[Federal Register Volume 60, Number 211 (Wednesday, November 1, 1995)]
[Notices]
[Pages 55623-55624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-27131]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36425; File No. SR-DTC-94-16]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Amendment to a Proposed Rule Change Clarifying the 
Depository Trust Company's Policy on Depository-to-Depository Services 
and Fees

October 26, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on 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. Notice of the proposal was 
published in the Federal Register on January 9, 1995.\2\ One comment 
letter was received.\3\ On October 11, 1995, DTC filed an amendment to 
clarify the filing.\4\ Because the amendment changes the substance of 
the filing, the Commission is publishing this notice to solicit 
comments on the amended proposed rule change from interested persons.

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Securities Exchange Act Release No. 35186 (December 30, 
1994), 60 FR 2418.
    \3\Letter from J. Craig Long, Foley and Lardner [on behalf of 
the Midwest Securities Trust Company], to Jonathan G. Katz, 
Secretary, Commission (February 3, 1995).
    \4\Letter from Richard B. Nesson, Executive Vice President and 
General Counsel, DTC, to Jerry W. Carpenter, Esq., Assistant 
Director, Division of Market Regulation, Commission (October 11, 
1995).
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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:

    With respect to any other securities depository that is 
registered as a clearing agency under Section 17A of the Securities 
Exchange Act of 1934 (a ``depository''), neither DTC nor the other 
depository shall be obligated to pay each other the fees charged to 
participants by virtue of having executed participant agreements 
with one another. DTC shall provide services to the other 
depository, charges fees for those services, and pay for the 
services provided to DTC, all in accordance with the terms of a 
separate agreement, if any, between DTC and the other depository 
respecting such matters.
    In the absence of any such separate agreement, however:
    1. DTC shall make available to any other 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.
    2. DTC (i) shall not charge for the book-entry delivery services 
provided to the other depository nor pay for the book-entry delivery 
services provided by the other depository, (ii) shall charge DTC 
participant fees for services relating to the physical handling of 
certificates rendered by DTC to such depository and pay the other 
depository its participant fees for services relating to the 
physical handling of certificates rendered to DTC and (iii) shall 
charge the other depository and pay the other depository for 
``linked services'' provided, if any.\5\ [Footnote original]

    \5\The Commission has described linked services as arrangements 
where one depository (``servicing depository'') performs for another 
depository (``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. 
Securities Exchange Act Release No. 23083 (March 31, 1986), 51 FR 
12421.
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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 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.\6\

    \6\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 state DTC's policy 
with respect to 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-
1970's 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 (``Philadep'') covering 
custody-related services. DTC and Philadep charge each other their 
published fees for these services.
    DTC states that the Commission has been aware of and has commented 
in its 

[[Page 55624]]
releases on the practice followed by DTC 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 the 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.\7\

    \7\Securities Exchange Act Release No. 20461 (December 7, 1983) 
at footnote 34.
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    DTC believes the proposed rule change is consistent with Section 
17A(b)(3)\8\ 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.\9\ 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.

    \8\15 U.S.C. 78q-1(b)(3) (1988).
    \9\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 promote competition 
among depository users.

(C) Self-Regulatory Organization's Statement on Comments on the 
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, 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 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-94-16 and should be 
submitted by November 22, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-27131 Filed 10-31-95; 8:45 am]
BILLING CODE 8010-01-M