[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