[Federal Register Volume 68, Number 120 (Monday, June 23, 2003)]
[Notices]
[Pages 37182-37183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15776]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48008; File No. SR-DTC-2002-08]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving a Proposed Rule Change Relating to Unitary Action 
Procedures

June 10, 2003.
    On June 13, 2002, The Depository Trust Company (``DTC'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change

[[Page 37183]]

(File No. SR-DTC-2002-08) pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal 
was published in the Federal Register on December 6, 2002.\2\ No 
comment letters were received. For the reasons discussed below, the 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 46930 (Nov. 27, 2002); 
67 FR 72713.
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I. Description

    DTC's rule change will clarify the procedures under which DTC's 
nominee, Cede & Co., will exercise certain rights as the recordholder 
of securities on deposit at DTC where Cede & Co. is required to act 
with respect to 100% of the securities on deposit or not act at all. 
Such an event is known as a ``Unitary Action.''
    When involved in a situation that requires a Unitary Action under 
applicable law, DTC will attempt to follow its normal procedures for 
actions that are not Unitary Actions. Specifically, for solicitations 
when an issuer has announced an annual or special shareholders meeting 
or consent solicitation and where a record date has been established, 
DTC will assign applicable Cede & Co. voting rights or consenting 
rights to its participants that have securities credited to their 
accounts on the record date, will issue an omnibus proxy, and will 
forward it to the issuer or trustee. DTC also will assist its 
participants in exercising other rights available to Cede & Co. as the 
recordholder of securities on deposit at DTC. Examples of the rights 
that participants may exercise through DTC are the right to dissent and 
seek an appraisal of stock, the right to inspect a stock ledger, and 
the right to accelerate a bond. Participants may seek DTC's assistance 
in exercising such rights on their own behalf or on behalf of their 
customers. DTC will act in these matters only upon written instructions 
from participants with securities credited in their DTC free accounts.
    However, if, for example, a foreign bankruptcy court stated that it 
would accept votes for approval of a plan of bankruptcy from 
bondholders holding through DTC but only in the form of a 100% yes or 
no vote or not at all, DTC will attempt to assign its voting rights to 
its participants or otherwise act in accordance with its participants' 
instructions.
    DTC will not be liable for any losses arising from actions it takes 
or fails to take in connection with Unitary Actions other than those 
losses that are directly caused by DTC's gross negligence or willful 
misconduct.
    In Unitary Action situations, DTC may incur unusual expenses (e.g., 
hiring outside counsel) that are specifically attributable to the 
securities that are subject to the Unitary Action. Under DTC Rule 20, 
DTC may charge each participant holding a position in a Unitary Action 
security such participant's pro rata share (based on the number of 
shares or the principal amount of bonds or notes) of DTC's expenses 
related to DTC's taking or not taking an action in connection with a 
Unitary Action.

II. Discussion

    Section 17A(b)(3)(F) \3\ of the Act requires that the rules of a 
clearing agency be designed, among other things, to remove impediments 
to and perfect the mechanism of a national system for the prompt and 
accurate clearance and settlement of securities transactions. The 
Commission finds that the proposed rule change is consistent with DTC's 
obligations under section 17A(b)(3)(F) because it preserves DTC's 
participants' ability to exercise their individual rights in corporate 
actions while continuing to hold their positions in a book-entry 
environment in situations involving Unitary Actions. This clarification 
should also add more certainty to the allocation of voting rights and 
the costs involved in Unitary Action situations.
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    \3\ 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 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of 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-2002-08) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-15776 Filed 6-20-03; 8:45 am]
BILLING CODE 8010-01-P