[Federal Register Volume 61, Number 226 (Thursday, November 21, 1996)]
[Notices]
[Pages 59269-59270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29716]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37933; File No. SR-Philadep-96-16]


Self-Regulatory Organizations; Philadelphia Depository Trust 
Company; Order Granting Accelerated Approval of a Proposed Rule Change 
Relating to the Procedures To Establish a Direct Registration System

November 8, 1996.
    On October 16, 1996, the Philadelphia Depository Trust Company 
(``Philadep'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change (File No. SR-Philadep-96-16) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ On October 17, 1996, Philadep filed an amendment to the 
proposed rule change.\2\ Notice of the proposal was published in the 
Federal Register on October 30, 1996.\3\ No comment letters were 
received. For the reasons discussed below, the Commission is granting 
approval of the proposed rule change.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Letter from J. Keith Kessel, Compliance Officer, Philadep, 
to Jerry W. Carpenter, Assistant Director, Division of Market 
Regulation, Commission (October 16, 1996).
    \3\ Securities Exchange Act Release No. 37858 (October 23, 
1996), 61 FR 56079.
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I. Description

    Philadep's proposed rule change will establish (1) a new service 
called the Direct Registration System (``DRS'') and (2) a new category 
of participants whose use of Philadep's services will be limited to 
DRS.\4\ DRS permits an investor to hold a security as the registered 
owner of the security in book-entry form on the books of the issuer 
rather than (1) indirectly through a financial intermediary that holds 
the security in street name or in an account with a depository or (2) 
in the form of a certificate. An investor will have the right at any 
time to transfer its DRS position from the issuer to a financial 
intermediary through the facilities of Philadep in order to sell or 
pledge the security. Alternatively, an investor will have the right at 
any time to request a certificate.\5\
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    \4\ For description of The Depository Trust Company's 
implementation of DRS, refer to Securities Exchange Act Release No. 
37931 (November 7, 1996).
    \5\ For a complete description of DRS, refer to Securities 
Exchange Act Release No. 35038 (December 1, 1994), 59 FR 63652 
(concept release on a transfer agent operated book-entry 
registration system) and DTC Important Notice B# 1811-96 (October 7, 
1996) and Important Notice B# 1841-96 (October 7, 1996), which are 
attached as Exhibits A and B to Securities Exchange Act Release No. 
37800 (October 9, 1996), 61 FR 54473.
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    The transfer agents of issuers interested in participating in 
Philadep's

[[Page 59270]]

DRS must join Philadep as limited participants. In order for transfer 
agents to participate in this service, they must have certain 
electronic interfaces with Philadep, commonly known as fully automated 
securities transfer (``FAST'') interfaces. After a transfer agent has 
requested that Philadep make an issue DRS eligible, Philadep will add a 
DRS indicator to its Security Profile On-Line (``SPOL'') system to 
reflect that the issue is DRS eligible and to notify the respective 
participants accordingly.
    To execute any withdrawal/transfer (``WT'') activity, participants 
must supply Philadep with an appropriate code specifying a DRS account 
or a certificate. Absent the proper code, Philadep will not process 
these requests. Participants must use indicators to operate the 
automated WT file (1) to register positions on the books of the issuer, 
(2) to have a physical certificate issued, (3) to indicate that the 
submitting broker for the WT request is serving in a correspondent 
capacity (known as third party transfers) and (4) to reverse the prior 
DRS transaction.
    When a transfer agent completes a WT request for a DRS issue, the 
transfer agent will return the certificate to Philadep according to the 
standard procedure for securities shipments. If the investor has 
requested that his position be held on the books of the issuer through 
DRS, the transfer agent will establish the position, will mail a 
transaction advice directly to the investor, and will confirm such 
activities to Philadep. Philadep will confirm to its participant that 
the account has been established and will provide the date and the DRS 
account number to such participant.
    In the event that an investor wants to sell a DRS position, the 
transfer agent will provide the appropriate delivery order (``MDO'') 
instructions and the proper reason code to move the position into the 
appropriate account at Philadep. If the receiving participant does not 
recognize the position, it may deliver the position back to the 
transfer agent's Philadep account. At the end of the processing day, 
Philadep will reverse the movement and will return all positions. 
Philadep will produce an activity report for all movements.

II. Discussion

    Section 17A(a)(1)(A) \6\ of the Act sets forth Congress' findings 
that the prompt and accurate clearance and settlement of securities 
transactions, including the transfer of record ownership and the 
safeguarding of securities and funds related thereto, are necessary for 
the protection of investors and persons facilitating transactions by 
and acting on behalf of investors. Section 17A(b)(3)(F) provides that 
the rules of a clearing agency must be designed to promote the prompt 
and accurate clearance and settlement of securities transactions.\7\
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    \6\ 15 U.S.C. Sec. 78q-1(a)(1)(A) (1988).
    \7\ 15 U.S.C. Sec. 78q-1(a)(3)(F) (1988).
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    Currently, individual investors have the option of either holding a 
physical certificate or allowing broker-dealers to hold the securities 
for them in street name. Some investors do not want to hold through a 
broker-dealer because, among other reasons, of possible delays in 
receiving correspondences from issuers or because of fees that may be 
incurred by investors who do not make purchases and sales of securities 
on a regular basis. However, holding a physical certificate may slow or 
impede an investor's ability to deliver the security after the sale. By 
providing individual investors that do not want to have broker-dealers 
hold their securities for them in street name the option of holding in 
book-entry form on the books of the issuers and to subsequently have 
such positions transferred electronically to banks or broker-dealers in 
connection with the sales or other dispositions of the securities, the 
Commission believes that Philadep's DRS should help promote 
efficiencies in the prompt and accurate clearance and settlement of 
securities transactions and is consistent with Philadep's obligations 
under Section 17A.
    Philadep has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication because accelerated approval will allow 
Philadep to implement its DRS pilot program on its scheduled date of 
November 11, 1996.

III. 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 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-Philadep-96-16) be and 
hereby is approved.

    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) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29716 Filed 11-20-96; 8:45 am]
BILLING CODE 8010-01-M