[Federal Register Volume 63, Number 168 (Monday, August 31, 1998)]
[Notices]
[Pages 46262-46263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23316]
[[Page 46262]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40361; File No. SR-DTC-98-15]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Accelerated Approval 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 25, 1998.
On July 13, 1998, The Depository Trust Company (``DTC'') filed with
the Securities and Exchange Commission (``Commission'') and on July 30,
1998, amended a proposed rule change (File No. SR-DTC-98-15) 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 August 10, 1998.\2\ On August 11, 1998, DTC filed its
second amendment to the proposed rule change.\3\ No comment letters
were received. For the reasons discussed below, the Commission is
granting accelerated approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 40300 (August 3, 1998),
63 FR 42650.
\3\ The August 11, 1998, amendment represents a technical
amendment to the proposed rule change and as such does not require
republication of notice.
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I. Description
The rule change relates to the merger of DTC and Participants Trust
Company (``PTC'').\4\ 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 (``MSB Division'') to deliver the depository
services currently provided by PTC to its participants with respect to
PTC-eligible securities. DTC will adopt PTC's rules and procedures,
with certain modifications, as the rules and procedures of the MBS
Division. 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.
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\4\ For a more detailed description of the 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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The merger agreement also provides that as of the effective date of
the merger one PTC board member 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, DTC is amending its 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 the participant's use of
services provided through the MBS Division.
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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 adding language to its Rule 4 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.
II. Discussion
The Commission believes that DTC's proposal to make PTC's rules a
part of DTC's rules is consistent with DTC's obligations under Section
17A of the Act.\6\ The Commission has previously approved all of PTC's
rules as being consistent with PTC's responsibility as a clearing
agency as set forth in Section 17A(b)(3) of the Act.\7\ The Commission
believes that by adopting these previously approved rules of PTC as the
rules for its newly created MBS Division, DTC will be able to fulfill
its statutory obligations under Section 17A(b)(3) with respect to the
clearance, settlement, and depository service provided by its MBS
Division.
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\6\ 15 U.S.C. 78q-1.
\7\ 15 U.S.C. 78q-1(b)(3).
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Section 17A(b)(3)(C) of the Act\8\ requires that the rules of a
clearing agency assure the fair representation of its shareholders (or
members) and participants in the selection of its directors and
administration of its affairs. The Commission believes that the
proposed rule change is consistent with DTC's obligations under Section
17A(b)(3)(C) for several reasons. First, almost all of PTC's members
are also members of DTC and therefore are already represented on DTC's
Board.\9\ Second, the rule change provides that when the merger become
effective a PTC board member nominated by PTC's Board will become a
member of DTC's Board. Third, the rule change provides that the
calculation of DTC participants' entitlement to purchase stock, and
therefore vote in the election of DTC's Board, will include the
participants' use of the services of the MBS Division.
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\8\ 15 U.S.C. 78q-1(b) (3) (C).
\9\Supra note 5.
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Section 17A(b)(3)(F) of the Act\10\ requires 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 that by adding
language to Rule 4 to make clear and explicit DTC's rights and
obligations with respect to its participants' fund, DTC's ability to
assure the safeguarding of securites and funds which are in DTC's
custody or control or for which it is responsible should be enhanced.
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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DTC has requested that the Commission approve the proposed rule
change prior to the thirtieth day after publication of the notice of
the filing. The Commission finds good cause for approving the proposed
rule change prior to the thirtieth day after the publication of notice
because such approval will allow securities transactions that are
currently processed through PTC to be processed efficiently through the
MBS Division of DTC and will allow an orderly transfer of PTC's
operations to DTC.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act\11\ and the
rules and regulations thereunder.
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\11\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-98-15) be and hereby is
approved on an accelerated basis.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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[[Page 46263]]
Jonathan G. Katz,
Secretary.
[FR Doc. 98-23316 Filed 8-28-98; 8:45 am]
BILLING CODE 8010-01-M