[Federal Register Volume 64, Number 186 (Monday, September 27, 1999)]
[Notices]
[Pages 52115-52116]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24991]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41891; File No. SR-DTC-99-10]


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

September 20, 1999.
    On April 30, 1999, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-99-10) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposed 
rule change was published in the Federal Register on July 28, 1999.\2\ 
For the reasons discussed below, the Commission is approving the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 41635 (July 21, 1999), 
64 FR 40927.
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I. Description

    DTC's Restricted Deposit Service (``RDS'') allows a participant to 
deposit restricted securities into a participant's segregated account 
until the applicable restriction has been lifted and the full or 
partial sale of the securities is complete.\3\ In particular, RDS 
allows: (i) participants to deposit restricted securities in a 
participant's segregated account within DTC's existing Custody Service, 
(ii) the processing of a transfer of all or a portion of the securities 
once the restriction is lifted, (iii) the registration of the 
unrestricted securities (or portion thereof) in the name of Cede & Co., 
DTC's nominee, and (iv) if requested, the delivery of the restricted 
portion of the securities as directed by the depositing participant.\4\
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    \3\ 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.
    \4\ DTC will charge is customary fee for restricted transfers of 
$45.48.
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    The process is 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'').\5\ 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,\6\ 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.
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    \5\ 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.
    \6\ 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.
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    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.\7\ 
RDS should have no affect on the role of the transfer agent which will 
approve or reject the transfers using its internal transfer procedures 
(e.g., receipt of opinion from issuer's counsel).\8\
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    \7\ 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 communicate the amended transfer instructions 
to the transfer agent.
    \8\ 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.
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    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 complete 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

[[Page 52116]]

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, the service will accommodate certificate denomination 
breakdowns for restricted securities, transfer agent approval of 
reregistrations of restricted securities (e.g., ``gifting,'' 
transactions, where the restricted security may be registered 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.

II. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and 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 finds that the proposed rule change is consistent with these 
obligations. The proposed rule change should 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. In addition, the Commission finds the new 
service is being implemented in a manner which should not affect DTC's 
ability to safeguard securities and funds in its custody or control or 
for which it is responsible.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with Section 17A of the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DTC-99-10) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24991 Filed 9-24-99; 8:45 am]
BILLING CODE 8010-01-M