[Federal Register Volume 59, Number 249 (Thursday, December 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31994]


[[Page Unknown]]

[Federal Register: December 29, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35108; File No. SR-DTC-94-15]

 

Self-Regulatory Organizations; The Depository Trust Company; 
Filing and Order Granting Accelerated Approval of Proposed Rule Change

December 16, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 27, 1994, The 
Dispository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
primarily by DTC. On November 23, 1994, DTC amended the proposed rule 
change by requesting that the Commission consider the proposal as being 
filed under Section 19(b)(2)\2\ of the Act instead of Section 
19(b)(3)(A)\3\ of the Act.\4\ The Commission is publishing this notice 
and order to solicit comments from interested persons and to grant 
accelerated approval of the proposed rule change.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\15 U.S.C. 78s(b)(2) (1988).
    \3\15 U.S.C. 78s(b)(3) (1988).
    \4\Letter from Carl H. Urist, Deputy General Counsel and Vice 
President, DTC, to Jerry W. Carpenter, Assistant Director, Division 
of Market Regulation, Commission (November 23, 1994).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    DTC proposes to institute the Automated Subscription Offer Program 
(``ASOP'') to process rights subscription offers made to holders of 
DTC-eligible securities.

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.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    A rights subscription offer enables the holders of an issuer's 
securities to subscribe to additional securities, which are usually 
shares of common stock. DTC currently processes most rights 
subscription offers made to holders of DTC-eligible securities and uses 
DTC's automated warrant subscription service for that purpose. When the 
warrant subscription service is used to process a rights subscription 
offer, certain aspects of the offer may have to be processed outside of 
DTC because the warrant subscription service is not designed 
specifically to process rights subscriptions.\5\ DTC developed ASOP in 
order to process rights subscription offers entirely within DTC's book-
entry environment.\6\ ASOP is substantially similar to DTC's Automated 
Tender Offer Program (``ATOP'') for processing tender and exchange 
offers.\7\
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    \5\For example, many rights subscription offers have step-up and 
oversubscription privileges which enable holders who fully exercise 
their basic subscription rights to subscribe to an additional 
quantity of securities. Currently, when DTC utilizes the warrant 
subscription service, the step-up and oversubscription privileges 
must be exercised outside of DTC.
    \6\Rights offers eligible for processing through ASOP are 
announced by DTC to participants through several means including 
through the Participant Terminal System and by hardcopy notices.
    \7\For a complete description of ATOP, refer to Securities 
Exchange Act Release Nos. 26784 (May 4, 1989), 54 FR 20221 [File No. 
SR-DTC-88-19] (order approving proposed rule change) and 33797 
(March 22, 1994), 59 FR 14696 [File No. SR-DTC-93-11] (order 
modifying ATOP).
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    A principal feature of ASOP is the elimination of hardcopy (i.e., 
paper) letters of transmittal signed by DTC's participants. Instead, 
ASOP enables participants to submit, through DTC's Participant Terminal 
System (``PTS''), subscription instructions which authorize DTC to 
surrender the rights and make the corresponding payment to the 
subscription offeror's agent. In accordance with these electronic 
instructions, DTC effects book-entry deliveries of the rights from the 
participants' accounts to the account of the offeror's agent. At the 
same time, DTC debits the participants' money settlement accounts with 
the subscription payments and credits the payments to the agent's 
account. When the underlying securities are distributed by the agent, 
DTC credits the securities to the accounts of the participants. The fee 
structure for DTC's warrant subscription service and ATOP will be 
applicable to ASOP.
    Individual agents for rights offers eligible for processing through 
ASOP will enter into a master agreement with DTC specifying, among 
other things, that the relay of electronic messages by DTC will qualify 
as the execution and delivery of subscription forms or notices of 
guaranteed delivery by DTC participants. Participants, on the other 
hand, must follow the procedures for exercising their rights contained 
in DTC's Participant Operating Procedures.
    In the rare event that an agent for a subscription rights offer 
does not have a PTS connection, DTC will process the offer outside of 
ASOP if DTC determines that the interests of its participants will be 
best served by making DTC's facilities available for the offer. In such 
a case, DTC may process the offer through other mechanisms such as the 
automated warrant subscription service. In such a situation, 
participants will process hardcopy letters of transmittal outside of 
DTC for any oversubscription and step-up privileges associated with the 
offer.
    DTC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder applicable to DTC because the proposal will further automate 
the processing of rights subscription offers through the facilities of 
DTC.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no impact on competition by reason of the proposed 
rule change.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    The proposed rule change has been discussed with the Reorganization 
Division of the Securities Industry Association and with several agents 
for rights subscription offers. Written comments from DTC participants 
or others have not been solicited or received on the proposed rule 
change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to 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\ The Commission believes that the proposed 
rule change is consistent with DTC's obligations under Section 
17A(b)(3)(F) because the rule change should alleviate problems arising 
from the use of hardcopy documents, such as risk of loss, delay during 
shipment, and the labor and expense involved in the physical handling 
of documents. Moreover, in providing agents for the rights offerings 
with a variety of information over ASOP, ASOP will increase the agents' 
ability to control the processing of these offers. The Commission 
further believes that the rule change is consistent with DTC's ability 
to safeguard the handling of funds and securities in its custody or 
control or for which it is responsible because the procedures used in 
ASOP, which have been subject to Commission review through the proposed 
rule change process, will be similar to the procedures used in ATOP.
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    \8\15 U.S.C. 78q-1(b)(3)(F) (1988).
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    DTC 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 accelerated approval 
will allow DTC participants to utilize and to take full advantage of 
the benefits of ASOP as soon as it is operational at DTC.

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, 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 Section, 450 Fifth Street, NW., Washington, DC 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 No. SR-DTC-94-15 and should be submitted by January 19, 1995.
    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, particularly 
with Section 17A of the Act, and 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-94-15) be, and hereby 
is, approved.

    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) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31994 Filed 12-28-94; 8:45 am]
BILLING CODE 8010-01-M