[Federal Register Volume 60, Number 5 (Monday, January 9, 1995)]
[Notices]
[Pages 2410-2412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-381]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35186; File No. SR-DTC-94-16]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing of a Proposed Rule Change Clarifying the Depository
Trust Company's Policy on Depository-to-Depository Services and Fees
December 30, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on [[Page 2411]] November 29,
1994, The Depository Trust Company (``DTC'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change (File
No. SR-DTC-94-16) 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.
\1\15 U.S.C. 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 proposes to clarify its policy regarding depository-to-
depository services and fees by filing the following statement:
DTC shall make available to any other securities depository that
is registered as a clearing agency under Section 17A of the
Securities Exchange Act of 1934 (a ``depository'') any service that
DTC makes available to its Participants generally, provided that
such depository makes its services available to DTC on the same
basis.
DTC shall charge such depository for the services rendered by
DTC and shall pay such depository for services rendered to DTC only
such fees as DTC and the depository negotiate, but if DTC and such
depository do not have an agreement on fees, DTC shall (i) render
book-entry delivery services to such depository without charge if
and so long as such depository shall render book-entry delivery
services to DTC on the same basis and (ii) charge its published fees
for services relating to the physical handling of certificates
rendered by DTC to such depository and pay such depository its
published fees for custody-related services rendered by such
depository to DTC.\2\
\2\This policy statement does not apply to ``linked services,''
which the Commission has described as arrangements where one
depository (the ``servicing depository'') performs for another
depository (the ``using depository''( the core tasks necessary to
deliver the services to the using depository's participants. The
Commission has cited as examples of linked services DTC's processing
of ID confirmations and affirmations and DTC's fourth-party delivery
service. The Commission has expressed the view that a servicing
depository should be permitted to charge a using depository the same
fee it charges its participants for the same or a similar service.
See Securities Exchange Act Release No. 23083 (March 31, 1986) at
15-23.
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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 that 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
The purpose of the proposed rule change is to state DTC's policy
respecting depository-to-depository services and fees. DTC states that
this policy statement reflects the practices that have been followed by
DTC and the other depositories since the beginning of interdepository
processing and is consistent with the Commission's expressed views
concerning these matters.
From the very beginning of interdepository processing, in the mid-
1970s and through the present, DTC and the other depositories have
charged and paid each other for services rendered only such fees that
have been negotiated. For example, in 1975, Pacific Securities
Depository Trust Company (``PSDTC'') declared that it would not pay or
levy charges on the other depositories. In September 1976, DTC was
informed of the unilateral determination by the Midwest Securities
Trust Company (``MSTC'') Board that as a matter of principle MSTC would
discontinue paying DTC for services other than for physical withdrawals
of certificates. In 1977, DTC, PSDTC, and MSTC formally agreed to
provide most services to each other without charge (``no charge
agreement'').
At the present time, DTC has an informal agreement with the
Philadelphia Depository Trust Company covering custody-related
services. Each depository charges the other its published fees for
these services. In June 1992, DTC and MSTC entered into an agreement
that provided for depository-to-depository charges for certain
services. This agreement was terminated by DTC on June 1, 1994,
effective August 1, 1994, in accordance with the procedure set forth in
the agreement for termination by either party upon sixty days
notice.\3\ DTC has advised MSTC that if a new agreement is not reached
between DTC and MSTC, after November 30, 1994, DTC will continue to
provide services to MSTC but in the manner and on the terms described
in the policy statement,\4\ which is the subject of the proposed rule
change.
\3\See letter from Richard B. Nesson, Executive Vice President
and General Counsel, DTC, to Jerry W. Carpenter, Assistant Director,
Division of Market Regulation, Commission (November 11, 1994).
\4\Letter from William F. Jaenike, Chairman of the Board and
Chief Executive Officer, DTC, to Robert J. McGrail, Executive Vice
President and Chief Operating Officer, MSTC (November 17, 1994).
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DTC states that the Commission has been aware of and has commented
in its releases on the practice followed by FTC and other depositories
of paying each other only such fees as are negotiated rather than all
fees charged to participants generally. DTC states that the Commission
in its releases has never expressed the view that one depository, by
virtue of executing a participant agreement with another depository in
order to establish the legal framework for an interface relationship,
thereby becomes subject to all of that other depository's published
participant fees. DTC states that the Commission has expressed that
belief that:
[R]egistered securities depositories are not similar to ordinary
participants. Registered securities depositories are subject to
special regulation that no other participants face including a
specific statutory charge to cooperate with other registered
securities depositories. Thus, the Commission believes that a ``no-
charge'' policy with respect to interface account activity does not
result in an inequitable allocation of fees.\5\
\5\Securities Exchange Act Release No. 20461 (December 7, 1983)
at footnote 34.
DTC believes that the proposed rule change is consistent with
Section 17A(b)(3)\6\ of the Act. DTC believes that implementation of
the subject policy will help assure that depository interface services
are available to participants of any depository thereby promoting the
goal of one-account settlement. DTC also states that the policy will
enable DTC to avoid paying another depository inappropriately high fees
that might effect its inefficient operation and to avoid paying another
depository higher per-unit fees than such depository charges its
participants generally.\7\ DTC believes that managing the fees paid to
other depositories, which currently account for approximately 60% of
DTC's total cost of providing interface services to its participants,
will help reduce the fees that DTC must charge its participants to
recover those costs.
\6\15 U.S.C. 78q-1(b)(3) (1988).
\7\DTC states that the Commission has indicated that where one
depository is entitled to charge another (e.g., for linked
services), it expects that any offer of volume discounts to
participants generally would also be made available to the other
depository. Securities Exchange Act Release No. 23803 (March 31,
1986) at page 21.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC believes that by promoting the goal of one-account settlement
and by enabling DTC to control the interface costs that are paid by its
participants, the proposed rule change would help [[Page 2412]] promote
competition among depository users.
(C) Self-Regulatory Organization's Statement on Comments on that
Proposed Rule Change Received From Members, Participants, or Others
DTC has not sought or received comments on the proposed rule
change.
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 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 DTC. All submissions should
refer to the file number SR-DTC-94-16 and should be submitted by
January 30, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
\8\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-381 Filed 1-6-95; 8:45 am]
BILLING CODE 8010-01-M