[Federal Register Volume 61, Number 23 (Friday, February 2, 1996)] [Notices] [Pages 3958-3960] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 96-2174] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-36781; File Nos. SR-Philadep-96-02 and SR-SCCP-96-01] Self-Regulatory Organizations; Philadelphia Depository Trust Company and Stock Clearing Corporation of Philadelphia; Notice of Filing and Order Granting Accelerated Approval on a Temporary Basis of Proposed Rule Changes to Provide for the Application of Article 8 of the New York Uniform Commercial Code 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'') and the Stock Clearing Corporation of Philadelphia (``SCCP'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule changes (File Nos. SR-PHILADEP-96-02 and SR-SCCP-96-01) as described in Items I and II below, which Items have been proposed primarily by Philadep and SCCP. The Commission is publishing this notice to solicit comments from interested persons and to grant accelerated approval of the proposed rule changes on a temporary basis through June 30, 1996. \1\ 15 U.S.C. 78s(b)(1) (1988). --------------------------------------------------------------------------- I. Self-Regulatory Organizations' Statement of the Terms of Substance of the Proposed Rule Changes Philadep proposes to adopt Rule 32 and to amend Rule 1 of its rules, and SCCP proposes to adopt Rule 41 and to amend Rule 1 of its rules to govern the choice of law to be elected in certain transactions effecting Philadep, SCCP, their participants, and pledgees. II. Self-Regulatory Organizations' Statements of the Purpose of, and Statutory Basis for, the Proposed Rule Changes In their filings with the Commission, Philadep and SCCP included statements concerning the purpose of and the basis for the proposed rule changes and discussed any comments received on the proposed rule changes. The text of these statements may be examined at the places specified in Item IV below. Philadep and SCCP have prepared summaries, as set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. A. Self-Regulatory Organizations' Statements of the Purpose of, and Statutory Basis for, the Proposed Rule Changes Philadep and SCCP hereby propose to adopt Rules 32 and Rule 41, respectively, and to amend Rule 1 of their rules to codify their decision to elect certain New York commercial code provisions to govern certain transactions for the purpose of providing a uniform, consistent, and predictable body of law. Specifically, Rule 32 \2\ and rule 41 will assure that the rights and obligations of Philadep and SCCP, their participants, and their pledgees with respect to transfers and pledges of securities, to the extent Article 8 of the Uniform Commercial Code (``UCC'') applies thereto, will be governed by and construed in accordance with Article 8 of the UCC of New York in effect from time to time. The definition of ``security'' under Rule 1 of the Philadep's and SCCP's rules also will be amended to cite to New York UCC Article 8 as opposed to Pennsylvania UCC Article 8. \2\ In its filing, Philadep mistakenly cites proposed Rule 41. The correct reference is to proposed Rule 32. Telephone conversation between J. Keith Kessel, Compliance Officer, SCCP and Philadep, and Cheryl O. Tumlin, Staff Attorney, Division of Market Regulation (``Division''), Commission (January 25, 1996). --------------------------------------------------------------------------- Philadep and SCCP note that uncertainty exists whether New York law or Pennsylvania law may apply to any particular transfers and whether some transfers within Philadep's or SCCP's systems may be governed by Pennsylvania's UCC Article 8 while other transaction within such systems may be governed by New York's UCC Article 8. With so many of the transactions for which Philadep and SCCP provide depository, clearance, and settlement services potentially being affected (e.g., those transactions effected through interface with broker-dealers, banks, and other institutions which are participants in The [[Page 3959]] Depository Trust Company (``DTC'') and National Securities Clearing Corporation (``NSCC'') systems), it is problematic that different rules of law under Article 8 of the UCC may govern the rights and obligations of parties to such transfers. Philadep and SCCP, therefore, have chosen to elect the application of New York's UCC Article 8 rather than Pennsylvania's UCC Article 8. The choice of New York law also assures that DTC, NSCC, and their respective participants and pledgees will find harmonious commercial code provisions governing their extensive dealings with Philadep and SCCP, their participants, and pledgees in this area as the former New York based groups already are subject to New York law. Philadep and SCCP believe the proposed rule changes are consistent with Section 17A of the Act and the rules and regulations thereunder because the rules are designed to promote the prompt and accurate clearance and settlement of securities transactions, to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible, to foster cooperation and coordination with persons engaged in the clearance and settlement of securities, to remove impediments to and perfect the mechanism of a national market system for the prompt and accurate clearance and settlement of securities transactions, and, in general, to protect investors and the public interest. B. Self-Regulatory Organizations' Statements on Burden on Competition Philadep and SCCP do not believe that the proposed rule changes will impact or impose a burden on competition. C. Self-Regulatory Organization's Statements on Comments on the Proposed Rule Changes Received From Members, Participants or Others No written comments have been solicited or received. Philadep and SCCP will notify the Commission of any written comments received. III. Date of Effectiveness of the Proposed Rule Changes and Timing for Commission Action Section 17A(b)(3)(F) \3\ of the Act requires the rules of a clearing agency be designed to foster cooperation and coordination with persons engaged in the clearance and settlement of securities. The Commission believes the proposed rule changes are consistent with these requirements because adoption of Article 8 of the New York UCC should help provide certainty with respect to the substantive rights and obligations under UCC Article 8 that are applicable to Philadep and SCCP and their participants particularly with respect to transactions with broker-dealers, banks, and other institutions that are participants of DTC and NSCC. \3\ 15 U.S.C. 78q-1(b)(3)(F) (1988). --------------------------------------------------------------------------- Philadep and SCCP have 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 enable Philadep and SCCP to admit West Canada Clearing Corporation and the West Canada Depository Trust Company (collectively ``West Canada'') as participants of Philadep and SCCP. With West Canada as participants, transactions in certain Canadian and U.S. securities between Canadian and American brokers can be cleared and settled through the facilities of Philadep and SCCP. Currently, such clearance and settlement is conducted between West Canada and the Midwest Securities Trust Company (``MSTC'') and Midwest Clearing Corporation (``MCC''). Because MSTC and MCC are withdrawing from the clearance and settlement business, they will cease providing clearance and settlement services to West Canada on January 26, 1996. SCCP and Philadep's ability to commence clearing and settlement services in an arrangement with West Canada by January 26, 1996, should prevent disruption in the clearance and settlement of transactions by U.S. and Canadian broker-dealers. The staff of the Board of Governors of the Federal Reserve System has occurred with the Commission's granting of accelerated approval.\4\ \4\ Telephone conversion between Don Vinnedge, Manager, Trust Activities Program, Board of Governors of the Federal Reserve System, and Jonathan Kallman, Associate Director, and Jerry Carpenter, Assistant Director, Division, Commission (January 26, 1996). --------------------------------------------------------------------------- The Commission is granting temporary approval of the proposed rule changes because the Commission believes the adoption of Article 8 of the New York UCC should continue to be examined, especially in the area of third parties that are not Philadep or SCCP participants, before the selection of such governing law is permanently approved. The Commission is requiring SCCP and Philadep to submit an opinion of counsel to address, among other things, the effect of the choice of law provisions upon third parties. In addition, while the Commission believes that approval of the proposed rule changes 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 changes through June 30, 1996. During this period, the Commission will continue to analyze the developments and the application of Article 8 of the New York UCC and to review and assess public comments concerning the rule changes. \5\ Prior to June 30, 1996, Philadep and SCCP will be required to file proposed rule changes pursuant to Section 19(b)(2) of the Act to seek continued approval of the current changes. --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing. Persons making such 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such findings will also be available for inspection and copying at the principal offices of Philadep and SCCP. All submissions should refer to File Nos. SR-PHILADEP-96-02 SR- SCCP-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 changes (File Nos. SR-PHILADEP-96-02 and SR- SCCP-96-01) be, and hereby are, approved through June 30, 1996. For the Commission by the Division of Market Regulation pursuant to delegated authority.\6\ \6\ 17 CFR 200.30-3 (a)(12)(1994). [[Page 3960]] --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 96-2174 Filed 2-1-96; 8:45 am] BILLING CODE 8010-01-M