[Federal Register Volume 68, Number 115 (Monday, June 16, 2003)]
[Notices]
[Pages 35743-35744]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15086]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48005; File No. SR-DTC-2002-16]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
Relating To Enhancements to the Elective Dividend Service

June 9, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), \1\ notice is hereby given that on October 22, 2002, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange 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 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 Terms of Substance 
of the Proposed Rule Change

    The proposed rule change enables foreign participants to receive 
dividend, interest, or principal payments in foreign currency directly 
from foreign issuers through DTC's Direct Payment Option (``DPO'') of 
its Elective Dividend Service (``EDS'') for DTC-eligible securities 
issued by foreign issuers that were not initially issued with the 
option of payment in either U.S. or foreign currency.

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. 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 the 
Statutory Basis for, the Proposed Rule Change

    Currently, DTC offers its participants the option of receiving a 
dividend, interest, or principal payment either in foreign currency 
(outside of DTC) or in U.S. dollars (within DTC) when the foreign 
currency option is included in the initial offering terms of the DTC-
eligible issue.\3\ For DTC-eligible securities issued by foreign 
issuers that are not initially issued with the option of payment in 
either U.S. or foreign currency, the issuer must arrange for payment to 
DTC in U.S. dollars through a U.S. transfer or paying agent. In order 
for a non-U.S. DTC participant that is organized and resides in the 
same foreign jurisdiction as the issuer to receive payment in its home 
country and in its home currency, it must withdraw the securities from 
DTC and arrange for processing of the foreign currency payment directly 
with the paying agent. In order to once again achieve the benefits of 
immobilization of the security after the payment is made, the 
participant must then redeposit the certificate after payment has been 
made.
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    \3\ This service was first introduced in 1991. Securities 
Exchange Act Release No. 29144 (Apr. 30, 1991), 56 FR 21182 (May 7, 
1991).
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    DTC believes that the physical movement of certificates solely to 
achieve payment in the currency of the foreign jurisdiction where the 
issuer and payee both reside presents to DTC participants various 
inefficiencies, cost, and risk such as the inefficiencies of handling 
physical securities and the associated risk of loss and the risk of 
currency fluctuation.
    Under DTC's new rule, in order for an issue to be eligible for the 
DPO option (1) the issuer and transfer agent must agree to the 
arrangement (since the option has not been established at initial 
issuance) and (2) the issuer must certify that the income generated by 
the security is not U.S.-source income, in order to assure U.S. 
withholding tax requirements do not apply. Once an issue is eligible 
for the DPO option, the participant must elect to receive foreign 
currency directly from the issuer via DTC's EDS system, as is the case 
with issues that are currently eligible for foreign currency options 
established at initial instances. Similarly, the election will include 
the payment instructions to the issuer and payment/transfer agent to 
enable them to make payment directly to the non-U.S. participant 
outside of DTC.
    DTC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \4\ and the rules and 
regulations thereunder because it promotes the prompt and accurate 
clearance and settlement of securities transactions by further 
immobilizing securities certificates and eliminating the need for 
customers to withdraw and redeposit physical securities in order to 
achieve payment outside of DTC.
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    \4\ 15 U.S.C. 78q-1.
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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

    Written comments from DTC's 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

    The foregoing rule change has become effective pursuant to section 
19(b)(3)(A)

[[Page 35744]]

of the Act and Securities Exchange Act Rule 19b-4(f)(4) because the 
proposed rule change effects a change in an existing service that does 
not adversely affect the safeguarding of securities or funds in DTC's 
custody or control and does not significantly affect the respective 
rights or obligations of DTC or the persons using the service. At any 
time within sixty days of the filing of the proposed rule change, the 
Commission may summarily abrogate such rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.

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 5th Street NW., Washington, DC 20549-0069. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-DTC-2002-16. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. Copies of the submission, all subsequent 
amendments, all written statements with respect to the rule filing that 
are filed with the Commission, and all written communications relating 
to the rule filing between the Commission and any person, other than 
those that may be withheld from the public in accordance with 
provisions of 5 U.S.C. 552, will be available for inspection and 
copying in the Commission's Public Reference Room in Washington, DC. 
Copies of such filing will also be available for inspection and copying 
at DTC's principal office. All submissions should refer to File No. SR-
DTC-2002-16 and should be submitted within July 7, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15086 Filed 6-13-03; 8:45 am]
BILLING CODE 8010-01-P