[Federal Register Volume 63, Number 153 (Monday, August 10, 1998)]
[Notices]
[Pages 42650-42651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-21304]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40300; File No. SR-DTC-98-15]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of a Proposed Rule Change to Incorporate the Rules and 
Procedures of Participants Trust Company, To Increase the Size of the 
Board of Directors, and To Amend the Rules Regarding the Use of the 
Participants Fund

August 3, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 13, 1998, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') and on July 30, 1998, amended 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

    Under the proposed rule change, in connection with the proposed 
merger of Participants Trust Company (``PTC'') and DTC,\2\ DTC will 
incorporate the rules and procedures of PTC into its rules and 
procedures and will increase the size of its Board of Directors. DTC is 
also proposing to amend its rules

[[Page 42651]]

regarding the use of its participating fund.
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    \2\ For a description of the proposed merger, refer to 
Securities Exchange Act Release No. 40121 (June 24, 1998), 63 FR 
35631 [File Nos. SR-DTC-98-12, SR-PTC-98-02] (notice of proposed 
rule change relating to proposed merger between DTC and PTC).
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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, 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.\3\
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    \3\ 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

    DTC and PTC have entered into a merger agreement under which PTC 
will merge with and into DTC. DTC will form a mortgage-backed 
securities division (``MBS Division'') to deliver the depository 
services currently provided by PTC to its participants with respect to 
PTC-eligible securities. Under the merger agreement, the MBS Division 
will remain in place until at least September 30, 2000. Current PTC 
participants will be given the opportunity to become participants and 
limited purpose participants in the MBS Division. The cash and 
securities presently constituting the PTC participants fund will be 
transferred to a new MBS Division participants fund.
    Under the proposed rule change, DTC will adopt PTC's rules and 
procedures, with certain modifications, as the rules and procedures of 
the MBS Division.\4\ DTC intends to incorporate PTC's rules without 
altering the rights and responsibilities of either PTC participants or 
DTC participants.
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    \4\ The full text of the proposed rules of the MBS Division is 
included in DTC's proposed rule filing which is available for 
inspection and copying at the Commission's public reference room and 
through DTC.
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    The merger agreement also provides that as of the effective date of 
the merger a person initially nominated by PTC's Board shall become a 
member of DTC's Board. This new director position is to remain in place 
at least until September 30, 2000. In order to accommodate the new 
director position, the proposed rule change will amend DTC's By-Laws to 
increase the number of directors on its Board from seventeen to 
eighteen.
    Virtually all of PTC's participants are also DTC participants.\5\ 
DTC participants are entitled to acquire DTC stock based upon their use 
of DTC's services. The amount of each DTC participant's entitlement is 
recalculated each year, and participants that purchase DTC's stock are 
permitted to vote in the election of DTC's Board of Directors. After 
DTC and PTC merge, the calculation of each participant's entitlement to 
acquire DTC stock will take full account of its use of services 
provided through the MBS Division. DTC believes that expansion of the 
Board in this manner should provide additional assurances to current 
PTC participants that DTC's Board will be aware of their service needs.
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    \5\ The only exceptions are Federal Home Loan Mortgage 
Corporation (a limited purpose participant), Federal National 
Mortgage Association, and The Federal Reserve Bank of Cleveland.
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    In addition to the amendments regarding the creation of the MBS 
Division, DTC is amending the rules relating to the use of its 
participants fund. Under the proposed rule change, DTC's Rule 4 will be 
amended to make clear that if DTC were to cease providing some or all 
of its services, it could use the participants fund to cover wind-down 
costs that are not covered by service fee revenues or other available 
resources.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder. DTC believes that the proposal should assure 
the 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, DTC believes that its governance procedures 
should continue to allow its participants to have a fair opportunity to 
acquire DTC voting stock in proportion to their use of DTC's services.
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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

    DTC has not solicited or received comments on the proposed rule 
change. Informally, a number of participants have expressed support of 
the subject proposals.

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 DTC 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, including whether the proposed rule 
change is consistent with the Act. 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-98-15 and should be submitted by August 
31, 1998.

    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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Jonathan G. Katz,
Secretary.
[FR Doc. 98-21304 Filed 8-7-98; 8:45 am]
BILLING CODE 8010-01-M