[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] ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \6\ 15 U.S.C. Sec. 78q-1(a)(1)(A) (1988). \7\ 15 U.S.C. Sec. 78q-1(a)(3)(F) (1988). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \8\ 17 CFR 200.30-3(a)(12) (1996). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 96-29716 Filed 11-20-96; 8:45 am] BILLING CODE 8010-01-M