[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]
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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).
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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).
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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).
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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).
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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.
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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]]
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2174 Filed 2-1-96; 8:45 am]
BILLING CODE 8010-01-M