[Federal Register Volume 62, Number 184 (Tuesday, September 23, 1997)]
[Notices]
[Pages 49719-49720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25216]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No: 34-39082; File No. SR-NASD-97-51]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change Regarding the 
Transfer of Securities of Issuers Listed on the Nasdaq Stock Market 
That Are Held Pursuant to a Direct Registration Program

September 16, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 16, 1997, The Nasdaq 
Stock Market, Inc. (``Nasdaq'') 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 
Nasdaq. The Commission is publishing this notice to solicit comments 
from interested persons on the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Nasdaq is proposing to amend Rules 4200, 4310, 4320, and 4460 of 
the National Association of Securities Dealers, Inc. (``NASD'') to 
require Nasdaq issuers that elect to offer a direct registration 
program to shareholders to participate in an electronic link, either 
directly or through the issuer's transfer agent, with a securities 
depository registered under Section 17A of the Act.\2\
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Nasdaq 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. Nasdaq has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.

(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 facilitate the 
clearance and settlement of securities held in book-entry form in the 
context of recent developments concerning the direct registration 
concept. Over the past twelve years, regulators, representatives of 
private industry, and the transfer agent community have worked together 
to explore alternatives to maintaining ownership interest in securities 
without certificates. In 1990, the Commission held a Roundtable on 
Clearance and Settlement to discuss recommendations of the Group of 
Thirty U.S. Working Committee which, among other things, discussed ways 
in which investors could obtain benefits of a direct registration 
system (``DRS''). The Commission has been promoting the DRS concept, 
and in 1994 requested that the industry work to develop DRS in order to 
provide investors with additional options to holding their securities 
in certificate form.\3\ A basic structure for DRS has been developed 
and agreed to by a joint committee of representatives of the Securities 
Industry Association, the Securities Transfer Association, the 
Corporate Transfer Agents Association, and registered securities 
depositories.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 35038 (December 1, 
1994), 59 FR 63652 (Concept Release discussing direct registration).
---------------------------------------------------------------------------

    The concept of DRS is modeled after systems used in dividend 
reinvestment and stock purchase programs, which are currently offered 
by many issuers or transfer agents. It is being considered by issuers 
in connection with the move to a faster settlement cycle and reflects 
investor trends away from physical certificates. DRS promotes investor 
choice, while encouraging efficient clearance and settlement 
procedures. Specifically, DRS offers shareholders the ability to: (1) 
receive an account statement instead of a negotiable certificate; (2) 
get a certificate upon demand; and (3) direct the book-entry transfer 
of the underlying position to a broker-dealer upon request.
    A key component of DRS has been the initiation of an electronic 
communication system linking issuers or their transfer agents with 
registered securities depositories. Assuming an issuer and its transfer 
agent elect to offer direct registration services, this link would 
permit a broker-dealer to deliver to a transfer agent a customer's 
request that the securities be registered on the books of the issuer in 
book-entry form. Such a system also will allow the transfer agent to 
send an electronic acknowledgment to the broker-dealer that the 
securities have been registered in the customer's name on the books of 
the issuer in book-entry form. thus, DRS helps promote efficiencies in 
the prompt and accurate clearance and settlement of securities 
transactions 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 most 
importantly, the ability to subsequently have such positions 
transferred electronically to banks or broker-dealers in connection 
with the sales or disposition of the securities.
    Recently, The Depository Trust Co. (``DTC'') received Commission 
approval to establish the procedures and the necessary electronic link 
to implement DRS. Under this system, an investor will have the right at 
any time to transfer its DRS position from the issuer to a broker-
dealer through the facilities of DTC in order to sell or pledge the 
security. Alternatively, an investor will have the right at any time to 
request a certificate. Under DTC's rule change, to participate in DRS, 
a transfer agent

[[Page 49720]]

would need to become a ``DRS Limited Participant'' at DTC.\4\
---------------------------------------------------------------------------

    \4\ According to DTC, a party wishing to open a Limited 
Participant account must (1) be registered as a transfer agent with 
the SEC; (2) participate as a transfer agent in DTC's Fast Automated 
Securities Transfer (``FAST'') program; (3) provide Direct Mail 
Service on transfers; and (4) communicate with DTC through a 
computer-to-computer interface using DTC's CCF platforms.
    DTC charges a DRS Limited Participant an account holder fee of 
$225 per month regardless of the number of DRS eligible issues for 
which the Limited Participant is participating. In addition, DTC 
charges $.045 per transaction. DTC participants also will be charged 
$0.45 per transaction. In addition, when a DTC participant instructs 
a transfer agent to establish a DRS account for a shareholder and 
the transfer agent subsequently mails a transaction advice to the 
shareholder confirming that such an account has been established at 
the transfer agent, the transfer agent's fee of $0.55 for mailing 
and handling the DRS transactions advice will be charged to the DTC 
participant directly by DTC. This fee is periodically remitted to 
the transfer agent.
---------------------------------------------------------------------------

    Therefore, Nasdaq is proposing to amend its rules to establish a 
qualification requirement for all securities to be included in Nasdaq 
that if the issuer establishes a direct registration program it shall 
participate in an electronic link with a securities depository in order 
to facilitate the electronic transfer of interests held pursuant to the 
direct registration program. This link is permitted by the proposed 
rule to be direct or through the issuer's transfer agent.
    Nasdaq believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \5\ in that it fosters 
cooperation and coordination with persons engaged in the clearing and 
settling of transactions in securities, and in general, protects 
investors and the public interest. The proposed rule change ensures 
that there is a quick and efficient means for financial intermediaries, 
such as broker-dealers and banks, to transfer these interests on behalf 
of shareholders. In addition, Nasdaq believes the proposed rule change 
is consistent with Section 17A which sets forth Congress' findings that 
the prompt and accurate clearance and settlement of securities 
transactions are necessary for the protection of investors. In 
particular, the proposed rule change is consistent with Section 
17A(a)(1) in that it takes advantage of new date processing and 
communications techniques and linked or coordinated facilities, and 
thus provides for more efficient, effective, and safe procedures for 
the clearance and settlement of securities transactions.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78o-3.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

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 Nasdaq 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 Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of Nasdaq. All 
submissions should refer to File No. SR-NASD-97-51 and should be 
submitted by October 14, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25216 Filed 9-22-97; 8:45 am]
BILLING CODE 8010-01-M