[Federal Register Volume 61, Number 203 (Friday, October 18, 1996)]
[Notices]
[Pages 54476-54477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26782]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37809; File No. SR-NYSE-96-29]


Self-Regulatory Organizations; New York Stock Exchange Inc.; 
Notice of Filing of Proposed Rule Change Relating to Stock 
Distributions

October 10, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 10, 1996, the New 
York Stock Exchange Inc. (``NYSE'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by NYSE. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Currently, the NYSE requires listed companies to mail stock 
certificates to record holders for all distributions, such as stock 
splits, mergers, and spin-offs, other than those relating to dividend 
reinvestment plans (``DRIPs'') and dividend reinvestment stock purchase 
plans (``DRSPPs''). The NYSE proposes to rescind this policy. 
Accordingly, listed companies engaged in distributions will be 
permitted to offer shareholders whose ownership of stock is directly 
registered with them or their transfer agents the choice of receiving 
either certificates or account statements.
    The NYSE is proposing to rescind the current policy due to the 
decreasing importance of physical certificates, the technological 
enhancements in the automation of stock ownership records, and a recent 
rule filing by The Depository Trust Company (``DTC'') proposing to 
commence an electronic ``direct registration system'' (``DRS'').\2\ DRS 
will provide a linkage between transfer agents, broker-dealers, and DTC 
and will allow an investor to move a stock position from a transfer 
agent to a broker-dealer in connection with a sale of that stock. As a 
condition to offering an issuer the choice of sending investors 
certificates or account statements for distribution other than DRIPs 
and DRSPPs, the proposed rule change would require the issuer to 
include its stock in a DRS. Such a DRS must be operated by a registered 
clearing agency and must be available for exchange-traded stock.
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    \2\ In its original filing, DTC proposed that DRS be available 
only for issuers that, among other things, allows investors holding 
stock in ``street'' or nominee name to participate in a company's 
DRIP. Securities Exchange Act Release No. 37778 (October 3, 1996), 
61 FR 52985. In an amendment to the filing, DTC deleted that 
eligibility requirement. Securities Exchange Act Release No. 37800 
(October 9, 1996).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE 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. NYSE has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\3\
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    \3\ 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 proposed rule change is to rescind the NYSE's 
policy of requiring listed companies to provide registered holders with 
share certificates for all stock distributions except for DRIPs and 
DRSPPs. The NYSE is proposing to rescind this policy in light of 
changes in the securities marketplace, including the decreasing 
importance of physical certificates and the technological enhancements 
in the automation of stock ownership records. The NYSE also is acting 
in response to the DRS proposal of DTC.
    With respect to changes in the marketplace, a declining number of 
shareholders hold stock certificates. Approximately seventy percent to 
eighty percent to all outstanding shares of issuers are held in 
``street'' name whereby investors place their securities with a broker-
dealer or bank, which registers the securities in its own name as 
nominee. Investors receive account statements evidencing their 
securities positions.
    In addition, a growing number of investors hold securities through 
direct registration in their own names on the shareholder register but 
without receiving certificates. Such investors receive account 
statements from the issuer or its transfer agent. A major source of 
such holdings are DRIPs and DRSPPs with at least one thousand public 
companies are offering these plans.
    Permitting listed companies, in effect, to offer their registered 
holders account statements in lieu of certificates is consistent with 
technological advancements in account management systems. Today, 
corporate issuers or their transfer agents maintain automated systems 
for recording stock ownership. The NYSE believes that registered 
holders should benefit from this automation and have the opportunity to 
forego certificates. This follows the practice in other securities 
markets where account statements are already commonplace, as in the 
case of securities issued by open-ended investment companies and by the 
U.S. Treasury Department.
    Repealing the policy also is consistent with DRS. DRS will allow 
investors whose share ownership is recorded directly on the issuer's 
register the ability to transfer their stock positions electronically 
to a bank or broker-dealer in connection with a sale. DRS, which will 
begin with a pilot program later this year, is the result of two year's 
work.

[[Page 54477]]

Participating in these efforts were representatives of the Securities 
Transfer Association, Securities Industry Association, and the 
Corporate Transfer Association.
    DRS will provide significant efficiencies in the processing of 
securities. In particular, it will facilitate the ability of a 
registered holder to deliver stock in time to settle a sale within the 
required three business days. More generally, it will limit the need 
for the physical transfer of paper certificates and thus will reduce 
risks, delays, and costs in the clearance and settlement process. For 
these reasons, the NYSE is proposing that as a condition to a listed 
company being able to offer registered holders the opportunity to 
receive account statements in lieu of stock certificates for 
distributions other than DRIPs and DRSPPs the company must include its 
stock in an available DRS.
    Following the pilot period for DTC's DRS, the NYSE expects that DTC 
will expand DRS so that it will be available to all NYSE-listed 
companies. A listed company would need to take steps to meet all 
eligibility standards for a DRS. For DTC's proposed system this 
includes the requirement that the company have a transfer agent that 
participates in DTC's Fast Automated Transfer (``FAST'') program.
    The proposed rule change is consistent with the requirements of the 
Act under Section 6(b)(5) \4\ in that an exchange have rules that are 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and 
in general to protect investors and the public interest.
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    \4\ 15 U.S.C. 78f (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

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

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

    The NYSE has not solicited and does not intend to solicit comments 
on this proposed rule change. The NYSE has not received any unsolicited 
written comments from members or other interested parties.

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 NYSE. All submissions should refer to the file 
number SR-NYSE-96-29 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.
[FR Doc. 96-26782 Filed 10-17-96; 8:45 am]
BILLING CODE 8010-01-M