[Federal Register Volume 64, Number 144 (Wednesday, July 28, 1999)]
[Notices]
[Pages 40927-40928]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19265]



[[Page 40927]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41635; File No. SR-DTC-99-10]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Adding a New Service for the 
Deposit of Securities Subject to Transfer Restrictions

July 21, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 30, 1999, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-99-10) 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The purpose of the proposed rule filing is to allow for the deposit 
and processing of restricted securities using DTC's Restricted Deposit 
Service (``RDS'').

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.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by DTC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    DTC's proposed RDS will: (i) Allow participants to deposit 
restricted securities in a participant's segregated account within 
DTC's existing Custody Service, (ii) facilitate the processing of a 
transfer of all or a portion of the securities once the restriction is 
lifted, (iii) subsequently register the unrestricted securities (or 
portion thereof) in the name of Cede & Co., DTC's nominee, and (iv) if 
requested, deliver the restricted portion of the securities as directed 
by the depositing participant.\3\
---------------------------------------------------------------------------

    \3\ DTC will charge its customary fee for restricted transfers 
of $45.48.
---------------------------------------------------------------------------

    Under the proposed rule change, a participant may deposit 
restricted securities into the participant's segregated account until 
the applicable restriction has been lifted and the full or partial sale 
of the securities is complete. Securities credited to this account will 
not be registered in the name of Cede & Co. and therefore will not be 
available for book-entry transfer.
    The process will be initiated when a participant enters and 
transmits restricted securities deposit information to DTC through the 
new Restricted Deposit Service by Participant (``RDSP'') function on 
DTC's Participant Terminal System (``PTS'').\4\ This information will 
include the CUSIP number, quantity and certificate number of each 
certificate to be deposited, deposit type (e.g., partial sale), the 
sold and unsold quantities of the securities, registration instructions 
for the restricted and unsold portion of the securities, and whether 
the issuer's opinion of counsel will accompany the deposit or will be 
sent directly to the transfer agent. After DTC reviews the deposit 
information,\5\ an RDS deposit ticket will be transmitted to the 
participant's PTS printer. The RDS deposit ticket and the securities 
will then be delivered to DTC.
---------------------------------------------------------------------------

    \4\ In the future DTC plans to enhance the Custody Service to 
provide participants with the capability to transmit RDS 
instructions via the ``CUST'' function on PTS and via computer-to-
computer transmissions.
    \5\ DTC will review the deposit information entered by the 
participant to make sure that the security in question is DTC-
eligible and that all appropriate fields have been populated.
---------------------------------------------------------------------------

    After receiving and examining the deposited securities, DTC will 
credit the participant's segregated account for the quantity of the 
deposit. DTC will use two subaccounts in the process. One subaccount 
will be used for the quantity of unrestricted (sold) securities and the 
other for the quantity of restricted (unsold) securities. At this 
stage, no positions in either subaccount will be available for book-
entry transfer by the participant. The securities and detailed transfer 
instructions will then be sent to the transfer agent for processing.\6\ 
The transfer agent will continue to approve the transfers contemplated 
by the new service based on the same requirements that exist today 
(e.g., receipt of opinion from issuer's counsel).
---------------------------------------------------------------------------

    \6\ While the securities are still at the agent, the participant 
may enter and transmit amended transfer instructions through the 
RDSP PTS function (e.g., the sold portion of the deposit has been 
increased). DTC will then communicate the amended transfer 
instructions to the transfer agent.
---------------------------------------------------------------------------

    An inquiry option of the RDSP PTS function will enable the 
depositing participant to view the current status of the securities, 
including information DTC has received from the transfer agent as to 
when the transfer is expected to be completed. DTC believes that this 
option will give the participant greater control over the processing of 
the securities than that which exists today.
    For deposited securities in DTC-eligible issues, the sold and 
unrestricted portion of the transferred securities will be registered 
in DTC's nominee name, Cede & Co. When the transfer is completed and 
the newly transferred securities are returned to DTC, the quantity of 
unrestricted securities registered in DTC's nominee name, Cede & Co., 
will be removed from the participant's segregated account and added to 
the participant's general free account. The quantity of restricted 
securities, if any, will also be removed from the participant's 
segregated account. At the same time the restricted portion of the 
securities will be sent to the destination specified by the depositing 
participant in its original RDSP instruction. That is, the restricted 
securities will either be made available for pick-up by the 
participant, mailed directly to the registered holder, or deposited 
into DTC's Custody Service for the account of the depositing 
participant.
    Additionally, DTC believes that the service will accommodate 
certificate denomination breakdowns for restricted securities, transfer 
agent approval reregistrations of restricted securities (e.g., 
``gifting'' transactions, where the restricted security may be 
reregistered into the name of the spouse of the original owner), and 
reregistrations of unrestricted securities into Cede & Co.'s name once 
the restriction is lifted.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \7\ and the rules and regulations thereunder 
applicable to DTC because it will facilitate the efficient processing 
of partial and full sale of restricted securities where the applicable 
restriction has been lifted by or on behalf of the issuer by 
streamlining the mechanics of the physical process that currently 
occurs outside of DTC. Under the proposed rule change, the current 
control on the transfer of restricted securities will remain with the 
transfer agent. The proposed rule change will improve the safeguarding 
of securities and funds in

[[Page 40928]]

DTC's custody or control or for which it is responsible because it will 
give participants greater control over the processing of full or 
partial sales of restricted securities.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(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

    The substance of the proposed rule change is supported by and was 
developed in conjunction with a group of participants and transfer 
agents. Additionally, the substance of the proposed rule change was 
presented to and endorsed by DTC's Operations Advisory Committee.

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 
is consistent with the Act. Persons making written submissions should 
file six copies thereof with Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 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-99-10 and should be submitted by August 18, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 99-19265 Filed 7-27-99; 8:45 am]
BILLING CODE 8010-01-M