[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).
    
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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