
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In connection with providing the COPS service, Philadep believes
that it operates as a control location for securities deposited into
COPS within the meaning of Section 15(c) of the Act and Rule 15c3-
3(c)(5) promulgated thereunder. In accordance with 15c3-3(c)(5),
Philadep states (i) it qualifies as
[[Page 26244]]
a bank within the meaning of Section 3(a)(6) of the Act because it is a
member of the Federal Reserve System, (ii) COPS is a custody business
designed to hold securities in a depository ``free'' position, which
will not require payment to return the securities to brokers and
dealers, and (iii) securities deposited into COPS will not be subject
to any right, charge, security interest, lien, or claim in favor of
Philadep or any of its creditors.
Philadep believes the proposed COPS service complies with Section
17A of the Act insofar as it is contemplated to protect investors and
the public interest, to foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions, and to further assure the safeguarding of securities
which are in the custody and control of Philadep.
(B) Self-Regulatory Organization's Statement on Burden on Competition
Philadep believes that COPS will foster competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants or Others
Written comments were neither solicited nor received with respect
to the proposed rule change. However, Philadep has received several
oral comments from its participants which support Philadep in
developing the services contemplated by the proposed rule change. These
comments focus of the benefits of cost reduction and Philadep
participants' opportunity costs.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which Philadep consents, the Commission will:
(A) By order approve such proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. 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 Room, 450 Fifth Street, NW., Washington,
DC 20549. Copies of such filing will also be available for inspection
and copying at the principal office of Philadep. All submissions should
refer to the file number SR-PHILADEP-95-12 and should be submitted by
June 14, 1996.
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) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13140 Filed 5-23-96; 8:45 am]
BILLING CODE 8010-01-M
