[Federal Register Volume 59, Number 8 (Wednesday, January 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-740]
[[Page Unknown]]
[Federal Register: January 12, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33412; File No. SR-DTC-93-9]
Self-Regulatory Organizations; The Depository Trust Co.; Order
Approving a Proposed Rule Change Relating to Implementation of a
Deposit Automated Management Service
January 4, 1994.
On August 16, 1993, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') under
section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')\1\ a
proposed rule change (File No. SR-DTC-93-9) to implement its Deposit
Automated Management (``DAM'') service. The Commission published notice
of this proposed rule change in the Federal Register on October 1,
1993.\2\ No public comments were received. For the reasons discussed
below, the Commission is approving the proposed rule change.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\Securities Exchange Act Release No. 32957 (September 24,
1993), 58 FR 51395.
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I. Description
The proposed rule change establishes procedures for implementation
of DTC's DAM service.\3\ DAM is an enhanced automated deposit service
that enables DTC participants to send details of deposits to DTC in
advance of forwarding physical certificates.
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\3\The proposal will neither add new rules to nor amend any
existing rules in DTC's Rules Manual. Telephone conversation between
Jack R. Wiener, Associate Counsel, and Cheryl Lambert, Group
Director, DTC, and Richard C. Strasser, Attorney, Division of Market
Regulation (``Division''), Commission (September 7, 1993).
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Using DAM, a DTC participant will send to DTC advance Computer-to-
Computer Facility (CCF/CCF II) or PTS transmissions with details
regarding securities that the participant plans to deposit. DTC then
will determine whether the proposed deposit is acceptable by reviewing
for such things as ineligible issues, chilled issues, and incorrect
CUSIPs. At this point, DTC will send to the participant a PTS
transmission which will flag rejected items (i.e., securities which are
unacceptable for deposit), items with record dates that affect DTC's
processing,\4\ and other special processing items. The participant then
will direct the printing of a special bar-coded deposit ticket for all
accepted items on a thermal bar-code printer.\5\ One bar-coded ticket
will be printed for each CUSIP.\6\ Each bar-coded ticket will contain
information such as the identity of the transfer agent, the nature of
the deposit (e.g., whether the deposit is made pursuant to a special
corporate event or whether the shares are those of a limited
partnership), and other information that is required for DTC's internal
processing of the deposit. After the participant presents the physical
certificates and the bar-coded deposit ticket to DTC, DTC will scan the
bar-coded deposit ticket, and the information contained therein
immediately will update DTC's mainframe computer. This process
eliminates the need to enter data by keystroke.
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\4\DTC will not flag the record date of every corporate event.
Letter from Jack R. Wiener, Associate Counsel, DTC, to Richard C.
Strasser, Attorney, Division, Commission (September 29, 1993). For
instance, DTC will not notate the record date of corporate events
such as holiday parties.
\5\If a participant chooses not to acquire a bar-code printer
(which costs between $2,000 and $8,000 depending on printer speed),
the participant will print a deposit ticket that does not have a
bar-code using the information and deposit control number received
from DTC. When the participant presents the securities and the
deposit tickets without bar-codes to DTC, DTC will use the deposit
control numbers on the deposit tickets to print bar-coded deposit
tickets on a printer located at DTC.
\6\If a CUSIP is eligible for deposit, the ticket will so
signify. If a CUSIP is ineligible for deposit, the ticket will state
``reject'' and will give the reason for the rejection. Telephone
conversation between Cheryl Lambert, Group Director, DTC, and Jerry
W. Carpenter, Branch Chief, Division, Commission (December 17,
1993).
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Among other benefits, DAM will provide an opportunity for
participants to consolidate deposits in the same issue (whether or not
the advanced deposit notifications are transmitted to DTC together) and
will enable DTC to produce a single deposit ticket for the total
quantity of an issue deposited on a particular day.\7\ By providing a
unique deposit control number that will be printed on the deposit
ticket for each deposit, the service will speed research, when needed,
on the deposited item. DAM also will permit participants to suspend
deposits for up to ten business days in the event of an emergency,
transportation delay, or error.
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\7\Participants can realize cost savings by avoiding separate
fees for multiple deposits made in the same issue on the same day.
For instance, throughout a given day a participant repeatedly may
notify DTC that it plans to deposit a certain number of shares of
IBM common stock. Assume a participant announces in its first
transmission that it will deliver 100 shares of IBM common stock, in
its second transmission that it will deliver 200 more shares of IBM,
and in its third transmission that it will deposit yet another 300
shares of IBM for a total of 600 shares for the day. DTC will sum
the three deposits for the day, and the bar-coded deposit ticket
will reflect an intended deposit of 600 shares of IBM common stock.
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Participants that have a low volume of deposits and that do not
want to purchase a bar-coded printer will be able to use the PTS
Deposit Automation Management Participant (``DAMP'') function to enter
details of their intended deposits.\8\ The PTS DAMP function also can
be used by CCF users to modify or delete deposit data already
transmitted to DTC as well as to enter additional deposit data.
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\8\The DAMP function is part of the DAM service that allows
participants to enter data, to correct data previously entered, to
make inquiries, or to print bar-code tickets. Telephone conversation
between Cheryl Lambert, Group Director, DTC, and Richard C.
Strasser, Attorney, Division, Commission (December 22, 1993). For
instance, if a participant had notified DTC that it planned to
deliver 1,000 shares of stock in ABC Corporation when in fact the
participant intended to deliver 1,100 shares, the participant could
use the DAMP function to make the necessary correction in the number
of shares it intended to deliver.
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By year-end 1993, DTC expects to have processed more than 4.5
million deposits comprised of approximately 17.5 million certificates.
The automation features of DAM will reduce DTC's costs and enhance
DTC's efficiency in handling these deposits. DTC will pass the savings
that it will realize from DAM directly to participants by lowering
deposit fees as follows: (a) For deposits made under DAM, DTC will
reduce the deposit charge by 40 cents (29 cents for legal deposits)
from the applicable zone deposit charge for participants that print
bar-coded tickets in their office and (b) by 29 cents (for deposits
other than legal deposits) from the applicable zone deposit charge for
participants that ask DTC to print the bar-coded tickets. In addition,
because DTC will prescreen the issues of securities that participants
intend to deposit, the new service will help participants save money by
minimizing costly deposit rejects.
II. Discussion
The Commission believes that DTC's proposal is consistent with the
Act and in particular with sections 17A (a)(1)(C) and (b)(3)(F)
thereunder.\9\ In section 17A(a)(1)(C) of the Act, Congress expressed
its finding that new communications and data processing techniques
create the opportunity for more efficient, effective, and safe
procedures for clearance and settlement. In this regard, the Commission
believes that DTC's DAM service facilitates the efficient, effective,
and safe procedures for the clearance and settlement of securities
transactions by employing the electronic communication of information
between DTC and its participants.
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\9\15 U.S.C. 78q-1 (a)(1)(C) and (b)(3)(F) (1988).
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Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions and to ensure the
safeguarding of securities and funds that are in the clearing agency's
custody or control or for which it is responsible. The Commission
believes that by enabling DTC to review proposed deposits before
securities are delivered, the DAM service helps to promote the prompt
and accurate clearance and settlement of securities transactions in
accordance with DTC's requirements under the Act.
Moreover, DTC's current safeguards will remain in place with the
implementation of the DAM service. These safeguards require DTC
participants to take steps necessary to assure that the certificates
presented to DTC are in good deliverable and transferable form. As with
current procedures, after the certificates are presented to DTC, DTC
will send them to the transfer agent who will reregister them in DTC's
nominee name, Cede & Co. The certificates typically then will be
returned to DTC for safekeeping in its vault. On occasion, however, the
transfer agent will reject a certificate for reregistration.\10\ If a
certificate is rejected, DTC will debit the depositing participant's
securities account to the extent it was credited when the securities
were delivered to DTC. If the debit results in a short position, DTC
will impose a charge of 130% of market value until the short position
is resolved.\11\ These safeguards, as they have in the past, will help
to ensure that suspect securities or those with transfer restrictions
are excluded from DTC's system. Because the implementation of the DAM
service will incorporate DTC's current safeguards, the Commission
believes the proposal is consistent with DTC's requirements under the
Act.
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\10\Transfer agents may reject a certificate for a number of
reasons including improper or missing endorsements, missing stock or
bond powers, stops, called bonds, certificates reported as lost or
stolen, or restrictions on the transfer of the security.
\11\Letter from Richard B. Nesson, Executive Vice President and
General Counsel, DTC, to Judith Poppalardo, Assistant Director,
Division, Commission (December 3, 1993).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the Act and in particular with
section 17A thereunder.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\12\ that the proposed rule change (File No. SR-DTC-93-9) be, and
hereby is, approved.
\12\15 U.S.C. 78s(b)(2) (1988).
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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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-740 Filed 1-11-94; 8:45 am]
BILLING CODE 8010-01-M