[Federal Register Volume 61, Number 27 (Thursday, February 8, 1996)]
[Notices]
[Pages 4807-4808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2675]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36799; File No. SR-DTC-94-16]


Self-Regulatory Organizations; The Depository Trust Co.; Order 
Approving a Proposed Rule Change Clarifying the Depository Trust 
Company's Policy on Depository-to-Depository Services and Fees

February 1, 1996.
    On November 29, 1994, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-94-16) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on January 9, 1995.\2\ One 
comment letter was received.\3\ On October 11, 1995, DTC filed an 
amendment to clarify the filing.\4\ Because the amendment changed the 
substance of the filing, notice of the amended proposal was published 
in the Federal Register on November 1, 1995.\5\ One comment letter was 
received in response to the notice of the amended proposal after the 
expiration of the comment period.\6\ For the reasons discussed below, 
the Commission is approving the proposed rule change as amended.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 35186 (December 30, 
1994), 60 FR 2418.
    \3\ Letter from J. Craig Long, Foley and Lardner (on behalf of 
the Midwest Securities Trust Company), to Jonathan G. Katz, 
Secretary, Commission (February 3, 1995). The comment letter is 
discussed in Section II of this order.
    \4\ Letter from Richard B. Nesson, Executive Vice President and 
General Counsel, DTC, to Jerry W. Carpenter, Esq., Assistant 
Director, Division of Market Regulation, Commission (October 11, 
1995).
    \5\ Securities Exchange Act Release No. 36425 (October 26, 
1995), 60 FR 55623.
    \6\ Letter from William W. Uchimoto, First Vice President and 
General Counsel, Philadelphia Depository Trust Company 
(``Philadep''), to Jonathan G. Katz, Secretary, Commission (November 
30, 1995). The comment letter is discussed in Section II of this 
order.
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I. Description of the Proposal

    The purpose of the proposed rule change is to clarify DTC's policy 
regarding depository-to-depository services and fees by filing the 
following statement:

    With respect to any other securities depository that is 
registered as a clearing agency under section 17A of the Securities 
Exchange Act of 1934 (a ``depository''), neither DTC nor the other 
depository shall be obligated to pay each other the fees charged to 
participants by virtue of having executed participant agreements 
with one another. DTC shall provide services to the other 
depository, charge fees for those services, and pay for the services 
provided to DTC, all in accordance with the terms of a separate 
agreement, if any, between DTC and the other depository respecting 
such matters.
    In the absence of any such separate agreement, however:
    1. DTC shall make available to any other depository any service 
that DTC makes available to its Participants generally, provided 
that such depository makes its services available to DTC on the same 
basis.
    2. DTC (i) shall not charge for the book-entry delivery services 
provided to the other depository nor pay for the book-entry delivery 
services provided by the other depository, (ii) shall charge DTC 
participant fees for services relating to the physical handling of 
certificates rendered by DTC to such depository and pay the other 
depository its participant fees for services relating to the 
physical handling of certificates rendered to DTC and (iii) shall 
charge the other depository and pay the other depository for 
``linked services'' provided, if any.\7\

    \7\ The Commission has described ``linked services'' as 
arrangements where one depository (the ``servicing depository'') 
performs for another depository (the ``using depository'') the core 
tasks necessary to deliver the services to the using depository's 
participants. The Commission has cited as examples of linked 
services DTC's processing of ID confirmations and affirmations and 
DTC's fourth-party delivery service. The Commission has expressed 
the view that a servicing depository should be permitted to charge a 
using depository the same fee it charges its participants for the 
same or a similar service. See Securities Exchange Act Release No. 
23083 (March 31, 1986) at pages 15-23.
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    DTC states that this policy statement reflects the practices that 
have been followed by DTC and the other depositories since the 
beginning of interdepository processing and is consistent with the 
Commission's expressed views concerning these matters.

II. Comments

    One comment letter was received in response to the original notice 
of proposed rule change.\8\ DTC 

[[Page 4808]]
subsequently amended the filing. The Commission received one comment 
letter in response to the amended notice after the expiration of the 
comment period.\9\

    \8\ Supra note 3. The first commenter, also a registered 
securities depository, submitted a comment letter only in response 
to DTC's original filing and stated that DTC's filing was an attempt 
to have the commenter adopt a no-charge policy for rendering most 
services to DTC in connection with the operation of the interface 
between the depositories. The commenter also focused on this 
filing's relationship to another pending DTC filing regarding 
interface fees. The commenter urged the Commission to review the two 
filings as one proposal; however, the filing regarding interface 
fees has since been withdrawn by DTC. Securities Exchange Act 
Release No. 36372 (October 16, 1995), 60 FR 54273 (File No. SR-DTC-
94-10) (notice of withdrawal of a proposed rule change regarding the 
establishment of a fee schedule for certain inter-depository 
deliveries).
    The first commenter recently withdrew from the securities 
depository business but remains a registered securities depository. 
Securities Exchange Act Release No. 36684 (January 5, 1996), 61 FR 
1195 (order approving a proposed rule change relating to a decision 
by Chicago Stock Exchange, Incorporated to withdraw from the 
clearance and settlement, securities depository, and branch receives 
businesses).
    \9\ Supra note 6.
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    The second commenter stated its belief that the policy statement is 
unnecessary because it impacts exclusively upon DTC's relationship with 
the commenter, also a registered securities depository. Other than DTC, 
the commenter will be the only other actively operating registered 
securities depository providing depository services for equity, 
corporate, and municipal securities.\10\ The Commission believes DTC's 
policy statement is a general statement of DTC's intention to establish 
depository-to-depository services and fees with any depository, 
existing now or in the future, and is not intended to target DTC's 
relationship with this commenter.

    \10\ Although MSTC recently withdrew from the securities 
depository business, it remains a registered securities depository 
for equity, corporate, and municipal securities. Supra note 8.
    The Participants Trust Company (``PTC''), which is temporarily 
registered as a clearing agency and which provides depository 
facilities for mortgage-backed securities, possibly could be 
effected by the policy statement. For a description of PTC, refer to 
Securities Exchange Act Release No. 35482 (March 13, 1995), 60 FR 
14806 [File No. 600-25] (notice of filing and order approving 
application for extension of temporary registration until March 31, 
1996).
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    This commenter also stated its concern that approval of DTC's 
policy statement would interrupt or diminish services to the commenter. 
The Commission does not believe that by approving DTC's current 
practice as an official policy the policy statement should cause an 
interruption or diminishment of services to the commenter or any other 
depositories. The Commission also does not believe the policy statement 
will prohibit or limit access to services offered by any registered 
securities depository or participants. The Commission believes the 
policy statement should help encourage the depositories to work 
together to achieve a reciprocal and mutually beneficial relationship. 
The policy statement proposes to provide assurance that in the absence 
of an agreement between depositories all services provided by DTC to 
another depository will be reciprocated by the other depository on the 
same basis. The Commission believes this should help assure that 
depository-to-depository services are available on a similar basis to 
participants of any depository.

III. Discussion

    Section 17A(b)(3)(F) \11\ requires that a clearing agency's rules 
be designed to foster cooperation and coordination with persons engaged 
in the clearance and settlement of securities transactions and to 
remove impediments to and perfect the mechanism of a national system 
for prompt and accurate clearance and settlement of securities 
transactions. The Commission believes that the proposal is consistent 
with section 17A(b)(3)(F) of the Act because it will clarify DTC's 
current practices and policies regarding depository-to-depository 
services and fees and thus should help create a structure for 
establishing such interdepository agreements with other registered 
securities depositories. This structure should help facilitate 
cooperation and coordination among persons engaged in the clearance and 
settlement of securities transactions by ensuring that absent an 
agreement depository interface services will be available to 
participants of any depository and associated fees will be charged 
among depositories on a reciprocal basis.

    \11\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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    The Commission also believes that the policy statement should help 
remove impediments to and perfect the mechanism of a national system 
for prompt and accurate clearance and settlement of securities 
transactions by setting forth a structure for the charging of 
depository-to-depository fees in the absence of an agreement between 
depositories. This should help prevent one depository from charging 
another depository inappropriately high fees or from charging higher 
per-unit fees than such depository charges its participants generally.
    The Commission recognizes that the benefits of a national clearance 
and settlement system can be realized only if there is cooperation and 
coordination among competing registered securities depositories and 
that in some instances Commission review of the application of the 
policy statement will be necessary. To this end, if DTC and another 
registered securities depository do not enter into a separate agreement 
regarding depository-to-depository services and fees and DTC 
unilaterally decides to invoke the terms of the policy statement, DTC 
must notify the Commission in writing of its decision prior to invoking 
the terms of the policy statement. The Commission will assess whether 
the policy statement is being implemented consistently with the terms 
and goals of section 17A of the Act.

IV. Conclusion

    The Commission finds that the proposal is consistent with the 
requirements of the Act and particularly with section 17A of the Act 
and the rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-94-16) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\

    \12\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2675 Filed 2-7-96; 8:45 am]
BILLING CODE 8010-01-M