[Federal Register Volume 61, Number 211 (Wednesday, October 30, 1996)]
[Notices]
[Pages 56079-56081]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27811]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37858; File No. SR-Philadep-96-16]


Self-Regulatory Organizations; Philadelphia Depository Trust 
Company; Notice of Filing of Proposed Rule Change Relating to the 
Procedure to Establish a Direct Registration System

October 23, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 16, 1996, 
Philadelphia Depository Trust Company (``Philadep'') filed with the 
Securities and Exchange Commission the proposed rule change as 
described in Items I, II, and III below, which items have been prepared

[[Page 56080]]

primarily by Philadep. On October 17, 1996, Philadep filed an amendment 
to the proposed rule change.\2\ 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 J. Keith Kessel, Compliance Officer, Philadep, 
to Jerry W. Carpenter, Assistant Director Division of Market 
Regulation, Commission, (October 16, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Philadep's proposed rule change will establish (1) a new service 
called the Direct Registration System (``DRS'') and (2) a new category 
of participants whose use of Philadep's services will be limited to 
DRS.

II. Self-Regulatory Organization's Statements Regarding the Proposed 
Rule Change

    In its filing with the Commission, Philadep included statements 
concerning the purpose of and the 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. Philadep has prepared summaries, as set forth in 
sections (A), (B), and (C) below, of the most significant aspects of 
these 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 the 
Statutory Basis for, the Proposed Rule Change

    In December 1994, the Commission published a concept release on DRS 
which solicited comments on DRS as a way to offer investors a method 
whereby they could maintain their positions in corporate equities and 
debt securities in book-entry form directly on the books of the 
issuer.\4\ In November 1995, a joint industry committee comprised 
representatives of the Securities Transfer Agent Association (``STA''), 
Corporate Transfer Agents Association, Inc. (``CTA''), Securities 
Industry Association (``SIA''), and the depositories prepared a process 
outline for DRS.\5\ In May 1996, the joint committee informed Chairman 
Levitt that a consensus had been reached regarding the prospective 
operation of DRS.\6\
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    \4\ Securities Exchange Act Release No. 35038 (December 1, 
1994).
    \5\ ``Direct Registration System: A Process Outline'' (November 
1995).
    \6\ Letter from representatives of the joint committee to Arthur 
Levitt, Chairman, Commission, (May 20, 1996).
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    In accordance with this consensus, Philadep will implement certain 
procedures to establish DRS.\7\ The transfer agents of issuers 
interested in participating in DRS must join DTC and Philadep as 
limited participants. In order for transfer agents to participate in 
this service, they must have certain electronic interfaces with 
Philadep, commonly known as fully automated securities transfer 
(``FAST'') interfaces. As a depository participant, the transfer agent 
will be able to engage in book-entry movements of positions between the 
transfer agent's DRS participant account and a broker/dealer's account. 
Once the transfer agents have supplied Philadep with the DRS issue, 
Philadep will add the indicator to its Security Profile On-Line 
(``SPOL'') system to reflect that the issue DRS eligible and to notify 
the respective participants accordingly. Once Philadep supplies 
information to the transfer agent or issuer, the transfer agent will 
adjust the DRS position and decease the depository FAST account on its 
books. To execute any withdrawal/transfer (``WT'') activity, 
participants must supply Philadep with an appropriate code specifying a 
DRS account or a certificate. Absent the proper code, Philadep will not 
process these requests. Participants must use indicators to operate the 
automated WT file to (i) register positions on the books of the issuer, 
(ii) issue a physical certificate, (iii) indicate that the submitting 
broker for the WT request is serving in a correspondent capacity (known 
as third party transfers) and (iv) reverse the prior DRS transaction.
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    \7\ Philadep Direct Registration System (``DRS'') Procedures, 
attached as Exhibit A.
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    When the transfer agent completes a certificate request for a DRS 
issue, the transfer agent will return the certificate to Philadep 
according to the standard procedure for these securities' shipments. If 
the investor requests to hold his position on the books of the issuer 
through DRS, the agent will establish the position, will mail the 
transaction advice directly to the investor, and will confirm such 
activities to Philadep. Moreover, Philadep will confirm to its 
participant that the account has been established providing the date 
and the DRS account number to such participant.
    In the event that an investor wants to sell the position, the 
transfer agent will provide miscellaneous delivery order (``MDO'') 
instructions and the proper reason code to move the position into the 
appropriate account at Philadep. The transfer agent will increase 
depository FAST account at Philadep and notify Philadep to increase its 
transfer agent participant account. Concurrently, the agent must 
provide Philadep with the CUSIP number, quantity, broker/dealer 
identification number, broker/dealer customer account number, and any 
other miscellaneous information in the comments field. If the receiving 
participant does not recognize the position, it may deliver the 
position back to the transfer agent's Philadep account. At the end of 
the processing day, Philadep will reverse the transfer agent's Limited 
Participant account and return all positions. Philadep will produce an 
activity report for all movements.
    This proposed change complies with Section 17A(a)(1) of the Act \8\ 
in that it promotes efficiencies in the prompt and accurate clearance 
and settlement of securities transactions and funds in Philadep's 
custody and under its control. Individual investors electing book-entry 
positions on the books of the issuers will be able to subsequently 
arrange to have such positions transferred electronically to banks or 
broker-dealers in connection with sales or other dispositions of the 
securities. By effecting transfers through automated linkages between 
broker-dealers, transfer agents, and Philadep, the DRS service to be 
offered by Philadep will promote efficiencies in the clearance and 
settlement system. Moreover, DRS will foster cooperation and 
coordination between Philadep and other entities engaged in the 
clearance and settlement of securities transactions.
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    \8\ 15 U.S.C. 78q-1(a)(1) (1988).
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B. Self-Regulatory Organization's Statement on Competition

    Philadep does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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

    No written comments relating to the proposed rule change have been 
received. Philadep will notify the Commission of any written comments 
received by Philadep.

III. Date of Effectiveness of the Proposed Rule Changes 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

[[Page 56081]]

(ii) as to which Philadep consents, the Commission will:
    A. By order approve such proposed rule change or
    B. Institute procedures 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 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 
respecting the proposed rule change that are filed with the Commission, 
and all written communications concerning the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public pursuant to 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 filings will also be available for inspection and copying at the 
principal office of Philadep. All submissions should refer to file 
number SR-Philadep-96-16 and should be submitted by November 20, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27811 Filed 10-29-96; 8:45 am]
BILLING CODE 8010-01-M