[Federal Register Volume 69, Number 248 (Tuesday, December 28, 2004)]
[Notices]
[Pages 77802-77804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3827]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50887; File No. SR-DTC-2004-11]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change To Expand the Depository Trust 
Company's SMART/Track Service To Include Corporate Action Liability 
Notification

December 20, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 15, 2004, the 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change 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 77803]]

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

    The proposed rule change relates to a proposal by DTC to enhance 
its SMART/Track service (formerly called the Universal Hub service) by 
adding a new phase consisting of a Corporate Action Liability 
Notification Service that will provide industry participants an 
efficient means to facilitate the notification, acknowledgement, and 
maintenance of corporate action liability information.

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.\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 
Statutory Basis for, the Proposed Rule Change

    In July 2004, the Commission approved DTC rule filing SR-DTC-2003-
10 that allowed DTC to implement the SMART/Track service, which was 
then called the Universal Hub.\3\ SR-DTC-2003-10 focused on the first 
phase of the service, a stock loan recall notification service. This 
filing relates to the Corporate Action Liability Notification Service, 
which is the second of the planned phases of SMART/Track.
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    \3\ Securities Exchange Act Release No. 34-50029 (July 15, 
2004), 69 FR 43870 (July 22, 2004).
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    When one party is owed securities by its counterparty, and those 
securities are the subject of a voluntary corporate action, it is 
industry practice for the owed party to send to the counterparty a 
liability notice that holds the counterparty liable for delivery of the 
securities in time for the owed party to participate in the voluntary 
corporate action (``Liability Notice''). It is also customary in the 
industry for the counterparty receiving the Liability Notice to reject 
the notice, deliver the securities that are the subject of the 
Liability Notice to the sender of the notice, or convert or exchange 
the securities to the corresponding corporate actions proceeds. 
Currently, industry participants use faxes and phone calls to 
communicate Liability Notices. Lack of a formal mechanism to send and 
receive Liability Notices has proved to be inefficient as the process 
is paper intensive and subject to transmission error and delays in 
response time.
    To remedy these issues and to support the industry groups with 
which DTC has worked on this project,\4\ DTC developed the Corporate 
Action Liability Notification Service to automate this labor-intensive 
process.
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    \4\ These groups include the Corporate Actions Division of the 
Securities Industry Association (``SIA'') and the Corporate Actions 
Liability Working Group, a subcommittee of the SIA's STP Steering 
Committee.
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    The goal of the Corporate Action Liability Notification Service is 
to provide a central point of access for industry participants to send 
and to receive Liability Notices, to respond to Liability Notices, and 
to review status information relating to Liability Notices. In 
addition, a link to DTC's Reorganization Inquiry for Participants 
System (``RIPS'') allows some fields to be populated automatically when 
the corporate action event is in RIPS. The sender of the message, 
however, remains responsible for the content of the message. By 
providing a central point of access to all parties, the Corporate 
Action Liability Notification Service provides interoperability between 
participants and permits participants to avoid the costs and 
inefficiencies of each participant building multiple automated 
bilateral links to its counterparties.
    The Corporate Action Liability Notification Service is subject to 
DTC's general standard of liability for information services (i.e., 
responsibility for gross negligence and willful misconduct). The 
service will be available only to DTC participants. If, in the future, 
DTC decides to make the Corporate Action Liability Notification Service 
available to non-participants, DTC will file another proposed rule 
change.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder applicable to DTC because the proposed will 
promote efficiencies relating to Liability Notices. The proposed rule 
change will be implemented consistently with the safeguarding of 
securities and funds in the custody or control of DTC because DTC will 
be acting as a notification service.
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    \5\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DTC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    DTC has discussed this rule change proposal with various DTC 
participants and industry groups, a number of whom have worked closely 
in developing the proposed Corporate Action Liability Notification 
Service. Written comments relating to the proposed rule change have not 
yet been solicited or received. DTC will notify the Commission of any 
written comments received by DTC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective upon filing pursuant 
to section 19(b)(3)(A)(iii) of the Act \6\ and Rule 19b-4(f)(4) \7\ 
thereunder because the proposed rule effects a change in an existing 
service of DTC that does not adversely affect the safeguarding of 
securities or funds in the custody or control of DTC or for which DTC 
is responsible and does not significantly affect the respective rights 
or obligations of DTC or persons using the service. At any time within 
sixty days of the filing of such 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.
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    \6\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \7\ 17 CFR 240.19b-4(f)(4).
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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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to [email protected]. Please include 
File Number SR-DTC-2004-11 on the subject line.

[[Page 77804]]

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-DTC-2004-11. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 and 
on DTC's Web site at http://www.dtc.org. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-DTC-2004-11 and should be submitted on 
or before January 18, 2005.

    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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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3827 Filed 12-27-04; 8:45 am]
BILLING CODE 8010-01-P