[Federal Register Volume 61, Number 226 (Thursday, November 21, 1996)]
[Notices]
[Pages 59269-59270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29716]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37933; File No. SR-Philadep-96-16]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company; Order Granting Accelerated Approval of a Proposed Rule Change
Relating to the Procedures To Establish a Direct Registration System
November 8, 1996.
On October 16, 1996, the Philadelphia Depository Trust Company
(``Philadep'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change (File No. SR-Philadep-96-16)
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'').\1\ On October 17, 1996, Philadep filed an amendment to the
proposed rule change.\2\ Notice of the proposal was published in the
Federal Register on October 30, 1996.\3\ No comment letters were
received. For the reasons discussed below, the Commission is granting
approval of the proposed rule change.
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\1\ 15 U.S.C. Sec. 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).
\3\ Securities Exchange Act Release No. 37858 (October 23,
1996), 61 FR 56079.
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I. Description
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.\4\ DRS permits an investor to hold a security as the registered
owner of the security in book-entry form on the books of the issuer
rather than (1) indirectly through a financial intermediary that holds
the security in street name or in an account with a depository or (2)
in the form of a certificate. An investor will have the right at any
time to transfer its DRS position from the issuer to a financial
intermediary through the facilities of Philadep in order to sell or
pledge the security. Alternatively, an investor will have the right at
any time to request a certificate.\5\
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\4\ For description of The Depository Trust Company's
implementation of DRS, refer to Securities Exchange Act Release No.
37931 (November 7, 1996).
\5\ For a complete description of DRS, refer to Securities
Exchange Act Release No. 35038 (December 1, 1994), 59 FR 63652
(concept release on a transfer agent operated book-entry
registration system) and DTC Important Notice B# 1811-96 (October 7,
1996) and Important Notice B# 1841-96 (October 7, 1996), which are
attached as Exhibits A and B to Securities Exchange Act Release No.
37800 (October 9, 1996), 61 FR 54473.
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The transfer agents of issuers interested in participating in
Philadep's
[[Page 59270]]
DRS must join 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. After a transfer agent has
requested that Philadep make an issue DRS eligible, Philadep will add a
DRS indicator to its Security Profile On-Line (``SPOL'') system to
reflect that the issue is DRS eligible and to notify the respective
participants accordingly.
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 (1) to register positions on the books of the issuer,
(2) to have a physical certificate issued, (3) to indicate that the
submitting broker for the WT request is serving in a correspondent
capacity (known as third party transfers) and (4) to reverse the prior
DRS transaction.
When a transfer agent completes a WT request for a DRS issue, the
transfer agent will return the certificate to Philadep according to the
standard procedure for securities shipments. If the investor has
requested that his position be held on the books of the issuer through
DRS, the transfer agent will establish the position, will mail a
transaction advice directly to the investor, and will confirm such
activities to Philadep. Philadep will confirm to its participant that
the account has been established and will provide the date and the DRS
account number to such participant.
In the event that an investor wants to sell a DRS position, the
transfer agent will provide the appropriate delivery order (``MDO'')
instructions and the proper reason code to move the position into the
appropriate account at Philadep. 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 movement and will return all positions.
Philadep will produce an activity report for all movements.
II. Discussion
Section 17A(a)(1)(A) \6\ of the Act sets forth Congress' findings
that the prompt and accurate clearance and settlement of securities
transactions, including the transfer of record ownership and the
safeguarding of securities and funds related thereto, are necessary for
the protection of investors and persons facilitating transactions by
and acting on behalf of investors. Section 17A(b)(3)(F) provides that
the rules of a clearing agency must be designed to promote the prompt
and accurate clearance and settlement of securities transactions.\7\
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\6\ 15 U.S.C. Sec. 78q-1(a)(1)(A) (1988).
\7\ 15 U.S.C. Sec. 78q-1(a)(3)(F) (1988).
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Currently, individual investors have the option of either holding a
physical certificate or allowing broker-dealers to hold the securities
for them in street name. Some investors do not want to hold through a
broker-dealer because, among other reasons, of possible delays in
receiving correspondences from issuers or because of fees that may be
incurred by investors who do not make purchases and sales of securities
on a regular basis. However, holding a physical certificate may slow or
impede an investor's ability to deliver the security after the sale. By
providing individual investors that do not want to have broker-dealers
hold their securities for them in street name the option of holding in
book-entry form on the books of the issuers and to subsequently have
such positions transferred electronically to banks or broker-dealers in
connection with the sales or other dispositions of the securities, the
Commission believes that Philadep's DRS should help promote
efficiencies in the prompt and accurate clearance and settlement of
securities transactions and is consistent with Philadep's obligations
under Section 17A.
Philadep has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after the
date of publication of notice of the filing. The Commission finds good
cause for approving the proposed rule change prior to the thirtieth day
after the date of publication because accelerated approval will allow
Philadep to implement its DRS pilot program on its scheduled date of
November 11, 1996.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular 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-Philadep-96-16) be and
hereby is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29716 Filed 11-20-96; 8:45 am]
BILLING CODE 8010-01-M