[Federal Register Volume 67, Number 137 (Wednesday, July 17, 2002)]
[Notices]
[Pages 47009-47010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-17917]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46178; File No. SR-DTC-2001-19]


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

July 10, 2002.
    On December 18, 2001, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change (File No. SR-DTC-2001-19) 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 May 8, 
2002.\2\ No comment letters were received. For the reasons discussed 
below, the Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 45867 (May 2, 2002), 67 
FR 30986 (May 8, 2002).
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I. Description

    The Commission has proposed for comment amendments to Rule 17Ad-14 
under the Act \3\ that will expand the scope of the rule to include 
reorganization events in addition to tender offers and exchange 
offers.\4\ Under the proposed changes to Rule 17Ad-14, a 
``reorganization agent'' \5\ acting on behalf of an issuer in 
connection with a ``reorganization event'' \6\ which involves 
securities eligible at a ``qualified registered securities depository'' 
\7\ would be required to establish an account at DTC to receive the 
subject securities from DTC participants by book-entry deliveries. In 
addition, the reorganization agent would not be permitted to require 
DTC to deliver any physical securities prior to the third business day 
following the record date, payment date, or expiration date, as 
applicable, of the reorganization event. These proposed changes to Rule 
17Ad-14 would subject transfer agents acting as reorganization agents 
to requirements under Rule 17Ad-14 similar to those that currently 
apply to transfer agents acting as depositaries in tender offers and as 
exchange agents in exchange offers.
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    \3\ 17 CFR 240.17Ad-14.
    \4\ Securities Exchange Act Release No. 40386 (August 31, 1998), 
63 FR 47209 [File No. S7-25-98].
    \5\ Id. As proposed, a ``reorganization agent'' would be the 
transfer agent receiving shares from tendering depository 
participants and performing payment or exchange functions in 
connection with a reorganization event.
    \6\ Id. As proposed, a ``reorganization event'' would mean and 
include conversions, maturities, full and partial redemptions, 
calls, put option exercises, and warrant and rights exercises 
involving corporate and municipal securities of an issuer.
    \7\ ``Qualified registered securities depository'' is defined in 
Rule 17Ad-14 as a registered clearing agency having rules and 
procedures approved by the Commission pursuant to section 19 of the 
Act to enable book-entry delivery of the securities of the subject 
company to, and return of those securities from, the transfer agent 
through the facilities of that securities depository.
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    In order to be ready for processing changes that will occur if the 
Commission adopts the proposed amendments to Rule 17Ad-14, DTC is 
establishing its Automated Corporation Action Program (``ACAP''). The 
ACAP procedures and ACAP agreement will govern participants' exercises 
of warrants, conversions, and put options privileges that DTC has made 
eligible for ACAP (``ACAP reorganization event''). Tender offers and 
exchange offers will continue to be processed through DTC's Automated 
Tender Offer Program. Prior to making one of the above-listed 
reorganization events eligible for ACAP, DTC and the agent will have 
entered into an ACAP agreement that provides that DTC's ACAP procedures 
are applicable to the event.\8\
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    \8\ DTC and the reorganization agent will enter into an ACAP 
agreement, the terms of which will apply to all reorganization 
events for that reorganization agent thereafter made eligible for 
ACAP. When ACAP is fully automated, it is contemplated that DTC's 
Participant Terminal System 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 an ACAP reorganization 
event will transmit the acceptance to DTC. DTC will transmit an 
instruction to the agent in the form of a DTC ``agent's message'' and 
will affect a book-entry delivery of the subject securities to the 
account of the reorganization agent maintained at DTC

[[Page 47010]]

for this purpose no later than the prescribed deadline for the event. 
The book-entry delivery into the account 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 or 
electronic instruction letter, as the case may be, to the 
reorganization agent will satisfy the terms of the reorganization 
event, in the form required by the reorganization event, as to the 
execution and delivery of either (1) the warrant/conversion/put option 
form by a DTC participant or (2) an instruction letter by a DTC 
participant to cover a protect (i.e., surrender securities) if the 
reorganization agent has accepted a notice of guaranteed delivery from 
a DTC participant outside of DTC.\9\
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    \9\ Upon completion of ACAP automation, DTC participants will be 
able to submit through ACAP notices of guaranteed delivery to 
reorganization agents.
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    If DTC presents a certificate to the reorganization agent which the 
reorganization agent determines to be nontransferable, DTC will within 
three business days after notice from the reorganization 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 reorganization agent all funds and all 
securities of other issues paid to and issued to DTC in exchange for 
the nontransferable certificate. If a cash dividend or interest payment 
is payable on the nontransferable certificate during such three 
business day period, the reorganization agent may deduct the amount of 
the payment 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 nontransferable certificate with the participant that deposited 
the securities.

II. Discussion

    Section 17A(b)(3)(F) \10\ 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, including the 
transfer of record ownership, and to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions. The rule change allows DTC to adopt procedures 
consistent with the proposed requirements of Rule 17Ad-14. These 
procedures should make the processing of DTC's participants' 
participation in ACAP reorganization events more efficient and thereby 
should promote the prompt and accurate clearance and settlement of 
these transactions. ACAP should also lead to better coordination and 
cooperation between DTC and transfer agents acting as reorganization 
agents for ACAP reorganization events. Therefore, the Commission finds 
that the rule change is consistent with these obligations under section 
17A of the Act.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F).
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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 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-2001-19) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-17917 Filed 7-16-02; 8:45 am]
BILLING CODE 8010-01-P