[Federal Register Volume 67, Number 89 (Wednesday, May 8, 2002)]
[Notices]
[Pages 30986-30988]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11395]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45867; File No. SR-DTC-2001-19]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change Relating to Automated 
Corporation Action Program Applicable to the Exercise of Warrants, 
Conversions, and Put Option Privileges

May 2, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 18, 2001, 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 on the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).

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[[Page 30987]]

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

    The proposed rule change involves DTC's new Automated Corporation 
Action Program (``ACAP'') applicable to the exercise of warrants, 
conversions, and put option privileges (collectively ``reorganization 
events'').\2\
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    \2\ A copy of the text of DTC's proposed rule change and the 
attached exhibits are available at the Commission's Public Reference 
Section or through DTC.
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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 these 
statements.\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

    The Commission has proposed for comment amendments to Rule 17Ad-14 
under the Act \4\ that will expand the scope of the rule to include 
reorganization events in addition to tender offers and exchange 
offers.\5\ Under the proposed changes to Rule 17Ad-14, reorganization 
agents acting on behalf of issuers in connection with reorganization 
events which involve the exercise of warrant, conversion, or put option 
privileges on securities on deposit at DTC (a ``qualified registered 
securities depository'' as defined in Rule 17Ad-14) would be required 
to establish an account at DTC to receive the subject securities from 
DTC participants by book-entry deliveries. In addition, the agents 
would not be permitted to require DTC to deliver securities 
certificates prior to the third business day following the expiration 
date of the reorganization event. These proposed changes to Rule 17Ad-
14 would subject reorganization events involving the exercise of 
warrants, conversions, and put option privileges to requirements under 
Rule 17Ad-14 similar to those that currently apply to tender offers and 
exchange offers.
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    \4\ 17 CFR 240.17Ad-14.
    \5\ Securities Exchange Act Release No. 40386 (August 31, 1998), 
63 FR 47209 [File No. S7-25-98].
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    DTC proposes to establish procedures and a master agreement for 
ACAP which will govern participants' exercises of warrants, 
conversions, and put options privileges that DTC has made eligible for 
ACAP. Tender offers and exchange offers will continue to be processed 
through DTC's Automated Tender Offer Program. Prior to making a 
reorganization event eligible for ACAP, DTC and the agent will have 
entered into an agreement that provides that DTC's ACAP procedures are 
applicable to the event.\6\
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    \6\ DTC and the reorganization agent will enter into a master 
agreement, the terms of which will apply to all reorganization 
events thereafter made eligible for ACAP. When ACAP is fully 
automated, it is contemplated that DTC's Participant Terminal System 
(``PTS'') or other electronic means will be used to confirm the 
agreement between DTC and the reorganization agent with respect to 
each reorganization event and to confirm any special procedures 
applicable to an event. Prior to completion of ACAP system 
automation, event information may be exchanged by telephone, fax, or 
e-mail.
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    Under the ACAP procedures, participants wishing to exercise 
warrant, conversion, or put option privileges in a reorganization event 
that has been made eligible for ACAP will transmit the acceptance to 
DTC. DTC will transmit the instruction to the agent in the form of a 
DTC ``agent's message'' and will effect a book-entry delivery of the 
subject securities to the account of the agent maintained at DTC for 
this purpose no later than the prescribed deadline for the event. The 
book-entry delivery will constitute the delivery of the securities 
required by the terms of the reorganization event. DTC will deliver the 
certificates evidencing the subject securities no later than three 
business days after the applicable deadline.
    Under the ACAP procedures, DTC's delivery of the agent's message to 
the reorganization agent will satisfy the terms of the reorganization 
event as to the execution date and the delivery of either (1) the 
subscription/conversion/put option form by a DTC participant or (2) an 
instruction letter to cover a protect if the reorganization agent has 
accepted a notice of guaranteed delivery from a DTC participant outside 
of DTC.\7\
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    \7\ Notices of guaranteed delivery issued by DTC participants in 
connection with protect periods in reorganization events may also be 
transmitted through ACAP upon completion of ACAP automation.
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    If DTC presents a certificate to the reorganization agent which the 
agent determines to be non-transferable, DTC will within three business 
days after notice from the agent either (i) put the certificate into 
transferable form or replace it with a transferable certificate for the 
same quantity of that issue of securities or (ii) return to the agent 
all funds and all securities of other issues paid to and issued to DTC 
in exchange for the non-transferable certificate. If a cash dividend or 
interest payment is payable on the non-transferable certificate during 
such three business day period, the agent may deduct the amount of the 
payment on the non-transferable certificate from the total payment due 
to DTC with respect to that issue of securities. As is generally the 
case with securities certificates deposited with DTC, DTC will resolve 
any problems relating to a non-transferable certificate with the 
participant that deposited the securities.
    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 because it will further automate the 
processing of reorganization events by book-entry movements of 
securities and will reduce reliance on multiple movements of physical 
securities certificates in advance of the reorganization event and 
therefore increase the efficiency and reliability of processing with a 
decreased risk of loss due to lost or stolen certificates.

(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

    The proposed rule change was developed through discussions with 
representatives of DTC participants and the Securities Transfer 
Association, Inc. Written comments on the ACAP procedures from DTC 
participants or others have not been solicited or received.

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 the self-regulatory organization consents, 
the Commission will:
    (A) By order approve such proposed rule change or

[[Page 30988]]

    (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 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-2001-19 and should be submitted by May 
29, 2002.

    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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-11395 Filed 5-7-02; 8:45 am]
BILLING CODE 8010-01-P