[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Notices]
[Page 25008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11792]



[[Page 25008]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38561; File No. SR-DTC-97-01]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Implementing the Dividend 
Processing Phase of the Custody Service for Non-depository Eligible 
Securities

April 30, 1997.
    On January 23, 1997, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-97-01) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on March 3, 1997.\2\ No comment 
letters were received. For the reasons discussed below, the Commission 
is approving the proposed rule change.
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    \1\ 15 USC 78s(b)(1).
    \2\ Securities Exchange Act Release No. 38323 (February 21, 
1997), 62 FR 9473.
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I. Description

    The rule change implements the third phase of DTC's custody service 
to offer to its participants dividend processing services for certain 
non-depository eligible securities.\3\ In connection with the new 
service, DTC will announce, collect, and distribute dividend, interest, 
periodic principal, and other distributions (``dividend payments'') to 
participants that hold securities through DTC's custody service 
(``custody issues'').
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    \3\ For a more detailed description of DTC's custody service, 
refer to Securities Exchange Act Release No. 37314 (June 14, 1996), 
61 FR 29158 [File No. SR-DTC-96-08] (order approving a proposed rule 
change establishing custody service) (``June approval order'').
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    To facilitate the collection of dividends on custody issues and to 
permit the book-entry movement of securities when a customer wishes to 
move its account from one participant to another, DTC proposes to 
register certificates held in its custody service in a second nominee 
name, DTC & Co., when requested to do so by a participant.\4\ Such 
registration is necessary so DTC under its nominee name DTC & Co. can 
collect dividend payments relating to custody issues directly from 
paying agents.\5\ Without such registration, paying agents would 
disburse individual dividend payments for the custody issues directly 
to the participant or participants' customer instead of to DTC.
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    \4\ In the June approval order, the Commission noted that 
securities certificates will be held in customer or firm name only 
and would not be transferred into DTC's nominee name utilized for 
regular depository eligible securities, Cede & Co. Although the 
basic custody service and the redemption and reorganization services 
phases do not require custody issues to be registered in the new DTC 
nominee name, participants wishing to use the dividend processing 
feature of the custody service for custody issues must have such 
custody issues registered in DTC's new nominee name of DTC & Co.
    \5\ Letter from Lori A. Brazer, Assistant Counsel, DTC (February 
4, 1997).
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II. Discussion

    Section 17A(b)(3)(F) \6\ of the Act provides that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible. The Commission believes the proposed rule 
change is consistent with DTC's obligations under Section 17A(b)(3)(F) 
because implementation of the dividend processing phase should increase 
the use of the custody service by holders of custody issues. This 
increase should result in more securities being held at the depository 
facilities of a registered clearing agency, DTC, and being subject to 
DTC's safekeeping procedures. Furthermore, because certificates held 
through the custody service must be registered in DTC's second nominee 
name, DTC & Co, to be eligible for dividend processing, such 
registration will permit the book-entry movement of custody issues if a 
customer wishes to move its position from one participant to another. 
Accordingly, the dividend processing feature should help to reduce the 
processing of physical certificates and therefore reduce the associated 
risks.
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    \6\ 15 USC 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of Section 17A(b)(3)(F) 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-DTC-97-01) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-11792 Filed 5-6-97; 8:45 am]
BILLING CODE 8010-01-M