[Federal Register Volume 65, Number 116 (Thursday, June 15, 2000)]
[Notices]
[Pages 37585-37586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42912; File No. SR-DTC-99-6]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Relating to the Establishment 
of a Matured Book-Entry Only Certificate Destruction Service

June 8, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 25, 1999, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-DTC-99-6) 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Term of 
Substance of the Proposed Rule Change

    DTC proposes to establish a matured book-entry-only (``BEO'') 
certificate destruction service.

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 that 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\
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    \2\ 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

    Under DTC's current practices, shortly before a debt security held 
by DTC matures DTC sends to the redemption agent: \3\ (i) A DTC 
``letter of transmittal;'' (ii) a DTC ``redemption payment summary 
form;'' and (iii) the certificate(s) that represent the maturing issue. 
This procedure is in place for issues that are evidenced both by non-
engraved certificates (typically, BEO securities) and by engraved 
certificates. In 1998, DTC shipped to redemption agents certificates 
representing over $100 billion in almost 40,000 maturing BEO debt 
issues.
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    \3\ For the majority of maturing debt securities, the transfer 
agent is also the redemption agent. Sometimes the issuer itself will 
serve as the redemption agent or will appoint a third party other 
than the transfer agent to serve as the redemption agent.
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    Under its current process, DTC removes the securities 
certificate(s) from its vault and delivers the certificate(s) to a 
commercial courier service that in turn delivers the certificates to 
the redemption agent. There, the certificates are processed in 
accordance with the redemption agent's individual policies and 
practices. Historically, some agents have contracted with commercial 
vendors for the physical destruction of such certificates.
    Under DTC's proposed rule change, DTC will offer a new optional 
service to redemption agents under which DTC will destroy the BEO 
certificates in lieu of shipping the certificates to the redemption 
agent.\4\ Redemption agents that wish to use this new service will 
delivery to DTC an executed ``matured BEO certificate destruction 
request.'' \5\ DTC will continue to present the DTC ``letter of 
transmittal'' and the DTC ``redemption payment summary form'' but not 
the BEO certificate(s) to the redemption agent in advance of the 
issue's maturity. In addition, DTC will present to the agent a ``notice 
of destruction'' \6\ stating that DTC intends to destroy the BEO 
certificate(s) in accordance with the procedures set forth in this rule 
filing as they may be amended from time to time. If the redemption 
agent requests in writing in a timely manner that DTC not destroy the 
certificates, DTC will honor the agent's request.
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    \4\ At this time, DTC will offer this service only for non-
engraved BEO certificates.
    \5\ A copy of the ``matured BEO certificate destruction 
request'' is set forth as Exhibit B of DTC's proposed rule change, 
which is available through the Commission's Public Reference Branch 
or through DTC.
    \6\ A copy of the ``notice of destruction'' is set forth as 
Exhibit C of DTC's proposed rule change, which is available through 
the Commission's Public Reference Branch or through DTC.
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    The matured BEO securities certificates will be physically 
destroyed on DTC's premises only after: (i) DTC has received the 
redemption proceeds in full and (ii) an additional thirty days has 
expired subsequent to DTC's receipt of such proceeds. Authorized DTC 
personnel will oversee and witness the destruction of the canceled 
certificates. DTC will maintain detailed ledger control over the BEO 
certificates through the point of destruction. An accurate record of 
all canceled certificates will be maintained, searchable by date of 
cancellation. Prior to destruction, the maturing securities 
certificates will be microfilmed or imaged by DTC. DTC will retain the 
microfilm or computer images of these BEO certificates for ten years 
following destruction of the certificates, and for the first six months 
DTC will maintain the microfilm or computer images in a place that is 
easily accessible by authorized DTC personnel.\7\ Copies of the 
microfilm (at no fee) or eventually images (at a fee) will be available 
to the redemption agent during the ten years following destruction. DTC 
will be liable for gross negligence and willful misconduct.
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    \7\ DTC has informed the Commission's staff that for the time 
period that such microfilm records must be maintained, whether by 
DTC or by a third party on behalf of DTC, such records will: (1) Be 
available at all times for examination by the Commission and the 
appropriate regulatory agency for immediate, easily readable 
projection/enlargement of the microfilm; (2) be arranged and indexed 
in a manner that permits immediate location of any particular 
record; (3) be immediat4ely provided upon request by the Commission 
or appropriate regulatory agency; and (4) be copied and stored 
separately from the original microfilm records.
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    As a result of this new service, once deposited in DTC, such BEO 
securities certificates will never have to be physically removed from 
DTC's vault. They would, therefore, be maintained in a secure location 
that does not allow access to the public or unauthorized personnel. 
Additionally, by centralizing the destruction of matured BEO debt 
securities certificates, DTC will provide uniform and consistent 
controls and procedures (as well as physical safeguards) for all such 
certificates in the U.S. capital market.
    DTC believes that this new service will also reduce expenses and 
risks to

[[Page 37586]]

DTC and to the industry. DTC will eliminate the shipping cost, 
insurance cost, and risk associated with shipping these certificates 
via commercial couriers from DTC to the redemption agent. In addition, 
DTC's destruction of the matured BEO certificates will provide the 
industry with economies of scale for destruction and recordkeeping 
related to matured BEO certificates.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(A) of the Act and the rules and 
regulations thereunder applicable to DTC in that it promotes the 
safeguarding of securities and funds in DTC's custody or control or for 
which it is responsible.

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, in the public interest, and for 
the protection of investors.

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

    DTC has discussed this rule change proposal in its current form 
orally with various DTC participants and transfer agents. A number of 
those consulted have expressed interest in the proposed service.

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 20549-0609. 
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 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW, Washington, 
DC. Copies of such filing will also be available for inspection and 
copying at the principal office of the above-mentioned self-regulatory 
organization. All submissions should refer to the File No. SR-DTC-99-6 
and should be submitted by July 6, 2000.

    For the Commission, by the Division of Market Regulation 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-15126 Filed 6-14-00; 8:45 am]
BILLING CODE 8010-01-M