[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21179]
[[Page Unknown]]
[Federal Register: August 29, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34560; File Nos. SR-Philadep-94-02 and SR-SCCP-94-04]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company and Stock Clearing Corporation of Philadelphia; Notice of
Proposed Rule Changes concerning Custodial and Non-Custodial
Responsibilities and Certain Litigation Matters
August 19, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 19, 1994, the
Philadelphia Depository Trust Company (``Philadep'') and the Stock
Clearing Corporation of Philadelphia (``SCCP'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
changes (File Nos. SR-Philadep-94-02 and SR-SCCP-94-04) as described in
Items I, II, and III below, which Items have been prepared primarily by
Philadep and SCCP, self-regulatory organizations (``SROs''). The
Commission is publishing this notice to solicit comments on the
proposed rule changes from interested persons.
I. Self-Regulatory Organizations' Statement of the Terms of Substance
of the Proposed Rule Changes
Philadep and SCCP propose to modify, respectively, Philadep Rule 18
and SCCP Rule 31 to: (1) further define the standard of care with
respect to custodial and noncustodial functions; (2) add a provision
limiting suits against Philadep and SCCP directors, officers,
employees, and agents; and (3) add a provision that requires Philadep
and SCCP participant, in certain circumstances, to pay the expenses and
outside attorneys' fees incurred by Philadep and SCCP defending a legal
proceeding instituted by such participant.
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In their filings with the Commission, Philadep and SCCP included
statements concerning the purpose of and basis for the proposed rule
changes and discussed any comments they received on the proposed rule
changes. The text of these statements may be examined at the places
specified in Item IV below. The SROs have prepared summaries, set forth
in sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organizations' Statements of the Purpose of, and
Statutory Basis for the Proposed Rule Changes
Basically, the purpose of the proposed rule changes is to amend
Philadep Rule 18 and SCCP Rule 31 to clarify the standard of care with
respect to custodial and noncustodial functions; to add language
restricting certain suits against Philadep's and SCCP's officers,
directors, and employees; and to insert provisions regarding
reimbursement of out-of-pocket expenses and outside attorneys' fees
from participants who initiate and fail to prevail in litigation
against Philadep and SCCP.
The proposed rule changes underscore that Philadep and SCCP shall
use their best efforts to perform their duties and responsibilities in
the manner specified in their rules. The proposals redefine Philadep's
and SCCP's standards of care to distinguish between custodial and
noncustodial functions. In the performance of their custodial duties
with respect to their safeguarding of securities and funds, Philadep
and SCCP will continue to be liable to participants for any loss, cost,
expense, damage, or liability attributable to the negligence or
misconduct of Philadep or SCCP or their officers, employees, or agents.
With respect to Philadep's or SCCP's noncustodial activities, Philadep
or SCCP will have no liability to any participant or any third party
for the performance or nonperformance of their duties except to the
extent Philadep's or SCCP's or their officers', employees', or agents'
actions or inactions constitute willful misconduct, gross negligence,
bad faith, or fraudulent or criminal acts. The proposed language
specifically states that the limitations of liability shall not apply
to violations of any federal securities laws.
The proposed rules also add provisions prohibiting current or
former Philadep and SCCP participants from suing any current or former
officer, director, employee, or agent of Philadep or SCCP or of any of
their affiliates, or of their parent corporation, the Philadelphia
Stock Exchange, if such officer, director, employee, or agent is acting
on the business of the Philadep or SCCP, their parent, or any of their
affiliates. The proposed provisions do not prohibit a participant from
suing Philadep or SCCP because of the actions of these individuals. The
proposal only prohibit a participant from suing the individuals acting
in the scope of their official capacities. The limitation does not
apply for violations of federal securities laws.
Finally, the proposed Philadep Rule 18 and SCCP Rule 31 provide
that Philadep and SCCP participants who initiate but fail to prevail in
a legal proceeding against Philadep or SCCP are required to pay the
out-of-pocket expenses and outside attorneys' fees incurred by Philadep
or SCCP, their parent, or affiliates in defending such a proceeding.\2\
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\2\The Commission requests comments on whether there should be a
minimum level of expenses and outside attorneys' fees that Philadep
and SCCP should incur before being entitled to reimbursement.
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Philadep and SCCP state that the proposed rule changes are
consistent with Section 17A of the Exchange Act\3\ in that it will
facilitate the safeguarding of securities and funds which are in
Philadep's custody or control or for which Philadep is responsible.
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\3\15 U.S.C. Sec. 78q-1 (1988).
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B. Self-Regulatory Organizations' Statement on Burden on Competition
Philadep and SCCP believe that the proposed rule changes will not
impose any burden on competition.
C. Self-Regulatory Organizations' Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
Philadep nor SCCP have not solicited or received any comments on
the proposed rule changes.
III. Date of Effectiveness of the Proposed Rule Changes 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 such period that the SRO consent, the Commission
will:
(A) by order approve such proposed rule changes or
(B) institute proceedings to determine whether the proposed rule
changes 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, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule changes that are filed
with the Commission, and all written communications relating to the
proposed rule changes 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 filings will also be
available for inspection and copying at the principal offices of
Philadep and SCCP. All submissions should refer to File Nos. SR-
Philadep-94-02 and SR-SCCP-94-04 and should be submitted by September
19, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21179 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M
