[Federal Register Volume 64, Number 31 (Wednesday, February 17, 1999)]
[Notices]
[Pages 7931-7932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3772]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41032; File No. SR-DTC-99-01]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change Allowing DTC to Charge a Low Volume Tender Offer Processing 
Fee

February 9, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 1, 1999, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-99-01) as described in Items I and II below, which items have 
been prepared primarily by DTC.\2\ The Commission is publishing this 
notice and order to solicit comments from interested persons and to 
grant accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ On February 5, 1999, DTC supplemented the proposed rule 
change. Letter from Carl H. Urist, Deputy General Counsel, DTC 
(February 5, 1999).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change will allow DTC to charge a processing fee 
of $2,700 in connection with low volume tender offers processed through 
DTC's facilities.\3\ The low volume tender offer processing fee will be 
payable by the offeror in advance of DTC's processing the offer.
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    \3\ A low volume tender offer is an offer in which the offeror 
is seeking to purchase for cash up to 5% of the outstanding shares 
of an equity issue or any amount of a debt issue. Low volume tender 
offers do not include exchange offers or offers by the issuer of the 
target security.
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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.\4\
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    \4\ 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

    When DTC receives offering materials from an offeror making a 
tender offer, DTC first reviews the materials to ascertain the basic 
terms of the offer such as the target security, the identities of the 
offeror and its agent, the offer price, and any limitations on the 
quantity of the securities to be purchased. DTC also discusses the 
terms of the offer with the offeror or its agent. If DTC determines 
that the offer can be processed through its facilities, DTC announces 
the offer to its participants by entering the basic terms of the offer 
into DTC's Reorganization Inquiry for Participants service, an 
electronic announcement system. DTC and the offeror's agent enter into 
an agreement to make the offer eligible for the processing of 
acceptances by participants at DTC through DTC's Automated Tender Offer 
Program.
    In charging fees in connection with tender offers, DTC's overall 
objective is to recover the cost of processing the offers. At present, 
DTC recovers its costs in processing a tender mostly through the fees 
paid by its participants when they accept the offer. The fee for 
accepting a tender at DTC is currently $31.10 per acceptance submitted 
by a participant. (DTC will soon propose revisions to its fee schedule, 
and the tender offer acceptance fee will increase to $32.30.) 
Participants have been willing to pay DTC's tender offer acceptance fee 
because of the efficiencies and cost savings for participants that 
result from accepting tender offers by book-entry delivery at DTC 
instead of through the delivery of physical certificates outside of 
DTC.
    In the 2,127 tender offers processed by DTC in 1997 (which included 
39 low volume tender offers), participants submitted an average of 85 
acceptances

[[Page 7932]]

in each offer. The fees paid by the participants that submitted 
acceptances in those offers covered DTC's costs in processing the 
offers. Recently, DTC has processed an increased number of low volume 
tender offers.\5\ In the 170 low volume tender offers processed by DTC 
in the month of December 1998, participants submitted an average of 
only 1.5 acceptances in each offer. As a result, the fees paid by the 
participants that submitted acceptances in those low volume tender 
offers fell short of covering DTC's costs in processing the offers.
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    \5\ In 1997, DTC processed 39 low volume tender offers, in 1998, 
DTC processed 537 low volume tender offers. To date in 1999, DTC has 
received offering materials for over 300 low volume tender offers.
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    In order to recover its costs in processing low volume tender 
offers, DTC will require an offeror making such an offer to pay the low 
volume tender offer processing fee of $2,700 to DTC before DTC 
announces the offer to its participants or conducts any other 
processing activities for the offer. The proposed low volume tender 
offer processing fee of $2,700 is intended to make up for the current 
difference in revenues to DTC between regular tender offers and low 
volume tender offers. The low volume tender offer processing fee plus 
participants' tender offer acceptance fees from the average of 1.5 
acceptances in low volume tender offers should approximately equal 
participants' tender offer acceptance fees from the average of 85 
acceptances in regular tender offers. The fee, which can be paid by 
certified check or by wire payment, will apply to each security issue 
for which the offer is making a low volume tender offer. DTC will 
continue to charge the tender offer acceptance fee to any participants 
who submit acceptances in such offers.
    DTC will apply the low volume tender offer processing fee to all 
low volume tender offers that DTC announces on or after the date of 
this order. However, if DTC receives more than $27,000 from the tender 
offer acceptance fees paid by participants in a low volume tender 
offer, DTC will refund the entire low volume tender offer processing 
fee of $2,700 to the offeror after the conclusion of the offer.
    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 applicable to DTC since the low volume tender 
offer fee equitably charges most of DTC's costs in processing such 
offers to the offerors making the offers and not to DTC's participants, 
which rarely submit acceptances in such offers.
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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 perceives no impact on competition by reason of the proposed 
rule change.

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

    Written comments from DTC participants or others have not been 
solicited or received on the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Section 17A(b)(3)(D) of the Act \7\ requires that the rules of a 
clearing provide for the equitable allocation of reasonable dues, fees, 
and other charges among its participants. The Commission believes that 
the proposed rule change is consistent with DTC's obligations under the 
Act because the low volume tender offer processing fee should allow DTC 
to more equitably allocate and recover its costs in processing low 
volume tender offers.
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    \7\ 15 U.S.C. 78q-1(b)(3)(D).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing. Approving prior to the thirtieth day after 
publication of notice will allow DTC to immediately implement the low 
volume tender offer acceptance fee which should allow DTC to 
immediately avoid incurring unrecovered processing costs that would 
otherwise be passed on to its participants.

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-99-01 and should be submitted by March 
10, 1999.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-99-01) be, and hereby 
is, approved.

    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. 99-3772 Filed 2-16-99; 8:45 am]
BILLING CODE 8010-01-M