[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21570]


[[Page Unknown]]

[Federal Register: September 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34600; File No. SR-DTC-94-05]

 

Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Establishing a Service for 
Routing of Securities Certificates and Related Documentation to DTC

August 25, 1994.
    On October 15, 1993, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-94-05) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published on June 23, 1994, in the Federal Register to solicit 
comments on the proposed rule change.\2\ One comment letter was 
received.\3\ For the reasons discussed below, the Commission is 
approving the proposed rule change.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Securities Exchange Act Release No. 34224 (June 16, 1994), 59 
FR 32473 [File No. SR-DTC-94-05].
    \3\The comment letter is discussed in Section II of this order.
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I. Description of the Proposal

    The purpose of the proposed rule change is to establish procedures 
for a new service, the branch receive processing service. The service 
will allow participants to route securities certificates and related 
documentation from their branches and other satellite offices directly 
to DTC rather than to the participants' own central locations for 
processing before being deposited at DTC. Under current practice, 
participants route all of their certificates and related documentation 
from their branches and other satellite offices to their own central 
location for processing. Such processing typically results in the 
routing of items which are DTC-eligible to DTC and items which are not 
DTC-eligible elsewhere. Under the branch receive processing service, 
DTC, rather than the participants' central locations, will receive the 
certificates and related documentation directly from the participants' 
branches and satellite offices. DTC will process both eligible and non-
eligible certificates and the related documentation and will route the 
certificates as directed by the participants.\4\
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    \4\Letter from Jack R. Wiener, Associate Counsel, DTC, to Jerry 
Carpenter, Assistant Director, Division of Market Regulation 
(``Division''), SEC (July 8, 1994).
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    A participant using the service will transmit on a daily basis to 
DTC through computer-to-computer batch processing or by use of dual 
frame main host the details of incoming branch receive items. These 
transmissions will include the specific identification of the courier 
packages coming from the branches and certain basic information about 
the contents of each package. These transmissions can be matched by DTC 
against DTC's own database of eligible securities to identify special 
processing items (e.g., securities deposited on the record date for 
dividend or interest payment and securities that are the subject of 
reorganization activities).
    Upon receipt of each package, DTC will verify its contents and will 
advise the participant of any discrepancies discovered. Using optical 
disk technology, DTC will record the contents of the packages and the 
details of each received item (e.g., certificate numbers and document 
types). DTC will transmit updates on the status of branch receive 
processing to the participant throughout the day. These updates will 
provide the participant with specific information on the status of 
particular items. Optical disk images of items received also can be 
made available to the participant on a terminal by transmission or by 
other means. If transmission is chosen, images of a problem item can be 
transmitted intraday to help resolve the problem while images of 
completed items can be transmitted overnight for recordkeeping 
purposes.
    Once processed, branch received items will be routed as directed by 
the participant. Routing instructions may be for routine deposit to the 
participant's DTC account, for return to the participant, or for 
transfer to another location for further processing. End-of-day 
balancing procedures will permit the participant to separate these 
positions as required by it for its own internal purposes.
    The branch receive service also will provide for the processing of 
various exception items. DTC will be able to process for collection 
next-payable interest coupons attached to incoming bearer bonds and 
incoming reorganization items including past-due items. Incoming items 
which are missing documentation necessary for transfer purposes will be 
held at DTC in a pending status until the necessary documentation is 
received. Generally, DTC does not expect to hold such items more than 
thirty days.\5\
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    \5\Telephone conversation between Jack Wiener, Associate 
Counsel, DTC, and Jerry W. Carpenter, Assistant Director, and 
Margaret J. Robb, Staff Counsel, Division, SEC (July 12, 1994).
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II. Comments

    One comment letter was received with regard to the proposed rule 
change.\6\ In its letter, the Securities Information Center (``SIC''), 
commented on DTC's representation that if requested by a participant it 
will be able to handle all inquiries to the SIC on branch receive items 
and then report the results to the participant. SIC's letter stated 
that while SIC had discussed this topic with DTC, an agreement that it 
would be possible for DTC to provide such a service had not been 
reached. In response to SIC's comment letter, DTC has represented to 
the Commission that at this time it will not be involved in the SIC 
process on behalf of any participant.\7\ Should DTC decide to perform 
such services for its participants in the future, DTC will file with 
the Commission an appropriate rule filing under Section 19(b) of the 
Act.\8\ SIC did not oppose any other aspects of the proposed rule 
change.
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    \6\Letter from John E. Boehmke, General Manager, Securities 
Information Center, to Jonathan G. Katz, Secretary, Securities and 
Exchange Commission (July 13, 1994).
    \7\Telephone conversation with Jack Wiener, Associate Counsel, 
DTC, and Jerry W. Carpenter, Assistant Director, and Margaret J. 
Robb, Staff Counsel, Division, SEC (August 8, 1994).
    \8\It is the Division's understanding that discussions between 
DTC and SIC are continuing with respect to the feasibility of DTC 
offering such a service.
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III. Discussion

    The Commission believes that the proposal is consistent with the 
Act and particularly with Section 17A of the Act.\9\ Section 
17A(b)(3)(F) requires that a clearing agency's rules be designated to 
remove impediments to and perfect the mechanism of a national system 
for prompt and accurate clearance and settlement of securities 
transactions.\10\ The proposed rule change should further efficiency in 
the processing of securities certificates and related documentation by 
eliminating most of the certificate processing responsibilities of 
those participants electing to use the branch receive processing 
service and by reducing the movement of physical securities 
certificates. This reduction in the processing and movement of physical 
securities certificates should also improve efficiency by reducing the 
instances of erroneous processing and loss that sometimes occur with 
the processing and movement of physical certificates.
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    \9\15 U.S.C. 78q-1 (1988).
    \10\15 U.S.C. 78-1(b)(3)(F) (1988).
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IV. Conclusion

    The Commission finds that the proposal is consistent with the 
requirements of the Act and particularly with Section 17A of the Act 
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-DTC-94-05) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21570 Filed 8-31-94; 8:45 am]
BILLING CODE 8010-01-M