[Federal Register Volume 61, Number 203 (Friday, October 18, 1996)]
[Notices]
[Pages 54473-54475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26715]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37800; File No. SR-DTC-96-15]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of an Amendment to a Proposed Rule Change Relating to 
the Procedures To Establish a Direct Registration System

October 9, 1996.
    On September 17, 1996, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change (File No. SR-DTC-96-15) pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ relating 
to the procedures to establish a direct registration system. On October 
7, 1996, DTC filed an amendment to the proposed rule change.\2\ Notice 
of the proposed rule change was published in the Federal Register on 
October 9, 1996.\3\ The amendment is described in Items I, II, and III 
below, which items have been prepared primarily by DTC. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Letter from Larry Thompson, Senior Vice President and Deputy 
General Counsel, DTC, to Jerry Carpenter, Assistant Director, 
Division of Market Regulation. Commission (October 7, 1996).
    \3\ Securities Exchange Act Release No. 37778 (October 3, 1996), 
61 FR 52985.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the amendment to the proposed rule change is to 
delete the requirement that limited participants accept dividend 
reinvestment instructions from DTC on DRS eligible securities that 
offer dividend reinvestment plans.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, DTC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\4\
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    \4\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the amendment of the proposed rule change is to 
delete a requirement that in order to participate in the DRS program 
that any DRS issue with a dividend reinvestment plan must be open to 
street-name holders. The amendment also modifies the Limited 
Participant Account Agreement to reflect the change in requirements.\5\
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    \5\ A complete description of the amended DRS service may be 
found in the Important Notices issued by DTC on the implementation 
of a DRS, which are attached as Exhibit A and Exhibit B. Important 
Notice B# 1811-96 (October 7, 1996) and Important Notice B# 1841-96 
(October 7, 1996).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no impact on competition by reason of the proposed 
rule change.

[[Page 54474]]

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Although DTC did not solicit comments on DRS, over the last two 
years, a joint committee of representatives of the Securities Transfer 
Association, the Securities Industry Association, the Corporate 
Transfer Agents Association, and the depositories had met and agreed on 
the features of DRS.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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. 552, will be available for inspection and copying in the 
Commission's Public Reference Room in Washington, D.C. Copies of such 
filing will also be available for inspection and copying at the 
principal office of DTC. All submissions should refer to the file 
number SR-DTC-96-15 and should be submitted by November 8, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.

Exhibit A--The Depository Trust Company Important Notice, DRS Alert

October 7, 1996.
B#: 1811-96
To: All Participants
Attention: Managing Partner/Officer, Cashier, Transfer Manager
Subject: Implementation of a Direct Registration System

    In July DTC advised Participants (reference Important Notice 
#1368-96 dated July 15, 1996) to plan for the implementation of a 
Direct Registration System (DRS) scheduled to pilot in November. 
Under DRS, Investors electing to have their ownership of securities 
registered on the issuer's records would be offered a choice between 
a registered certificate and a book-entry or ``direct registration'' 
position recorded on the books of the issuer's transfer agent.
    The DRS pilot is scheduled to begin on November 11. DTC expects 
to be able to announce the issue selected for the initial pilot next 
week.

Eligibility

    The DRS issues will be identified with special indicators on the 
Eligible Corporate Securities File (ELISC and ELISCD) and the 
Eligible Securities (CONI) Inquiry on PTS effective November 8, 
1996. Specifications for the new indicators were released on August 
20.

Transfers

    Beginning November 11, all Withdrawal-by-Transfer (WT) requests 
on the DRS Issues made via PTS using function NWT1 or via computer-
to-computer (CCF/CCFII) must include the following:
     a DRS indicator (permissible values are ``C'' if the 
investor wants a certificate issued, ``S'' if the investor is 
choosing to have a DRS position established, ``Y'' if the 
instruction represents a third-party transfer for a DRS position, or 
``X'' if the Participant is reversing a previously established DRS 
position),
     the Participant's account number for this customer 
(required if the value of the DRS indicator is ``S'' or ``Y''), and
     the Participant's or correspondent's name (required 
if the value of the DRS indicator is ``S'' or ``Y'').
    Specifications for the new WT input record were released on 
August 20. The new PTS input screen on the NWT1 function will be 
available in early November before the start of the DRS pilot. 
Participants submitting WT requests prior to cut-off time on Friday, 
November 8, for normal processing on Monday, November 11, for the 
pilot issues should not submit these WTs until Monday, November 11, 
to avoid drops due to a missing DRS indicator.
    It should be noted that if a Participant has not made the new 
CCF changes to accommodate DRS, DTC will continue to accept the 
current format and process non-DRS WTs. However, DRS WTs will not be 
processed and will drop since no DRS indicator has been provided. 
DRS WTs would then have to be processed over PTS until the 
Participant's new CCF formats are in place. All DRS WT's that drop 
will be carefully monitored, and the Participant will be contacted 
by a Participant Services representative regarding follow-up on 
these items.
    When a Participant's customer requests a DRS position, a DRS 
``transaction advice'' will be mailed directly by the agent to the 
customer. The transfer agent's fee of 55 cents for mailing and 
handling the DRS transaction advice will be charged back to the 
Participant directly by DTC, similar to the Direct Mail process. DTC 
will then receive an automated confirmation from the agent that the 
DRS transaction advice has been process and mailed. Participants can 
access this information through their normal DMA return files (CCF, 
PTS, or hard copy). Participants not currently using the Direct Mail 
service will need to consider modifications to their procedures to 
monitor these advices as they are printed over the PTS network.

Investor-Directed Sale

    An investor who opted for a DRS position must contact the 
transfer agent to direct the movement of the DRS position to its 
bank or broker/dealer. Specifications for the changes to the 
delivery order record to reflect movement of a DRS position were 
released on August 20 with modifications made on September 17.

Preparing for Implementation

    Participants are urged to complete their final systems 
modifications to accommodate the DRS pilot scheduled to begin on 
November 11. As mentioned previously, the pilot issues will be 
announced next week.
    DTC will be issuing weekly ``updates'' on the status of 
preparation for the DRS pilot from today through initial 
implementation. In addition, Participant Services representatives 
will be contacting those Participants submitting significant numbers 
of WT instructions to ensure their preparedness.
    Please direct your questions to Al DeMalo, Director of 
Operations, at (212) 898-3171, the undersigned at (516) 227-4004, or 
your Participant Services representative.
Ronald J. Burns,
Vice President, Operations.

Exhibit B--The Depository Trust Company, Important

October 7, 1996.
B#: 1841-96
To: All Participants
Attention: Managing Partner/Officer, Cashier, Transfer Manager
Subject: Direct Registration System Amendment

    The Direct Registration System (DRS) will permit issuers of 
securities to elect to create a DRS Program under which investors 
seeking to be registered on the books of an issuer or transfer agent 
would be offered the option of having their ownership reflected in a 
DRS position (essentially a ``book share'' position), rather than 
through the issuance of

[[Page 54475]]

a physical securities certificate. Under the structure for DRS 
developed by a joint committee of representatives of the Securities 
Industry Association, the Securities Transfer Association, and the 
Corporate Transfer Agents Association, issuers or transfer agents 
desiring to establish a DRS Program and meeting certain criteria 
would become DRS ``Limited Participants'' at DTC (see Important 
Notice B#1368-96).
    In connection with certain recent actions by the New York Stock 
Exchange to amend the Exchange's listing standards as they apply to 
DRS issues, DTC is amending the criteria which must be met by 
entities wishing to become DRS Limited Participants at DTC. Under 
the original criteria as recently filed for approval with the SEC, 
transfer agents or issuers seeking admission to DTC as Limited 
Participants for the purpose of participating in DRS are required 
to, among other things, accept dividend reinvestment instructions 
from DTC on DRS issues which offer Dividend Reinvestment Plans. DTC 
will no longer require those seeking DRS Limited Participant status 
to meet this requirement as a condition precedent to membership.
    Nevertheless, DTC continues to believe that the issue of ``open 
access'' to issuers' Dividend Reinvestment Plans for investors 
holding their positions through the depository is a significant one. 
The current exclusion of these investors by some issuers' plans is 
inappropriate and conflicts directly with the industry's efforts to 
promote efficient clearance and settlement practices. DTC will 
continue to press the SEC and issuers to make Dividend Reinvestment 
Plans available to all investors without regard to the form in which 
securities are held, working with others in the industry to achieve 
this important objective.
    Please direct your questions to the undersigned at (516) 227-
4004.
Ronald J. Burns,
Vice President, Operations.
[FR Doc. 96-26715 Filed 10-17-96; 8:45 am]
BILLING CODE 8010-01-M