[Federal Register Volume 61, Number 111 (Friday, June 7, 1996)]
[Notices]
[Pages 29158-29160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14357]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37256; File No. SR-DTC-96-08]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of a Proposed Rule Change To Establish a Custody
Service For Certain Non-depository Eligible Securities
May 30, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 29159]]
(``Act''),\1\ notice is hereby given that on April 2, 1996, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-DTC-96-08) as described in Items I, II, and III below, which items
have been prepared primarily by DTC. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
DTC is filing the proposed rule change to establish procedures for
its Custody that will enable DTC participants that hold certain non-
depository eligible securities to deposit those securities with DTC for
safekeeping and other limited depository services.
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.\2\
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\2\ 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
The purpose of the proposed rule change is to establish a method by
which the securities industry may centralize the safe-keeping of
certificates which are not currently deposited at DTC because either
the DTC participant desires that the certificate be held in customer or
firm name or the issue is not eligible for full depository services
(e.g., securities with certain transfer restrictions). The Custody
Service will permit DTC participants to deposit such securities at DTC
for safe-keeping and other limited depository services.\3\ Certificates
deposited through the Custody Service will be held by DTC in customer
or firm name and will not be transferred into DTC's nominee name.
Therefore, a security issue deposited through the Custody Service
(``Custody Issue'') will not be eligible for DTC's book-entry services
unless a depositing participant directs DTC to transfer the position
originally credited to the participant's custody free account to the
participant's general free account.\4\
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\3\ A description of DTC's proposed Custody Services is set
forth in Exhibit B to the filing ``DTC Custody Service,'' which is
available for review at the Commission's Public Reference Room.
\4\ All necessary documents (e.g., stock powers or endorsements)
to effect a legal transfer from customer or firm name to DTC's
nominee name must be deposited with DTC prior to or
contemporaneously with a participant's instruction to transfer the
position from a participant's custody free account to the
participant's general free account. Custody Issues eligible for
transfer from a participant's custody free account to its general
free account are those Custody Issues for which (i) all necessary
documents of transfer are on deposit at DTC, (ii) there are no
pending restrictions on transferability, and (iii) the issue is
otherwise DTC eligible.
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DTC believes that the Custody Service will provide brokers and
dealers with appropriate control over Custody Issues for purposes of
Rule 15c3-3(b) \5\ under the Act. In accordance with the requirements
for the satisfactory control of securities set forth in Rule 15c3-
3(c)(5),\6\ DTC believes (i) it is a ``bank'' within the meaning of
Section 3(a)(6) of the Act because it is a member bank of the Federal
Reserve System, (ii) the delivery of Custody Issues to brokers and
dealers will not require the payment of money or value, and (iii) the
Custody Issues in DTC's custody or control will not be subject to any
right, charge, security interest, lien, or claim of any kind in favor
of DTC or any person claiming through DTC.
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\5\ 17 CFR 240.15c3-3(b) (1995).
\6\ 17 CFR 240.15c3-3(c) (1995).
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The proposed Custody Service will be implemented in three phases.
As each phase is introduced, additional services will be offered to DTC
participants. During the first phase, DTC will accept deposits, process
withdrawals, and transfer eligible Custody Issues into a participant's
general free account. DTC also will respond to inquiries regarding
custody deposits and offer automated and physical activity reports to
participants.
The second phase of the Custody Service will add redemption and
reorganization services. When a custody position becomes the subject of
a reorganization or redemption, DTC generally will report the event to
its participants using existing services.\7\ In addition, DTC
participants will be able to utilize DTC's Reorg Deposit Service \8\ to
present eligible Custody Issues for mandatory reorganizations, full and
partial calls, maturities, name changes, reverse splits, mergers, and
other similar activities. Participants will be able to submit
negotiable and transferable Custody Issues for voluntary
reorganizations through existing, modified services. DTC also will
collect and distribute the proceeds derived from the presentment of
custody deposits.
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\7\ DTC will require its participants to notify DTC of
redemptions and reorganizations involving Custody Issues where DTC
has not already announced such an activity.
\8\ The Reorg Deposit Service enables DTC participants to
deposit at DTC certificates for up to two years after the
reorganization activity and to have DTC collect the proceeds on
their behalf. For a complete description of DTC's Reorg Deposit
Service, refer to Securities Exchange Act Release No. 34189 (June 9,
1994), 59 FR 30818 [SR-DTC-94-06] (notice of filing and immediate
effectiveness of proposed rule change).
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In the third phase of the Custody Service, DTC will implement the
capability to collect and distribute dividend and interest payments for
Custody Issues registered in customer or firm name. Although DTC is
seeking approval for each phase of the Custody Service, it intends only
to implement Phase I at this time, with the other phases to follow in
accordance with the experience and needs of DTC participants.
DTC believes the proposed rule change will reduce the costs,
inefficiencies, and risks associated with the physical safe-keeping of
securities which are not current depository eligible at DTC because its
participants will be able to reduce the inventories of securities in
their physical vault and in turn should reduce their processing, labor,
and insurance expenses. DTC believes the proposed rule change is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to DTC in that it promotes
efficiencies in the prompt and accurate clearance and settlement of
securities transactions. Moreover, DTC believes the proposed service
establishes uniform procedures for clearance and settlement which will
reduce unnecessary costs and increase the protection of investors and
persons facilitating transactions by and acting on behalf of investors.
DTC also believes the proposed rule change supports industry efforts to
immobilize securities certificates and maximize efficiencies in
securities processing.
(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act, in the public interest, and for the protection
of investors.
[[Page 29160]]
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
DTC has not solicited comments from its participants on the
proposed rule change. A number of DTC participants have requested that
DTC develop a custody service and informally have committed to using
such a service.
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 DTC 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, N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of DTC. All
submissions should refer to the file number SR-DTC-96-08 and should be
submitted by June 28, 1996.
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) (1995).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-14357 Filed 6-6-96; 8:45 am]
BILLING CODE 8010-01-M
