[Federal Register Volume 70, Number 132 (Tuesday, July 12, 2005)]
[Notices]
[Pages 40094-40097]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3683]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51973; File No. SR-NYSE-2004-62]


Self-Regulatory Organizations; New York Stock Exchange Inc.; 
Order Approving Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 3 Thereto To Eliminate 
Rule 496 and To Amend the Listed Company Manual Relating to Transfer 
Agents

July 5, 2005.

I. Introduction

    On October 29, 2004, the New York Stock Exchange Inc. (``NYSE''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ filed a proposed rule change with the Securities and 
Exchange Commission (``Commission'') and on December 3, 2004 and 
February 9, 2005, amended the proposed rule change File No. SR-NYSE-
2004-62. Notice of the proposed rule change, as modified by Amendment 
Nos. 1 and 2, was published in the Federal Register on March 23, 
2005.\2\ Seven comment letters were received.\3\

[[Page 40095]]

On May 12, 2005, the NYSE submitted Amendment No. 3 to the proposed 
rule change.\4\ This order approves the proposed rule change, as 
amended. The Commission is granting accelerated approval of Amendment 
No. 3, and is soliciting comments from interested persons on that 
amendment.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 51372 (March 15, 2005), 
70 FR 14742 (March 23, 2005).
    \3\ Letters from Bert Johnson, Supervisor Shareholder Services 
(April 1, 2005); Donald E. Donahue, Chief Operating Officer, The 
Depository Trust and Clearing Corporation (April 4, 2005); Thomas L. 
Montrone, President and Chief Executive Officer, Registrar and 
Transfer Company (April 25, 2005); Charlie Rossi, President, The 
Securities Transfer Association, Inc. (April 28, 2005); Robert 
Shier, Senior Vice President and Chief Operations Officer, CIBC 
Mellon (April 29, 2005); Stephen J. Dolmatch, Executive Vice 
President and General Counsel, Mellon Investor Services LLC (April 
29, 2005); and Robert Mackenzie, Computershare Trust Company of 
Canada (April 29, 2005).
    \4\ In Amendment No. 3, the NYSE modified the requirements of 
the rules with respect to the record date protection of the rights 
of transferees of securities sent to the transfer agent by DTC to 
provide such protection will only be available for securities sent 
on the record date itself and not on the next succeeding business 
day as would have been provided pursuant to Amendment No. 2.
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II. Description

    The NYSE is eliminating Rule 496 and is amending its Listed Company 
Manual (``LCM''). Pursuant to the rule change certain current 
significant requirements of Rule 496 with respect to entities acting as 
transfer agents for listed companies will now be imposed by the LCM. 
Because the NYSE's rules are generally applicable to members rather 
than listed companies, the NYSE believes it is appropriate that the 
transfer agent requirements be set forth solely in the LCM. In 
addition, the current requirements of Rule 496 are referred to, and 
also to some extent, repeated in various sections of the LCM. 
Accordingly, the NYSE believes that all transfer agent requirements 
would be more properly contained in the LCM.
    Rule 496 required, among other things, that transfer agents for 
listed companies maintain an office or obtain an agent located south of 
Chambers Street in the Borough of Manhattan, City of New York, where 
securities can be delivered in person for registration of transfer and 
can be picked up after completion of such registration (often referred 
to in the industry as a ``drop''). This requirement was implemented 
when most securities traded on the NYSE were held in certificated form 
and were settled with physical delivery. The transfer agents' presence 
in lower Manhattan, where broker-dealers are concentrated, facilitated 
the speedy processing and settlement of securities transfers. However, 
because most securities are now held in ``street name'' at The 
Depository Trust Company (``DTC'') \5\ and transfers of such securities 
occur through automated book-entry systems at DTC without the need for 
transfer of physical certificates, very few transfers are now 
facilitated by the drop in lower Manhattan. Therefore, the NYSE 
believes that marketplace participants, including securityholders, will 
not be harmed by the elimination of the drop requirement in Rule 496.
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    \5\ DTC is a securities depository registered as a clearing 
agency under Section 17A of the Exchange Act. 15 U.S.C. 78q-1(b).
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    Prior to the rule change, Rule 496 also required transfer agents to 
record the transfer of securities received at the transfer agent's drop 
before the close of business on a record date as being transferred on 
the record date in order to establish the transferee's rights on the 
record date. As revised, the LCM will provide the same protection for 
securities sent by the close of business on a record date by a 
registered clearing agency (i.e., DTC). Because the vast majority of 
securities are now held in ``street name,'' the NYSE believes that 
securityholders will not be disadvantaged by providing this record date 
protection only to registered clearing agencies.\6\
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    \6\ This record date protection was the subject of Amendment No. 
3.
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    Rule 496 also required transfer agents to meet certain capital and 
insurance standards. The revisions to the LCM will retain the capital 
and insurance requirements of current Rule 496. New language of the LCM 
will also codify several long-standing policies and practices of the 
NYSE by providing for the qualification of certain transfer agents that 
do not otherwise meet the capital and insurance requirements of Rule 
496. Accordingly, transfer agents will continue to be required to (i) 
have capital, surplus (both capital and earned), undivided profits, and 
capital reserves aggregating at least $10,000,000 and (ii) maintain 
blanket bond insurance coverage of at least $25,000,000 to protect 
securities while in transit or being processed. Also the LCM will 
specify that a bank, trust company, or other qualified organization 
acting as transfer agent may:
    1. Act in a dual capacity as transfer agent/co-transfer agent and 
registrar if (i) a majority of its equity is owned by an entity that 
meets the standard capital requirements, (ii) its parent guarantees the 
subsidiary's performance, and (iii) the subsidiary maintains the 
$25,000,000 blanket bond insurance coverage or the parent maintains the 
coverage for the benefit of the subsidiary;
    2. Act in dual capacity as transfer agent/co-transfer agent and 
registrar if it (i) has capital of at least $2,000,000 and errors and 
omissions insurance which, taken together with its capital, equals at 
least $10,000,000 and (ii) maintains the standard $25,000,000 blanket 
bond insurance coverage; or
    3. Act as co-transfer agent or co-registrar (but not in a dual 
capacity) for securities listed on the NYSE if it has capital equal to 
at least $2,000,000 without maintaining the $25,000,000 blanket bond 
insurance coverage.
    A listed company may continue to act as its own transfer agent 
provided that it complies with all the requirements applicable to 
transfer agents not affiliated with a listed company apart from the 
capital and insurance requirements. However, a listed company may not 
act as sole registrar for its listed securities unless it also acts as 
transfer agent.
    The NYSE states that the foregoing exceptions to the capital and 
insurance requirements are policies that have been applied by the NYSE 
for many years. The NYSE believes that these policies are consistent 
with the protections provided to securityholders by the general 
standards applicable to transfer agent.

III. Comment Letters

    The Commission received seven comment letters.\7\ Two of the seven 
commenters fully supported the proposed rule change as proposed stating 
that the requirement for transfer agents to maintain a drop facility 
below Chambers Street in the Borough of Manhattan, New York City, was 
obsolete in light of the immobilization of securities and the use of 
overnight couriers to mail securities.\8\ Two other commenters 
supported the elimination of the drop facility requirement but opposed 
the extension of record date protection to two days as proposed in the 
initial proposed rule change.\9\
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    \7\ Supra note 3.
    \8\ Letters from Supervisor Shareholder Services and The 
Depository Trust and Clearing Corporation.
    \9\ Letters from The Securities Transfer Association, Inc. and 
Mellon Investor Services LLC.
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    Five commenters stated that requiring transfer agents to provide 
record date protection for items received on record date and deposited 
into the mail or other commercial delivery service for delivery on 
record date or the day after record date, which could extend record 
date protection for up to days past record date, would jeopardize the 
timely and accurate processing and reconciliation of record date 
services.\10\ These commenters contended this timing would (1) 
interrupt streamlined processing by creating a separate class of 
processing for items received by registered clearing agencies for NYSE-
listed companies only and (2) result in

[[Page 40096]]

delay of payments. Further, these commenters noted that the proposed 
rule change would not have required timely delivery by registered 
clearing agencies but only ``mailing'' of the item, which could result 
in record date protection being extended beyond two days.
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    \10\ Letters from Mellon Investor Services LLC, Computershare 
Trust Company of Canada, Securities Transfer Association, Inc., CIBC 
Mellon, and Registrar and Transfer Company.
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    While two of these five commenters opposed any extension of record 
date protection,\11\ the other three commenters indicated that if 
eliminating any extended record date protection is not feasible, then 
the proposed rule change should be amended to require items be sent for 
next day delivery no later than on the record date rather than on the 
business day following record date.\12\
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    \11\ Letters from Mellon Investor Services LLC and Computershare 
Trust Company of Canada.
    \12\ Letters from the Securities Transfer Association, Inc., 
CIBC Mellon, and Registrar and Transfer Company.
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IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change as amended is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities association.\13\ In particular, the Commission finds that 
the proposed rule change, as amended, is consistent with the 
requirements of Section 6(b)(5) of the Act that requires rules of an 
exchange are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect, and 
facilitating transactions in securities, to remove impediments to and 
to perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest.\14\
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    \13\ 15 U.S.C. 78o-3(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78f(b)(5).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that in light of a majority of exchange-
traded securities being immobilized at DTC, the proposed rule change 
allows transfer agents acting for listed companies to provide for 
transfers of securities in a more efficient and cost effective manner 
by eliminating the drop requirement, which is now obsolete. Furthermore 
the proposed rule is consistent with the Act because it retains the 
capital and insurance requirements, which were in Rule 496, in the LCM.
    With regards to the issue of extending record date protection by 
two or more days for securities sent to transfer agent by a registered 
clearing agency, the Commission believes that the NYSE adequately 
addressed commenters' concerns by submitting Amendment No. 3. Amendment 
No. 3 extends record date protection only to those securities that are 
sent by a registered clearing agency on record date (instead of no 
later than one business day after the record date as originally 
proposed) and that are sent by mail or commercial delivery service for 
same or next day delivery. The Commission understands that the rule may 
require transfer agents to accommodate a one-day delay in processing 
corporate actions, which the Commission understands is less than some 
transfer agents are accommodating in the current environment, but this 
delay does not seem material. As securities become increasingly 
dematerialized, the need to send certificates by any mail service will 
continue to decrease, which will further minimize the impact of the 
possible one day delay in processing. The Commission urges the NYSE, 
DTC, and the transfer agents to continue their efforts to build a 
facility or system that will electronically communicate transfer and 
corporate action information and will eliminate the need to mail 
certificates altogether.
    The Commission finds good cause for approving Amendment No. 3 to 
the proposed rule change prior to the thirtieth day after the 
publication of notice in the Federal Register. Accelerating approval of 
Amendment No. 3 to the proposal will enable many transfer agents to 
immediately reduce their operating expenses by eliminating the drop 
facility south of Chambers Street in the Borough of Manhattan, City of 
New York. Furthermore, the Commission believes that after seven months 
of discussions between DTC, the transfer agents, and Commission staff 
the NYSE's Amendment No. 3 provides an acceptable and reasonable 
compromise to the record date protection issue and a compromise which a 
majority of the commenters opposing the initial proposal seemed 
amenable. Accordingly, the Commission finds that it is appropriate to 
approve Amendment No. 3 to the proposed rule change on an accelerated 
basis.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 3 
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/sr.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSE-2004-62 on the subject line.
Paper Comments
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2004-62. 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 Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NYSE. 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-NYSE-2004-62 and should be submitted on or before August 
2, 2005.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NYSE-2004-62) be, and it 
hereby is, approved.


[[Page 40097]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-3683 Filed 7-11-05; 8:45 am]
BILLING CODE 8010-01-P