[Federal Register Volume 74, Number 27 (Wednesday, February 11, 2009)]
[Notices]
[Pages 6934-6935]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-2853]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59320; File No. SR-NYSE-2008-112]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of Proposed Rule Change To Discontinue Policy of 
Prohibiting Transfer Agents From Charging Fees for Issuing Stock 
Certificates

January 30, 2009.

I. Introduction

    On October 30, 2008, the New York Stock Exchange LLC (``NYSE'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-NYSE-2008-112 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 29, 2008.\2\ 
The Commission received two comment letters.\3\ For the reasons 
discussed below, the Commission is granting approval of the proposed 
rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 59106 (December 16, 
2008), 73 FR 79531.
    \3\ Letters from Charles V. Rossi, President, The Securities 
Transfer Association, Inc. (January 16, 2009); and Martin J. McHale, 
Jr., President, U.S. Equity Services, Computershare (January 20, 
2009).
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II. Description

    As a part of the securities industry moving towards eliminating the 
use of physical certificates (i.e., dematerialization) by encouraging 
investors to hold securities positions in book-entry form either in 
street name at a broker-dealer or through the Direct Registration 
System (``DRS''), the NYSE is discontinuing its long-standing, 
unwritten policy of prohibiting NYSE listed companies from charging for 
the issuance of stock certificates. DRS allows investors to have 
securities directly registered in book-entry form on the records of the 
issuer or its transfer agent without having a certificate issued.\4\
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    \4\ DRS allows securities positions to be electronically 
transferred to a broker-dealer in order to effect a transaction 
without the risk and delay associated with the use of paper 
certificates. Since March 31, 2008, Section 501.00 of NYSE's Listed 
Company Manual has required that all securities listed on the NYSE 
must be eligible for participation in DRS. Approximately 2,428 NYSE 
listed securities currently participate in DRS. Securities Exchange 
Act Release No. 58398 (August 20, 2008), 73 FR 51546 (September 3, 
2008) [File No. SR-NYSE-2008-069).
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    In its letter to the NYSE, the Securities Industry and Financial 
Markets Association (``SIFMA''), which is one of the leaders in the 
movement towards dematerialization, requested that the NYSE discontinue 
its prohibition of issuers or their transfer agents charging fees in 
connection with the issuance of securities certificates (``SIFMA 
Letter'').\5\ SIFMA noted that almost 75% of physical certificates 
deposited by broker-dealers and bank custodians at The Depository Trust 
Company (``DTC''), a registered clearing agency that is the primary 
custodian of securities traded in the United States, were issued within 
the last six months. SIFMA stated its beliefs that these recent 
deposits indicate that DTC participants (i.e., broker-dealers and 
banks) are providing physical certificates to their customers only to 
have the securities moved back into street name in a short period of 
time. In SIFMA's view, this activity results in unnecessary expense and 
in the risk that the certificates may be lost, destroyed, or stolen. 
SIFMA stated that it had recently conducted a survey that showed that 
more than 1.2 million certificates each year need to be replaced 
because of loss, destruction, or theft at an approximate cost to the 
transfer agents of $65 million.\6\
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    \5\ Letter to Stephen Walsh, Vice President, NYSE Euronext, from 
Lawrence Morillo, SIFMA Operations Legal & Regulatory Sub-Committee 
Chair. (August 26, 2008).
    \6\ ``Securities Industry Immobilization & Dematerialization 
Implementation Guide--The Phase-Out of the Stock Certificate'' 
(SIFMA, 2008).
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    NYSE believes that securityholders derive no apparent benefit from 
continuing to hold their securities in certificated form rather than in 
uncertificated form in street name or through DRS and that the 
inability of the issuers or their transfer agents to charge for the 
issuance of securities certificates imposes a considerable cost on 
issuers and transfer agents. Therefore, NYSE is discontinuing its 
prohibition of issuers or their transfer agents charging fees for the 
issuance of new certificates. Allowing transfer agents to charge for 
the issuance of certificates should not only shift the cost of the 
issuance of certificates from the issuers and transfer agents to the 
requesting securityholders but should also have the added effect of 
encouraging more securityholders to hold their securities in street 
name or through DRS, which should further the dematerialization 
movement. NYSE listed companies that want their investors to continue 
to have access to the free issuance of new certificates will be able to 
ensure the continuation of such practice through their contractual 
arrangements with their transfer agents.

[[Page 6935]]

    NYSE believes that the rule change will help make the securities 
markets more safe and efficient by encouraging the dematerialization of 
securities and by correctly placing the cost of the use of certificates 
on those investors requesting certificates. NYSE also believes that the 
rule change is consistent with the protection of investors and the 
public interest because holding a securities position in street name or 
through DRS provides investors with the ability to hold their 
securities in a safe and cost-effective manner without incurring the 
costs associated with the issuance and processing of securities 
certificates.

III. Comment Letters

    The Commission received two comment letters,\7\ both in support of 
the proposed rule change. Computershare, a registered transfer agent, 
and The Securities Transfer Association, an industry association 
representing transfer agents, stated that the rule change was an 
important step toward the goal of dematerialization by decreasing the 
use of certificates in the marketplace and encouraging investors to 
hold shares in DRS, thereby reducing the risk and unnecessary expense 
for both issuers and shareholders of issuing and holding certificates.
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    \7\ Supra note 3.
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IV. Discussion

    Section 6(b)(5) of the Act requires, among other things, that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transaction in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.\8\ The Commission's approval 
of the rule change should remove impediments to and perfects the 
mechanism of a free and open market and a national market system in 
that it encourages the dematerialization of securities, which should 
improve the process of transferring securities in the public markets. 
The rule change is also consistent with the protection of investors and 
the public interest because investors can avoid the fees for the 
issuance of certificates by holding their securities in street name or 
through DRS which are safer and more cost effective alternatives to 
holding securities in certificated form.
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    \8\ 15 U.S.C. 78f(b)(5).
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    Accordingly, for the reasons stated above the Commission believes 
that the rule change is consistent with NYSE's obligation under Section 
6 of the Act.

V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular with the requirements of Section 6 of the Act and the 
rules and regulations thereunder.\9\
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    \9\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NYSE-2008-112) be and hereby 
is approved.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-2853 Filed 2-10-09; 8:45 am]
BILLING CODE 8011-01-P