[Federal Register Volume 62, Number 199 (Wednesday, October 15, 1997)]
[Notices]
[Pages 53680-53681]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27279]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39221; File No. SR-Philadep-97-04]
Self-Regulatory Organizations; Philadelphia Depository Trust
Company; Notice of Filing of Proposed Rule Change Relating to Ceasing
Activity as a Securities Depository
October 8, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 25, 1997,
Philadelphia Depository Trust Company (``Philadep'') 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 Philadep. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
parties.
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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
Under the proposed rule change, Philadep will cease to engage in
securities depository services. Philadep, Stock Clearing Corporation of
Philadelphia (``SCCP''), and their parent organization, Philadelphia
Stock Exchange, Inc. (``PHLX'') entered into an agreement dated as of
June 18, 1997 with The Depository Trust Company (``DTC'') and the
National Securities Clearing Corporation (``NSCC'') (``Agreement'').
Under the Agreement, DTC and NSCC will assist PHLX in winding down the
operation of its full clearing agency services by offering SCCP
participants and Philadep participants an opportunity to become members
of NSCC or DTC, as the case may be. In consideration for DTC's and
NSCC's assistance, PHLX, SCCP, and Philadep have agreed not to engage
in the securities clearing and depository business for five years,
except as otherwise specified in the Agreement.
The parties to the Agreement tentatively have scheduled the closing
date for the Agreement to be November 14, 1997.\2\ SCCP and Philadep
have informed their participants of the Agreement and are taking
measures to ensure the orderly transition of participants to
alternative clearing and depository arrangements.
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\2\ The closing date may be adjusted by the mutual consent of
the parties to the Agreement.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Philadep 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. Philadep has prepared summaries, 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 the text of the summaries
prepared by Philadep.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
PHLX has decided to limit its clearance and settlement business and
[[Page 53681]]
to close its securities depository business offered through its wholly
owned subsidiaries, SCCP and Philadep, respectively, in order to focus
its resources on the operations of the exchange itself.\4\ The purpose
of the proposed arrangement is to enable PHLX, SCCP, and Philadep to
achieve this objective while affording participants of these clearing
agencies the opportunity to become participants of NSCC or DTC, as the
case may be, or to utilize the services of other clearing or depository
service providers.
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\4\ SCCP has submitted a rule filing [File No. SR-SCCP-97-04]
describing the revisions and limitations of its clearing services.
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PHLX, SCCP, and Philadep will cooperate with NSCC and DTC to assure
an orderly transition with respect to the wind down of Philadep's
business. In this regard, PHLX and Philadep will assist DTC and sole
Philadep participants in having the participants become DTC
participants to the extent that they meet DTC qualifications and desire
to become DTC participants. The parties will cooperate to carry out the
orderly transfer of securities from the custody of Philadep to the
custody of DTC for sole Philadep participants that qualify and
authorize such transfers.
Philadep believes that the proposed rule change is consistent with
Section 6(b)(5) \5\ of the Act because it will enable PHLX to
concentrate its efforts on its core business, the exchange itself. This
strategic initiative will, in turn, remove impediments and perfect the
mechanism of a free and open market and a national market system.
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\5\ 15 U.S.C. 78f(b)(5).
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Philadelp also believes that the proposal is consistent with
Section 17A of the Act\6\ and the rules and regulations thereunder
because it (i) will remove impediments to and perfect the mechanism of
a national system for the prompt and accurate clearance and settlement
of securities transactions and (ii) will reduce the fragmented nature
of the securities custody business to more closely integrate the
industry which may thereby help in the safeguarding of funds which are
in the custody and control of a clearing agency or for which it is
responsible. Specifically, the proposed arrangements will help reduce
the risk associated with having interfaces, will provide for more
efficient and less expensive clearing and depository services, and
thereby will facilitate the prompt and accurate clearance and
settlement of such transactions.
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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
Philadelp believes that the proposed rule change will not impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act. Securities depositories registered under
Section 17A of the Act are not conventional businesses but utilities
created to serve members of the securities industry for the purpose of
providing certain services that are ancillary to the businesses in
which industry members compete with one another. Operating a securities
depository requires a substantial and continuing investment in
infrastructure, including securities vaults, telecommunications links
with users, data centers, and disaster recovery facilities, in order to
meet the increasing needs of participants and to respond to regulatory
requirements. As such, several exchanges, including the Boston Stock
Exchange, the Pacific Exchange, and the Chicago Stock Exchange have
terminated the operation of their securities depositories.
After consummation of the proposed arrangements, securities
industry members will continue to have access to high quality, low cost
depository services provided under the mandate of the Act. The overall
cost to the industry of having such services available should be
reduced thereby permitting a more efficient and productive allocation
of industry resources. Furthermore, because most of a depository's
interface costs must be mutualized, thereby requiring some participants
to subsidize costs incurred by others, Philadep's withdrawal from
maintaining depository facilities should reduce costs to participants
and thereby should remove impediments to competition. Finally, PHLX's
ability to focus its resources on the operations of the Exchange should
help enhance competition among securities markets.
(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 with respect
to the proposed rule change.
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 Philadep 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 Philadep. All
submissions should refer to File No. SR-Philadep-97-94 and should be
submitted by November 5, 1997.
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. 97-27279 Filed 10-14-97; 8:45 am]
BILLING CODE 8010-01-M