[Federal Register Volume 62, Number 41 (Monday, March 3, 1997)]
[Notices]
[Pages 9474-9475]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5080]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38333; File No. SR-DTC-97-02]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating to Fees and Charges

February 24, 1997.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''), notice is hereby given that on February 3, 1997, The 
Depository Trust Company (``DTC'') 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 DTC. The Commission is publishing this notice to solicit 
comments from interested persons on the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change establishes fees for DTC's Foreign Tax 
Withholding Service and Non-Transferable Issue Safekeeping Service and 
eliminates the fee DTC charges its participants for unnecessary 
inquiries.

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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by DTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Foreign Tax Withholding Service Fee
    DTC's Foreign Tax Withholding Service allows DTC participants to 
certify to foreign-issue paying agents for DTC-eligible issues the tax-
treaty and, where applicable, the tax exempt withholding rates that 
they are entitled to based on the tax classes of their customers.\3\ 
DTC's participants make the certification to the foreign-issue paying 
agents by using the Elective Dividend Service (``EDS'') which is 
supported by DTC's Participant Terminal System (``PTS''). This 
procedure eliminates the need for processing more complex and time-
consuming reclamations of previously withheld taxes.\4\
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    \3\ For a more detailed description of the Foreign Tax 
Withholding Service, refer to Securities Exchange Act Release No. 
3211 (April 19, 1993), 58 FR 22003 [File No. SR-DTC-92-17] (notice 
of filing and immediate effectiveness relating to eligibility in the 
foreign securities option of the existing elective dividends 
function).
    \4\ EDS was developed for issues from foreign countries that 
have tax treaties with the U.S. that permit the withholding of 
foreign taxes from distributions of foreign issues at different 
rates for different classes of beneficial owners. EDS enables a DTC 
participant to use PTS to certify the number of foreign securities 
credited to the participant's account as of the record date that are 
entitled to favorable tax treatment at source (i.e., the tax exempt 
benefit to which the participant is entitled will be included in the 
payment DTC receives from the foreign payor). Without this service, 
many DTC participants that are entitled to favorable tax treatment 
find the procedures for claiming refunds so burdensome that they 
forgo their refund and thereby frustrate the purpose of the tax 
treaty.
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    According to DTC, it has expended considerable time and incurred 
significant legal fees to implement the Foreign Tax Withholding Service 
and continues to devote its resources to monitoring individual 
distributions to ensure that existing arrangements are processed 
correctly or to facilitate any special arrangements, if necessary. DTC 
also states that the processing of withholding certifications on 
individual distributions sometimes requires DTC's staff to contact the 
participant to obtain additional information to complete the 
certifications. Accordingly, the proposed rule change establishes a fee 
for DTC's Foreign Tax Withholding Service of $7.00 per CUSIP regardless 
of the number of tax classifications requested by a participant for a 
single CUSIP. This fee is in addition to the cash or stock dividend 
fee, as applicable, which is charged on a per credit basis.
(2) Non-Transferable Issue Safekeeping Fee
    DTC established the Non-Transferable Issue Safekeeping Service to 
allow nontransferable securities to be deposited at DTC.\5\ The service 
requires DTC's staff to periodically follow up on each nontransferable 
security (i.e., generally, at least annually) to determine the issuer's 
status in its state of incorporation, to determine if the issue is 
again transferable, and to make the results of these inquiries 
available to interested participants.
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    \5\ Securities Exchange Act Release No. 31673 (December 30, 
1992), 58 FR 3046 [File No. SR-DTC-92-16] (order approving proposed 
rule change).
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    According to DTC, as a result of its absorption of the Midwest 
Securities Trust Company, the number of nontransferable issues on DTC's 
books has doubled from roughly 8,000 to more than 16,000. DTC also 
believes that the ongoing effort and cost to carefully monitor these 
additional non-transferable issues should be apportioned among those 
holding positions in these securities. Therefore, the proposed rule 
change establishes a fee for DTC's Non-Transferable Issue Safekeeping 
Service of $.17 per CUSIP per month in addition to regular monthly long 
position charges for these issues.
(3) Elimination of Fees Regarding Unnecessary Dividend, Reorganization 
and Reconciliation Inquiries
    Currently, DTC charges its participants $6.00 when a participant 
submits certain unnecessary inquiries for processing at DTC's 
Dividends, Reconciliation, and Reorganization departments. DTC 
classifies an inquiry as unnecessary if a participant could have 
obtained the information independently from automated DTC sources 
readily available to a participant rather than have DTC staff conduct 
the research. An inquiry with incomplete or inaccurate data from a 
participant also is considered unnecessary. Because the average daily 
volume of unnecessary

[[Page 9475]]

inquiries has declined to less than twenty submissions, DTC proposes to 
eliminate the fee related to such unnecessary inquiries.
    DTC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder because DTC's fees will be more equitably 
allocated among DTC participants. DTC also believes that the proposed 
rule change will not affect the safeguarding of the securities and 
funds in DTC's custody or control or for which it is responsible.
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    \6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    Written comments from DTC participants have not been solicited or 
received on the proposed rule change.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) \7\ of the Act and pursuant to Rule 19b-4(e)(2) \8\ 
promulgated thereunder because the proposal establishes or changes a 
due, fee, or other charge imposed by DTC. At any time within sixty days 
of the filing of such rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \7\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \8\ 17 CFR 240.19b-4(e)(2).
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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, NW., Washington, DC 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 Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing also will be available for 
inspection and copying at the principal office of DTC. All submissions 
should refer to File No. SR-DTC-97-02 and should be submitted by March 
24, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-5080 Filed 2-28-97; 8:45 am]
BILLING CODE 8010-01-M