[Federal Register Volume 61, Number 23 (Friday, February 2, 1996)]
[Notices]
[Pages 3956-3958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2173]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36782; International Series Release No. 923; File No.
SR-Philadep-96-01]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company; Notice of Filing and Order Granting Accelerated Approval on a
Temporary Basis of a Proposed Rule Change to Appoint the West Canada
Depository Trust Company as a Correspondent Depository
January 26, 1996
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ notice is hereby given that on January 25, 1996, the
Philadelphia Depository Trust Company (``Philadep'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-Philadep-96-01) as described in Items I and II
below, which items have been prepared primarily by Philadep. On January
25, 1996, and on January 26, 1996, Philadep filed amendments to the
proposed rule change.\2\ The Commission is publishing this notice and
order to solicit comments on the proposed rule change from interested
persons and to grant accelerated approval of the proposed rule change
on a temporary basis through June 30, 1996.
\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Letters from William W. Uchimoto, General Counsel, Philadep,
to Jerry W. Carpenter, Assistant Director, Division of Market
Regulation, Commission (January 25, 1996 and January 26, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to allow Philadep to
appoint the West Canada Depository Trust Company (``WCDTC'') as
Philadep's nonexclusive agent and custodian in receiving Philadep.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Philadep 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. Philadep 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 allow Philadep to
authorize WCDTC to act as a nonexclusive agent and custodian for
Philadep in receiving securities deposited by certain WCDTC sponsored
participants for credit to their respective subaccounts in WCDTC's
omnibus account at Philadep. These participant and custodial
arrangements will be effectuated by contracts executed between Philadep
and WCDTC and as to the Philadep participant arrangement by the rules
and procedures of Philadep.
At or before 12:45 p.m. (Philadelphia time) on any business day
Philadep is open, WCDTC will notify Philadep via facsimile transmission
or through
[[Page 3957]]
Philadep's Automated Deposit System of initiated and pending
instructions to Canadian transfer agents to transfer various Canadian
securities held by WCDTC into Philadep's nominee name. Philadep will
credit WCDTC's account(s) for Canadian issues at the time of this
notification. Philadep will credit WCDT's account(s) for incoming
deposits of U.S. issues (received by WCDTC and designated for physical
delivery and deposit to its Philadep account(s)) at the time of
physical receipt of the securities by Philadep. Philadep has created a
new screen and functionality to reduce the processing time required on
the part of WCDTC for U.S. issues. Therefore, this credit upon receipt
approach provides a faster and more efficient credit procedure than the
former Midwest Securities Trust Company (``MSTC'')/WCDTC arrangement
approved by the Commission.
With regard to Canadian issues, WCDTC will cause the Canadian
transfer agent to reregister the shares in Philadep's nominee name and
to deliver them to WCDTC as agent and custodian of Philadep. With
respect to acting as Philadep's agent for interfacing with Canadian
transfer agents, WCDTC has more direct knowledge of and familiarity
with Canadian transfer agents. WCDTC has a Canadian address and is
expected to obtain receipt of certificates faster than Philadep would
obtain receipt through the international postal system. Earlier receipt
of certificates means earlier certainty with respect to the value and
validity of deposited certificates. This is a benefit to Philadep
because the earlier Philadep receives notice of defects in a
certificate the sooner it can reverse the credit to the WCDTC's account
and the better it can limit the risk that the securities will have been
transferred out of the account before the reversal of the credit can
take place.
For Canadian issues returning to WCDTC from the Canadian transfer
agent, WCDTC will safeguard the deposited securities and will hold them
with deposit tickets attached and segregated from other securities held
by WCDTC until forwarded to Philadep via licensed air courier or other
carrier agreed upon by the parties. Securities held overnight will be
deposited in WCDTC's vault. If WCDTC fails to deliver these securities
to Philadep, Philadep will apply a short charge to WCDTC's account for
the full value of the fails. For fails to deliver resulting from
settled CNS transactions, Philadep will short the participant's CNS
account with the Stock Clearing Corporation of Philadelphia (``SCCP''),
Philadep's affiliated clearing corporation. SCCP will mark to market
all short positions and collect marks daily.
If the deposited securities are U.S. securities, WCDTC will forward
the securities directly to Philadep on the day the securities are
reported to Philadep. Securities will be shipped to Philadep via
licensed air courier or other carrier agreed upon by the parties.
WCDTC and Philadep have agreed that securities placed within the
custody and control of WCDTC on behalf of Philadep will not be subject
to any right, charge, security interest, lien or claim of any kind in
favor of WCDTC or any person claiming through WCDTC. WCDTC and Philadep
have further agreed that WCDTC will have no legal or equitable right,
title, or interest in or to such securities including but not limited
to any right, title, or interest in or to any principal or interest
coupons, redemption proceeds, payments or payable amounts relating to
any securities. In addition, WCDTC will maintain adequate insurance
coverage with respect to any securities which are in its custody on
behalf of Philadep. Furthermore, WCDTC will make a participants fund
contribution of $750,000, which is in excess of the minimum amount
required under the applicable formulae, and WCDTC's parent
organization, the Vancouver Stock Exchange, has committed to and is in
the process of executing an irrevocable standby letter of credit in the
amount of $2 million (Canadian Dollars) to be issued to Philadep
securing its guaranty obligations.\3\
\3\ During the temporary approval of the proposed rule change,
the current value of WCDTC's participants fund contribution or
letter of credit should not be reduced.
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Philadep believes the proposed rule change is consistent with
Section 17A of the Act and the rules and regulations thereunder because
the rule proposal fosters cooperation and coordination with persons
engaged in the clearance and settlement of securities transactions and
further assures the safeguarding of securities and funds in its custody
or control or for which Philadep is responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
Philadep does not believe that the proposed rule change will impact
or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
No written comments have been solicited or received. Philadep will
notify the Commission of any written comments received by Philadep.
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 foster cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions.\4\ The Commission believes that Philadep's designation of
WCDTC as a correspondent depository is consistent with Philadep's
obligations under Section 17A(b)(3)(F) because the proposed rule change
should help foster cooperation and coordination between the U.S. and
Canadian clearance and settlement systems by facilitating a link
between Philadep and WCDTC.
\4\ 15 U.S.C. Sec. 78q-1(b)(3)(F)(1988).
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Philadep 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 Philadep to immediately enter into a custodial
arrangement with WCDTC thus allowing WCDTC to continue to settle
without any disruption securities transactions between U.S. broker-
dealers and Canadian broker-dealers. Currently, WCDTC acts as a
corresponding depository for and conducts clearance and settlement with
the Midwest Securities Trust Company (``MSTC'') and the Midwest
Clearing Corporation (``MCC''). The arrangement among WCDTC, MSTC, and
MCC, including WCDTC's correspondent depository arrangement, will cease
on January 26, 1996, as a result of MSTC's and MCC's decision to
withdraw from the depository and clearance and settlement business.
The Commission is granting temporary approval of the proposed rule
change through June 30, 1996, so that Philadep and the Commission can
continue to monitor and analyze the development of WCDTC as a
correspondent depository before granting permanent approval. During
this period, the Commission will monitor the correspondent depository
arrangement between Philadep and WCDTC to ensure that proper risk
management procedures are in place. In this regard, the Commission
requests that Philadep submit prior to filing for continued approval a
report concerning specific surveillance measures that Philadep has
implemented with regard
[[Page 3958]]
to the WCDTC account. Such a report should include but should not be
limited to a detailed report outlining the risk management procedures
implemented specifically to monitor the WCDTC account, including any
staff or systems additions, and an analysis of any impact on Philadep's
business, including effects on liquidity needs from the acceptance of
WCDTC as a participant. Furthermore, Philadep will be required to file
monthly reports analyzing activity in WCDTC's omnibus account and
subaccounts. In addition, while the Commission believes that approval
of the proposed rule change at this time is necessary to prevent the
disruption of services for the clearance and settlement of certain
transactions between U.S. and Canadian broker-dealers, the Commission
recognizes that the period for public comment was brief. Because the
Commission is encouraging public comment on these proposals, the
Commission believes that it is appropriate to permit additional
opportunities for public comment in the future.\5\ For these reasons,
the Commission is temporarily approving the proposed rule change
through June 30, 1996. The staff of the Board of Governors of the
Federal Reserve System have concurred with the Commission's granting of
accelerated approval.\6\
\5\ Prior to June 30, 1996, Philadep will be required to file a
proposed rule change pursuant to Section 19(b) (2) of the Act to
seek continued approval of the proposed rule change.
\6\ Telephone conversation between Don Vinnedge, Manager, Trust
Activities Program, Board of Governors of the Federal Reserve Board,
and Jonathan Kallman, Associate Director, and Jerry Carpenter,
Assistant Director, Division of Market Regulation, Commission
(January 26, 1996).
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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. Sec. 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 Philadep. All
submissions should refer to the file number SR-Philadep-96-01 and
should be submitted by February 23, 1996.
It is therefore ordered, pursuant to Section 19(b) (2) of the Act,
that the proposed rule change (File No. SR-Philadep-96-01) be, and
hereby is, approved through June 30, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\ 17 CFR 200.30(a) (12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2173 Filed 2-1-96; 8:45 am]
BILLING CODE 8010-01-M