[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Notices]
[Pages 35631-35632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17384]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40121; File Nos. SR-DTC-98-12, SR-PTC-98-02]


Self-Regulatory Organizations; The Depository Trust Company; 
Participants Trust Company; Notice of a Proposed Rule Change Relating 
to a Proposed Merger Between The Depository Trust Company and 
Participants Trust Company

June 24, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 29, 1998, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') and on June 2, 1998, Participants 
Trust Company (``DTC'') filed with the Securities and Exchange 
Commission (``Commission'') and on June 2, 1998, Participants Trust 
Company (``PTC'') filed with the Commission proposed rule changes as 
described in Items I, II, and III below, which items have been prepared 
primarily by DTC and PTC. The Commission is publishing this notice to 
solicit comments from interested persons on the proposed rule changes.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organizations' Statement of the Terms of 
Substance of the Proposed Rule Changes

    The proposed rule changes relate to the arrangements for a proposed 
merger between DTC and PTC.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In its filing with the Commission, DTC and PTC included statements 
concerning the purpose of and basis for the proposed rule changes and 
discussed any comments they received on the proposed rule changes. The 
text of these statements may be examined at the places specified in 
Item IV below. DTC and PTC have 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 and PTC.
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(A) Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In March 1998, PTC announced that it had decided to seek an 
affiliation with DTC. The arrangements for the proposed merger provide 
the following. PTC will merge with and into DTC, and DTC will make 
certain payments to PTC's shareholders. For at least two years from the 
effective date of the merger, DTC will provide the services currently 
offered by PTC in a separate division of DTC (``Division''). The 
current rules and procedures of PTC with respect to depository 
services, the processing of transactions in PTC-eligible securities, 
and the PTC participants fund will be incorporated into the rules and 
procedures of DTC and will be applied to the business of the 
Division.\3\ In addition, DTC will offer PTC participants that are not 
DTC participants an opportunity to become participants of the Division.
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    \3\ DTC and PTC have informed the Commission that the changes to 
DTC's rules and procedures to provide for the Division and to 
accommodate the application of PTC's current rules and procedures to 
Division business will be the subject of a future rule filing with 
the Commission.
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    Under the proposed rule changes, PTC's users, most of which are 
also DTC participants, will continue to have access to the depository 
services offered by PTC. DTC and PTC believe that the proposed merger 
should assist in eliminating redundant facilities and thereby should 
reduce the costs of processing transactions in mortgage-backed 
securities that are currently PTC-eligible.
    DTC and PTC believe that the proposed rule changes are consistent 
with the requirements of Section 17A of the Act \4\ and the rules and 
regulations thereunder because the arrangements for the proposed merger 
should assure that continued availability to PTC users of efficient and 
cost-effective depository services and thereby should facilitate the 
prompt and accurate clearance and settlement of transactions in PTC-
eligible securities. In addition, the proposed arrangements should 
provide PTC participants with access to DTC's facilities and should be 
implemented consistent with DTC's obligations to safeguard securities 
and funds in its custody and control or for which it is responsible.
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    \4\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organizations' Statement on Burden on Competition

    DTC and PTC believe that the proposed arrangements will impose no 
burden on competition. Securities depositories registered under Section 
17A of the Act \5\ are 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.
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    \5\ 15 U.S.C. 78q-1.
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    DTC and PTC believe that the current regulatory scheme and the 
particular structure and nature of the depository industry provide 
ample means to insure that the merger of PTC with and into DTC will 
achieve regulatory objectives. Sections 17A and 19 of the Act \6\ and 
the rules thereunder provide the Commission appropriate and effective 
regulatory authority over DTC. DTC is

[[Page 35632]]

owned by its members who utilize its services, and its Board of 
Directors is comprised of its members. DTC must assure a fair 
representation of its member in the selection of its directors and 
administrators. DTC's service fees are reviewed by its board and 
subject to public notice and comment.
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    \6\ 15 U.S.C. 78q-1 and 78s.
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    After the consummation of the proposed arrangements, securities 
industry members will continue to have access to high quality, low cost 
depository and clearing services provided under the mandate of the Act. 
The overall cost to the industry of having such services available will 
be reduced and thereby should permit a more efficient and productive 
allocation of industry resources. Accordingly, DTC and PTC believe that 
the proposed transaction advances the objectives of the national 
clearance and settlement system without an inappropriate or unnecessary 
burden upon competition.

(C) Self-Regulatory Organizations' Statement on Comments on the 
Proposed Rule Changes Received from Members, Participation or Others

    Written comments on the proposal from DTC participants, PTC 
participants, or others have not been solicited or received. However, 
the proposed arrangements have been reviewed and approved by PTC's 
Board of Directors, which is comprised of representatives of the banks 
and broker-dealers that are PTC's stockholders and participants. In 
addition, DTC believes that the proposed arrangements are consistent 
with recommendations made by the Vision 2000 Committee (``Committee''), 
a committee of industry representatives of the Boards of DTC and the 
National Securities Clearing Corporation. The Committee's report dated 
September 1994 states that:

    The industry currently owns a number of utilities that provide 
services related to the comparison, clearing, settlement and 
safekeeping of U.S. (and to a lesser degree, international) 
securities. These utilities overlap in two ways. * * * We believe 
that the industry's and, as important, the investors', overall costs 
can be reduced and safety and soundness can be enhanced by 
eliminating these overlaps where there is no clear advantage to 
having specialization or competing development.\7\
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    \7\ The Committee's report is attached as Exhibit 2 to DTC's 
filing, which is available for review and inspection in the 
Commission's public reference room and through DTC.
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III. Date of Effectiveness of the Proposed Rule Changes 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 DTC or PTC consents, the Commission will:
    (A) By order approve such proposed rule changes or
    (B) Institute proceedings to determine whether the proposed rules 
changes should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
changes are consistent with the Act. 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 changes that are filed 
with the Commission, and all written communications relating to the 
proposed rule changes 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 offices of DTC 
and PTC. All submissions should refer to File Nos. SR-DTC-98-12 and SR-
PTC-98-02 and should be submitted by July 21, 1998.

    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17384 Filed 6-29-98; 8:45 am]
BILLING CODE 8010-01-M