[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