[Federal Register Volume 70, Number 178 (Thursday, September 15, 2005)]
[Notices]
[Pages 54598-54600]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-5028]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52393; File No. SR-DTC-2005-12]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Clarify the Scope and Update the Description of the Security Position 
Reports Service

September 8, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 23, 2005, 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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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to clarify the scope and 
update the description of DTC's Security Position Reports (``SPRs'') 
Service it provides to issuers, trustees, and authorized agents.\2\
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    \2\ DTC Rule 2 (``Participants and Pledgees''), Section 1 
authorizes DTC to provide to the issuer of any security at any time 
credited to the account of the participant the name of the 
participant and the amount of the issuer's securities so credited. 
DTC is also authorized to provide similar information to any 
appropriate governmental authority.
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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.\3\
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    \3\ 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

    SPRs are reports prepared by DTC that show for each issuer whose 
securities are eligible for DTC's book entry services the identity of 
each DTC participant having that issuer's securities credited to its 
participant account as of a selected date and the quantity of 
securities so credited (i.e., ``security position''). Prior to the 
creation of DTC, issuers had direct access to SPR information from 
their transfer agents. Now, most securities are registered with the 
transfer agent in the name of DTC's nominee, Cede & Co., and issuers 
rely on DTC to provide them with SPR information. DTC also provides SPR 
information to trustees and authorized third party agents (``TPAs''). 
These entities typically need SPR information provided by DTC in order 
to properly conduct proxy, record date, and voting rights-related 
functions.\4\
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    \4\ In 1979, the Commission mandated that each clearing agency 
make SPRs available to issuers whose securities the clearing agency 
holds in its name or in the name of its nominee. Securities Exchange 
Act Release No. 16443 (December 28, 1979), 44 FR 76777. In 1989, a 
DTC rule change authorized DTC to provide SPRs to resolution and 
indenture trustees for debt obligations on deposit at DTC. 
Securities Exchange Act Release No. 27426 (November 7, 1989), 54 FR 
47624 [File No. SR-DTC-89-20]. TPAs are also provided with such 
information as a result of their role in carrying out functions on 
behalf of issuers or trustees. DTC is modifying its SPR process to 
require all TPAs that receive SPR information to agree on an annual 
basis to only use such information for the benefit of the issuer or 
trustee. Implementation of this modification is targeted for year 
end 2005.

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[[Page 54599]]

    Several types of SPRs are available: (1) Weekly reports showing 
daily closing positions during that week; (2) monthly reports showing 
closing positions on the last business day of the month; (3) quarterly 
dividend record date reports showing closing positions on the dividend 
record date; and (4) special requests showing closing positions for the 
date specified. Weekly reports, monthly reports, and quarterly dividend 
record date reports are available by annual subscription only. SPRs are 
available via Web browser from DTC's secure internet site, by 
spreadsheet, by fax, and by computer-to-computer facility (``CCF'') 
transmission.\5\ DTC charges a fee for each SPR and offers discounts 
for high volume SPR users.\6\
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    \5\ CCF transmission is generally available only to trustees and 
third parties and not to issuers because issuers typically do not 
maintain the required CCF application/connection to DTC.
    \6\ DTC bills the issuer or trustee for all SPR requests 
including those made by their TPAs.
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    Issuers and trustees control their SPR account and authorize third 
party agent access to SPRs via DTC's secure Internet site. After an 
issuer or trustee registers for the Web-based service, DTC validates 
the registrant's status as an issuer or trustee. Once the registration 
is approved by DTC, an issuer or trustee may use the Web-based 
application to order SPRs for itself, as well as designate TPAs that 
may request SPRs.\7\ Additionally, DTC requires an annual confirmation 
by issuers and trustees of their SPR account registration information, 
including reconfirmation of third party authorizations.\8\ Similarly, 
subscriptions must be renewed annually. Delivery of SPR information is 
terminated for those TPAs that are not reconfirmed by the issuer.
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    \7\ DTC is developing a system enhancement to allow issuers and 
trustees to limit the type of SPR information available to a 
particular TPA (e.g., weekly subscriptions only).
    \8\ To allow issuers to better monitor what reports were ordered 
by whom and their cost, DTC is developing an enhancement that will 
provide issuers with sixty days of historical activity.
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    Upon a TPA's first use of the Web-based system on behalf of a 
particular issuer or trustee, DTC verifies the validity of the TPA's 
usage and sends an electronic request to the authorizing issuer or 
trustee asking for verification of the TPA's approval to receive SPRs. 
Once such approval is verified, the authorized TPA may directly request 
SPRs through the Web-based system.
    In addition to the SPR program outlined above, DTC provides certain 
SPR type information, known as ``call lottery results,'' to auction 
agents for auction rate securities (``ARS''). ARS are securities whose 
interest or dividend rate is reset periodically. The reset interest 
rate is produced in an auction that is governed by a set of auction 
procedures established by the issuer, trustee, and its auction agent. 
In a typical auction, the auction agent, among other things: (1) 
Receives bids from holders indicating at what interest/dividend rate 
they are willing to continue to hold the ARS and/or instructions from 
holders to sell their ARS unless a rate minimum is established; (2) 
determines which bids are valid and can be used in calculating the new 
rate; and (3) calculates the new rate (``clearing rate'') by 
determining the lowest interest/dividend rate at which there are 
purchasers willing to buy all ARS offered in the auction.
    Some ARS also have a ``call lottery'' feature, allowing the issuer 
to redeem a portion of the outstanding ARS shortly before the auction. 
Because of the typically short time period between the call lottery and 
the auction, a holder may have submitted a bid before learning his 
position was called in the lottery.\9\ In order to maintain the 
integrity of the auction process for the benefit of all parties 
involved, auction agents need the call lottery results to determine 
which bids came from valid holders and which bids should be ignored 
because the position has been called. Absent receiving such call 
lottery information, an auction agent may erroneously set the clearing 
rate using bids that are invalid because they represent positions that 
have been called.
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    \9\ Similarly, because of timing pressures, the call lottery 
results are typically provided even prior to settlement of the 
redemption.
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    As with other SPRs, trustees must authorize DTC to provide call 
lottery results to the auction agent for that issue. Once authorized, 
the auction agent is considered a TPA consistent with the SPR program. 
Currently, the SPR process for call lottery results is manual. DTC is 
considering enhancements to its SPR system to incorporate ARS call 
lottery results in its Web-based application.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \10\ and the rules and regulations thereunder 
applicable to DTC because it is designed to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions and to remove impediments to and perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions by clarifying the SPR service 
which should promote efficiencies in the proxy, record date, and voting 
rights functions performed by issuers, trustees, and authorized agents.
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    \10\ 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 on 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

    No written comments relating to the proposed rule change have 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)(i) of the Act \11\ and Rule 19b-4(f)(1) \12\ 
thereunder because the proposed rule change constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule. 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.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(i).
    \12\ 17 CFR 240.19b-4(f)(1).
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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-2005-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary,

[[Page 54600]]

Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-9303.
    All submissions should refer to File Number SR-DTC-2005-12. 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, 100 F Street, 
NE., 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 https://login.dtcc.com/dtcorg/. 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-2005-12 and 
should be submitted on or before October 6, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).

Jonathan G. Katz,
Secretary.
[FR Doc. E5-5028 Filed 9-14-05; 8:45 am]
BILLING CODE 8010-01-P