[Federal Register Volume 64, Number 144 (Wednesday, July 28, 1999)] [Notices] [Pages 40927-40928] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 99-19265] [[Page 40927]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-41635; File No. SR-DTC-99-10] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change Adding a New Service for the Deposit of Securities Subject to Transfer Restrictions July 21, 1999. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on April 30, 1999, The Depository Trust Company (``DTC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change (File No. SR-DTC-99-10) as 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 from interested persons on the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The purpose of the proposed rule filing is to allow for the deposit and processing of restricted securities using DTC's Restricted Deposit Service (``RDS''). 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 such statements.\2\ --------------------------------------------------------------------------- \2\ The Commission has modified the text of the summaries prepared by DTC. --------------------------------------------------------------------------- (A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change DTC's proposed RDS will: (i) Allow participants to deposit restricted securities in a participant's segregated account within DTC's existing Custody Service, (ii) facilitate the processing of a transfer of all or a portion of the securities once the restriction is lifted, (iii) subsequently register the unrestricted securities (or portion thereof) in the name of Cede & Co., DTC's nominee, and (iv) if requested, deliver the restricted portion of the securities as directed by the depositing participant.\3\ --------------------------------------------------------------------------- \3\ DTC will charge its customary fee for restricted transfers of $45.48. --------------------------------------------------------------------------- Under the proposed rule change, a participant may deposit restricted securities into the participant's segregated account until the applicable restriction has been lifted and the full or partial sale of the securities is complete. Securities credited to this account will not be registered in the name of Cede & Co. and therefore will not be available for book-entry transfer. The process will be initiated when a participant enters and transmits restricted securities deposit information to DTC through the new Restricted Deposit Service by Participant (``RDSP'') function on DTC's Participant Terminal System (``PTS'').\4\ This information will include the CUSIP number, quantity and certificate number of each certificate to be deposited, deposit type (e.g., partial sale), the sold and unsold quantities of the securities, registration instructions for the restricted and unsold portion of the securities, and whether the issuer's opinion of counsel will accompany the deposit or will be sent directly to the transfer agent. After DTC reviews the deposit information,\5\ an RDS deposit ticket will be transmitted to the participant's PTS printer. The RDS deposit ticket and the securities will then be delivered to DTC. --------------------------------------------------------------------------- \4\ In the future DTC plans to enhance the Custody Service to provide participants with the capability to transmit RDS instructions via the ``CUST'' function on PTS and via computer-to- computer transmissions. \5\ DTC will review the deposit information entered by the participant to make sure that the security in question is DTC- eligible and that all appropriate fields have been populated. --------------------------------------------------------------------------- After receiving and examining the deposited securities, DTC will credit the participant's segregated account for the quantity of the deposit. DTC will use two subaccounts in the process. One subaccount will be used for the quantity of unrestricted (sold) securities and the other for the quantity of restricted (unsold) securities. At this stage, no positions in either subaccount will be available for book- entry transfer by the participant. The securities and detailed transfer instructions will then be sent to the transfer agent for processing.\6\ The transfer agent will continue to approve the transfers contemplated by the new service based on the same requirements that exist today (e.g., receipt of opinion from issuer's counsel). --------------------------------------------------------------------------- \6\ While the securities are still at the agent, the participant may enter and transmit amended transfer instructions through the RDSP PTS function (e.g., the sold portion of the deposit has been increased). DTC will then communicate the amended transfer instructions to the transfer agent. --------------------------------------------------------------------------- An inquiry option of the RDSP PTS function will enable the depositing participant to view the current status of the securities, including information DTC has received from the transfer agent as to when the transfer is expected to be completed. DTC believes that this option will give the participant greater control over the processing of the securities than that which exists today. For deposited securities in DTC-eligible issues, the sold and unrestricted portion of the transferred securities will be registered in DTC's nominee name, Cede & Co. When the transfer is completed and the newly transferred securities are returned to DTC, the quantity of unrestricted securities registered in DTC's nominee name, Cede & Co., will be removed from the participant's segregated account and added to the participant's general free account. The quantity of restricted securities, if any, will also be removed from the participant's segregated account. At the same time the restricted portion of the securities will be sent to the destination specified by the depositing participant in its original RDSP instruction. That is, the restricted securities will either be made available for pick-up by the participant, mailed directly to the registered holder, or deposited into DTC's Custody Service for the account of the depositing participant. Additionally, DTC believes that the service will accommodate certificate denomination breakdowns for restricted securities, transfer agent approval reregistrations of restricted securities (e.g., ``gifting'' transactions, where the restricted security may be reregistered into the name of the spouse of the original owner), and reregistrations of unrestricted securities into Cede & Co.'s name once the restriction is lifted. The proposed rule change is consistent with the requirements of Section 17A of the Act \7\ and the rules and regulations thereunder applicable to DTC because it will facilitate the efficient processing of partial and full sale of restricted securities where the applicable restriction has been lifted by or on behalf of the issuer by streamlining the mechanics of the physical process that currently occurs outside of DTC. Under the proposed rule change, the current control on the transfer of restricted securities will remain with the transfer agent. The proposed rule change will improve the safeguarding of securities and funds in [[Page 40928]] DTC's custody or control or for which it is responsible because it will give participants greater control over the processing of full or partial sales of restricted securities. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78q-1. --------------------------------------------------------------------------- (B) Self-Regulatory Organization's Statement on Burden on Competition DTC does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. (C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The substance of the proposed rule change is supported by and was developed in conjunction with a group of participants and transfer agents. Additionally, the substance of the proposed rule change was presented to and endorsed by DTC's Operations Advisory Committee. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which DTC consents, the Commission will: (A) By order approve such proposed rule change or; (B) Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing including whether the proposed rule is consistent with the Act. Persons making written submissions should file six copies thereof with Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW, Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of DTC. All submissions should refer to File No. SR-DTC-99-10 and should be submitted by August 18, 1999. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\8\ --------------------------------------------------------------------------- \8\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 99-19265 Filed 7-27-99; 8:45 am] BILLING CODE 8010-01-M