[Federal Register Volume 65, Number 156 (Friday, August 11, 2000)]
[Notices]
[Pages 49278-49279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20413]



[[Page 49278]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43125; SR-DTC-00-09]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Relating to the Establishment 
of a Surety Program as Part of the Profile Modification System Feature 
of the Direct Registration System

August 7, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 29, 2000, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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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 establish a surety program, the DTC 
Profile Surety Program, which will be part of the Profile Modification 
System feature (``Profile'') of the Direct Registration System 
(``DRS'') of DTC.\2\ As more fully described below, under the Profile 
Surety Program, all users of Profile who agree to a Participant 
Terminal System (``PTS'') screen-based indemnity as part of their use 
of DRS must procure a surety bond relating to their obligations under 
such indemnity.
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    \2\ For a description of the DRS and Profile, see Securities 
Exchange Act Release Nos. 37931 (November 7, 1996), 61 FR 58600 
[File No. SR-DTC-96-15] (order relating to the establishment of 
DRS); 41862 (September 10, 1999), 64 FR 51162, [File No. SR-DTC-99-
16] (order relating to implementation of Profile); 42366 (January 
28, 2000) 65 FR 5714, [File No. SR-DTC-00-01] (order relating to an 
interpretation of an existing rule pertaining to DRS); and 42704 
(April 19, 2000), 65 FR 24242 [File No. SR-DTC-00-04] (order 
relating to incorporation of an electronic screen-based 
indemnification).
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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 
statments.\3\
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    \3\ 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

    Profile allows a DTC participant to electronically submit to a 
transfer agent who is a DRS limited participant an investor's 
instruction that the investor's share position be moved from the 
investor's DRS account with the DRS limited participant to the 
investor's broker-dealer's participant account at DTC (``participant 
Profile instruction''). Likewise, Profile allows a DRS limited 
participant to electronically submit an investor's instruction that the 
investor's share position be moved from the investor's broker-dealer's 
participant account at DTC to an account at the DRS limited participant 
(``limited participant Profile instruction'').
    A participant submitting a participant Profile instruction to a DRS 
limited participant must agree to a PTS screen-based indemnity 
substantially in the following form (the ``participant indemnity''):
    (1) Participant represents that it has the authority and consent 
for the request appearing on the following screen from either (a) the 
registered owner on the participant's records or (b) a third party who 
has actual authority to act on behalf of the registered owner on the 
participant's records, and that all information shown is accurate and 
complete, except that, with respect to the taxpayer identification 
number included in such information, to the best knowledge of 
participant, such information is accurate and complete; and
    (2) Participant indemnifies the issuer, its transfer agent and 
their respective officers, directors, shareholders, employees, agents, 
representatives, subsidiaries, parents, affiliates, successors and 
assigns against any breach of such representations in connection with 
the transaction that is the subject of such request.
    A DRS limited participant submitting a limited participant Profile 
instruction to a participant must agree to a PTS screen-based indemnity 
substantially in the following form (the ``limited participant 
indemnity''):
    (1) Transfer agent represents that it has the authority and consent 
for the request appearing on the following screen from either (a) the 
registered owner on the transfer agent's records or (b) a third party 
who has actual authority to act on behalf of the registered owner on 
the transfer agent's records, and that all information shown is 
accurate and complete, except that, with respect to the taxpayer 
identification number included in such information, to the best 
knowledge of transfer agent, such information is accurate and complete; 
and
    (2) Transfer agent indemnifies the participant and its respective 
officers, directors, shareholders, employees, agents, representatives, 
subsidiaries, parents, affiliates, successors and assigns against any 
breach of such representations in connection with the transaction that 
is the subject of such request.
    At the time that DTC filed the proposed rule change for the 
establishment of Profile,\4\ it was contemplated that an electronic 
medallion program would be developed by a party that currently 
administers a medallion program in connection with transfers of 
physical certificates and that such an electronic medallion program 
would become part of Profile. At a meeting held on April 20, 2000, 
representatives from the DRS Committee \5\ and the New York Stock 
Exchange decided that because of its role in DRS, DTC would be a 
logical party to administer a surety program. At that meeting, it was 
apparent that recipients of Profile instructions wanted the benefits of 
a surety bond underlying the participant indemnity and the DRS limited 
participant indemnity that would be applicable where the obligor under 
one of the indemnities did not honor its obligations.
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    \4\ Securities Exchange Act Release No. 42704 (April 19, 2000), 
65 FR 24242, [File No. SR-DTC-00-04].
    \5\ The DRS Committee is an industry committee responsible for 
designing DRS. Its members include representatives from the 
Securities Transfer Association, the American Society of Corporate 
Secretaries, the Securities Industry Association, the Corporate 
Transfer Association, and DTC.
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    As a result, DTC is proposing to implement and administer the 
Profile Surety Program. Under the Profile Surety Program, any entity 
using DRS will be required to procure a surety bond in order to send 
electronic instructions through Profile. The surety company issuing the 
surety bond will either be a company selected by DTC as the 
administrator of the Profile Surety Program or, at the election of the 
entity participating in DRS, another surety company. If an entity 
participating in DRS elects to use another surety company, the surety 
company will be required to issue the surety bond in accordance with 
the terms and

[[Page 49279]]

conditions established by DTC for the Profile Surety Program. For 
example, the surety bond must have a coverage limit of $2 million per 
occurrence and an aggregate limit of $6 million. DTC will also require 
that all companies issuing surety bonds must be rated A- or better by 
the A.M. Best Company. DTC plans to implement the Profile Surety 
Program by October 1, 2000.\6\
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    \6\ Letter from Jeffrey T. Waddle, DTC (August 1, 2000).
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    The proposed rule change is consistent with the requirements of 
Section 17A of the Act and the rules and regulations thereunder 
applicable to DTC since the proposed rule change will give participants 
more efficient usage of DRS. The proposed rule change will be 
implemented consistently with the safeguarding of securities and funds 
in DTC's custody or control or for which it is responsible because the 
operation of DRS, as modified by the proposed rule change, will be 
similar to the current operation of DRS.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC perceives no adverse 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

    The proposed rule change has been developed through discussions 
with several participants and DRS limited participants. Written 
comments from 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

    Within thirty-five days of the date of the 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 the self-regulatory organization consents, 
the Commission will:
    (a) By order approve the 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. section 553, 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 offices of DTC. All submissions 
should refer to File No. SR-DTC-00-09 and should be submitted by 
September 1, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-20413 Filed 8-10-00; 8:45 am]
BILLING CODE 8010-01-M