Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Require Members To Purchase Shares of the Common Stock of The Depository Trust & Clearing Corporation, 62364-62366 [E5-5990]
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62364
Federal Register / Vol. 70, No. 209 / Monday, October 31, 2005 / Notices
discrimination claims but not customer
claims, and believed that fee relief for
customer claims was necessary for
vindication of customers’ rights. The
commenter cited the fee-relief rules of
other arbitration associations in support
of the argument that such fee relief was
appropriate.
One commenter was concerned that
charging the broker-dealer ‘‘virtually
all’’ the fees for a statutory
discrimination claim would create
distortions in the process, lengthening
and encouraging dissatisfaction with the
process and providing incentives to
bring a weak discrimination claim.16
This commenter believed that assessing
attorneys’ fees for frivolous claims
would not have any deterrent effect, and
also believed that weak discrimination
claims would be dismissed and the
dismissal would be inappropriately
blamed on arbitrator bias. Citing
LaPrade v. Kidder Peabody
(‘‘LaPrade’’),17 the commenter
expressed disagreement with the
NASD’s decision to shift the greater part
of the forum fees to the employer, and
criticized the NASD’s reliance on and
interpretation of Cole v. Burns and
Green Tree. The commenter stated that
the rationale for fee-shifting in these
court cases could not be limited to feeshifting in statutory employment
discrimination claims, and expressed
concern that the proposed rule change
would accelerate demand for feeshifting across all arbitrations. The
commenter believed that an occasional
waiver rather than a blanket exemption
would be preferable.
NASD responded to the commenters
by observing that the proposed rule
change was intended to be very limited
in scope, only addressing situations in
which an employee must enter into a
predispute arbitration agreement for
statutory employment discrimination
claims, specifically the issue addressed
in Cole v. Burns. NASD stated that such
claims form a very small percentage of
the total number of claims filed with
NASD. NASD also stated that it neither
intended nor believes that there is a
compelling reason for the proposed fee
changes to be applied to all statutory
securities claims brought by customers.
Furthermore, NASD stated that it does
not believe that the arbitration process
will be impaired by the change because
arbitrators will be able to identify and
dispose of frivolous or marginal claims,
as well as allocate costs and attorneys’
fees. Lastly, NASD stated that it believes
16 See
Ryder Letter.
F.3d 702 (DC Cir., 2001) (holding that Cole
v. Burns does not preclude an arbitrator from
assessing certain fees against a claimant.
that waivers, rather than uniform feeshifting, will introduce significant
delays and uncertainty to the arbitration
process.
In connection with one
commenter’s 18 objection to the feeshifts, NASD noted that NASD is the
only forum for statutory employment
discrimination claims based on
presdispute arbitration agreements. In
this context, NASD stated that it
believes that it is ‘‘fair and reasonable
for members, who require their
employees to enter into predispute
arbitration agreements, to pay additional
filing and forum fees for this service.’’
III. Discussion and Findings
The Commission finds the proposed
rule change is consistent with the Act,
and in particular with Sections
15A(b)(5) 19 of the Act, which requires
that the NASD’s rules provide for the
equitable allocation of reasonable dues,
fees, and other charges among members
and issuers and other persons using any
facility or system that the NASD
operates or controls. The Commission
believes that the proposed rule change
is consistent with the provisions of the
Act noted above because it will permit
employees subject to predispute
arbitration agreements to vindicate
statutory employment discrimination
claims without significant financial
barriers to adjudication.
We do not believe that NASD is
required, in connection with this
proposal, which addresses a limited
number of statutory employment
discrimination claims, to expand the fee
relief in the proposal to fees for
statutory securities claims brought by
customers. The NASD’s proposal deals
with an extremely limited set of claims
brought in its arbitration forums. The
NASD states that in each of the last five
years, statutory employment
discrimination claims accounted for less
than one percent of all claims filed with
NASD. In connection with providing a
forum for arbitration of such claims, the
NASD has determined to provide fee
relief consistent with Cole v. Burns,
which was concerned with the
accessibility of the adjudicatory system
to a claimant subject to a predispute
arbitration agreement in a statutory
employment discrimination claim. We
note that Cole v. Burns provides
justification for the fee relief, and would
not require expansion of fee relief into
other statutory securities claims. In this
context, we agree with NASD’s rationale
for limiting the proposed fee reduction
17 246
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15:29 Oct 28, 2005
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18 See
19 15
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Ryder Letter.
U.S.C. 78o–3(b)(5).
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to statutory employment discrimination
claims based on predispute agreements.
With regard to the proposed rule
change’s determination to shift certain
fees to employers, we note particularly
that NASD provides the only forum for
employers in which such claims can be
adjudicated, and that very few of the
claims adjudicated by NASD’s
arbitration system involve statutory
employment discrimination claims.
LaPrade, the case cited by the
commenter for the proposition that Cole
v. Burns does not bar the assessment of
all forum fees against the claimant, does
not preclude NASD from determining
that it will assess certain fees against an
employer in this extremely limited
number of cases. Further, given the
extremely limited number of these cases
adjudicated by the NASD, automatic
fee-shifting for employment
discrimination claims based on
predispute agreements should not pose
a significant hardship to employers. We
agree with the NASD’s position that
requiring a waiver analysis of every case
involving statutory employment
discrimination claims would most likely
introduce significant delays, complexity
and uncertainty to the arbitration
process.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act 20 that the
proposed rule change (SR–NASD–2005–
046) be, and hereby is, approved.21
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.22
Jonathan G. Katz,
Secretary.
[FR Doc. E5–5991 Filed 10–28–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52664; File No. SR–NSCC–
2005–14]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Proposed Rule Change To Require
Members To Purchase Shares of the
Common Stock of The Depository
Trust & Clearing Corporation
October 25, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
20 15
U.S.C. 78s(b)(2).
approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
22 17 CFR 200.30–3(a)(12).
21 In
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Federal Register / Vol. 70, No. 209 / Monday, October 31, 2005 / Notices
(‘‘Act’’),1 notice is hereby given that on
October 4, 2005, the National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change described in Items
I, II, and III below, which items have
been prepared primarily by NSCC. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested parties.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The purpose of this proposed rule
change is to amend the rules of NSCC
to require that members of NSCC other
than Mutual Fund/Insurance Services
Members purchase shares of common
stock of The Depository Trust & Clearing
Corporation (‘‘DTCC’’).
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
NSCC 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. NSCC has prepared
summaries, set forth in sections (A), (B),
and (C) below, of the most significant
aspects of these statements.2
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
(a) DTCC is a holding company for
three registered clearing agencies:
NSCC, The Depository Trust Company
(‘‘DTC’’), and the Fixed Income Clearing
Corporation (‘‘FICC’’). Pursuant to
DTCC’s current Shareholders Agreement
(‘‘Current Shareholders Agreement’’),
substantially all members and
participants of DTC, NSCC, and FICC
(‘‘Participants’’) are entitled but are not
required to purchase DTCC common
shares. Participants are allocated an
entitlement to purchase DTCC common
shares on the basis of their relative use
of the services of DTC, NSCC, and FICC.
As of the last periodic allocation of
share entitlements in 2003,
approximately 1,100 Participants had a
right to purchase DTCC common shares;
however, only 190 Participants
currently own any DTCC common
shares and of these only 86 own DTCC
1 15
U.S.C. 78s(b)(1).
Commission has modified the text of the
summaries prepared by NSCC.
2 The
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common shares up to the full amounts
of their share entitlements.
DTCC is currently soliciting the
consent of its common shareholders to
amend the Current Shareholders
Agreement pursuant to which
Participants of DTC, NSCC, and FICC
that make full use of the services of one
or more of these clearing agency
subsidiaries of DTCC would be required
to purchase DTCC common shares
(‘‘Mandatory Purchaser Participants’’) 3
in accordance with the terms of the
Current Shareholders Agreement while
preserving the right but not the
obligation of other Participants that
make only limited use of their services
to purchase DTCC common shares
(‘‘Voluntary Purchaser Participants’’).4
Holders of DTCC common shares are
entitled to elect all of the directors of
DTCC other than two directors that
DTCC preferred shareholders are
entitled to elect.5 DTCC common
shareholders are entitled to vote on all
other matters submitted to a vote of
DTCC shareholders, and each DTCC
common shareholder is entitled to one
vote per DTCC common share. DTCC
common shareholders are entitled to
cumulate their votes for the election of
directors. In addition, DTCC common
shareholders are entitled to receive,
when and if declared by the Board of
Directors of DTCC, out of assets of DTCC
dividends payable in cash or stock or
otherwise. However, since DTC, NSCC,
3 Under the proposed Shareholders Agreement, a
Mandatory Purchaser Participant that is a
Participant in more than one clearing agency will
be required to purchase DTCC common shares
based upon its relative use of the services of all
clearing agencies of which it is a Participant.
4 The proposed DTCC Shareholders Agreement
(‘‘Proposed Shareholders Agreement’’) marked to
show the proposed amendments is attchaed to the
propose rule change as Exhibit 3 and is available
on NSCC’s Web site at https://www.nscc.com/legal.
The effective date of the Proposed Shareholders
Agreement would be the later of (i) approval by
DTCC common shareholders owning two-thirds of
the outstanding DTCC common shares and (ii)
approval by the Commission of the proposed rule
change and similar proposed rule changes being
submitted by DTC and FICC.
5 In connection with the 1999 integration of DTC
and NSCC and formation of DTCC, the New York
Stock Exchange (‘‘NYSE’’) and the National
Association of Securities Dealers (‘‘NASD’’), the
then owners of NSCC, each received 10,000 DTCC
preferred shares in exchange for their NSCC
common stock. DTCC preferred shareholders have
no right to vote on any matters submitted to a vote
of DTCC shareholders except that each of the two
DTCC preferred shareholders are entitled to elect
one director. DTCC preferred shareholders have no
right to vote on any matters submitted to a vote of
DTCC shareholders except that each of the two
DTCC preferred shareholders are entitled to elect
one director. DTCC preferred shareholders have no
right to receive any dividends. In the event of any
liquidation, dissolution or winding up of the affairs
of DTCC, DTCC preferred shareholders are entitled
to a liquidation preference of $300 per share of
DTCC preferred stock.
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62365
and FICC provide their services to their
Participants on a cost-basis with
revenues in excess of expenses and
necessary reserves rebated or on a
discounted basis, as a matter of policy
and practice DTCC does not pay any
dividends on DTCC common shares.
The proposed amendments to the
Current Shareholders Agreement will
have no effect on these rights of DTCC
common shareholders and preferred
shareholders.
Pursuant to certain covenants in the
Current Shareholders Agreement, a
person elected a director of DTCC also
serves as a director of each of DTC,
NSCC, and FICC. The proposed changes
in the Current Shareholders Agreement
will have no effect on these covenants.
The system for allocating entitlements
to purchase shares, which was
incorporated into the Current
Shareholders Agreement, was first
implemented by DTC with respect to
DTC common shares in 1973. At that
time, the banks that were users of DTC’s
services purchased their DTC common
shares directly but for logistical and
other reasons the NYSE, the NASD and
the American Stock Exchange
(‘‘AMEX’’) (collectively, the ‘‘SelfRegulatory Organizations’’) purchased
the DTC common shares allocated to the
broker-dealers that were members of the
Self-Regulatory Organizations and users
of the services of DTC. It was
anticipated that over time as brokerdealers exercised their right to purchase
DTC common shares, the number of
DTC common shares held by brokerdealers directly would increase and the
number of DTC common shares held by
the Self-Regulatory Organizations would
correspondingly decrease, potentially to
zero, since the share entitlements of the
Self-Regulatory Organizations were a
function of the unexercised share
entitlements of their members.
The Self-Regulatory Organizations,
notwithstanding the passage of time and
the opportunity afforded their members
to purchase DTCC common shares,
continue to hold a significant block of
DTCC common shares. NYSE holds
approximately 29% of the outstanding
DTCC common shares, and the NASD
and the AMEX each holds
approximately 3.7%. Accordingly, a
total of approximately 36.4% of the
outstanding DTCC common shares are
not held by Participants but rather are
held in a representative capacity by the
Self-Regulatory Organizations for
broker-dealer Participants which have
not purchased any DTCC common
shares or have not purchased DTCC
common shares commensurate with
their share entitlements. It is also the
case that a significant number of
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Federal Register / Vol. 70, No. 209 / Monday, October 31, 2005 / Notices
Participants other than broker-dealers
have not purchased any DTCC common
shares or have not purchased DTCC
common shares commensurate with
their share entitlements. Ownership of
DTCC common shares (and previously
ownership of DTC common shares) is
not a financial investment but instead is
a vehicle for supporting each registered
clearing agency and influencing its
policies and operations through the
election of directors.
By providing that all DTCC common
shares are owned by Participants, NSCC
believes that these proposed rule
changes and the proposed amendments
to the Current Shareholders Agreement
will guarantee that Participants
continue to govern and control the
activities of DTC, NSCC, and FICC,
including the kinds and quality of
services provided and the service fees
charged. In particular, Participants will
be in a position to assure that DTC,
NSCC, and FICC continue the practices
of establishing fees that are cost-based
and use-based and of returning to
Participants in the form of cash rebates
or discounts revenues in excess of
expenses and necessary reserves.
Finally, because they introduce the
greatest risks to the clearing agencies
and obtain the greatest benefits from
clearing agency services, it is
appropriate to require those Participants
making full use of the services of DTC,
NSCC, or FICC to contribute to DTCC’s
capital through the purchase of its
common shares.
NSCC believes that the proposed rule
change is consistent with the
requirements of Section 17A of the Act 6
and the rules and regulations
thereunder applicable to NSCC because
NSCC believes the proposed changes to
the Current Shareholders Agreement
will assure fair representation of NSCC’s
members in the selection of NSCC’s
directors and the administration of its
affairs.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
NSCC does not believe that the
proposed rule change will have any
impact or impose any burden on
competition.
(C) Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments relating to the
proposed rule change have not yet been
solicited or received. NSCC will notify
the Commission of any written
comments received by NSCC.
6 15
U.S.C. 78q–1.
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15:29 Oct 28, 2005
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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 the self-regulatory
organization 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.
copying at the principal office of NSCC
and on NSCC’s Web site, https://
www.nscc.com\legal. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–NSCC–
2005–14 and should be submitted on or
before November 21, 2005.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
BILLING CODE 8010–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml) or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NSCC–2005–14 in the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NSCC–2005–14. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Section, 100 F Street, NE., Washington,
DC 20549. Copies of such filings also
will be available for inspection and
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For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.7
Jonathan G. Katz,
Secretary.
[FR Doc. E5–5990 Filed 10–28–05; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52666; File No. SR–Phlx–
2005–60]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of a Proposed Rule
Change Relating to its Payment for
Order Flow Program in Effect in
September and October 2004
October 25, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on October
12, 2005, the Philadelphia Stock
Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the Exchange.
The Phlx has designated this proposal
as one changing a fee imposed by the
Phlx under Section 19(b)(3)(A)(ii) of the
Act 3 and Rule 19b–4(f)(2) thereunder,4
which renders the proposal effective
upon filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Phlx proposes to rebate payment
for order flow funds that were collected
from Registered Options Traders
(‘‘ROTs’’), but not requested by
7 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
1 15
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]]>Agencies
[Federal Register Volume 70, Number 209 (Monday, October 31, 2005)]
[Notices]
[Pages 62364-62366]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5990]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52664; File No. SR-NSCC-2005-14]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Require
Members To Purchase Shares of the Common Stock of The Depository Trust
& Clearing Corporation
October 25, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 62365]]
(``Act''),\1\ notice is hereby given that on October 4, 2005, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change described in Items I, II, and III below, which items have been
prepared primarily by NSCC. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested parties.
---------------------------------------------------------------------------
\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 this proposed rule change is to amend the rules of
NSCC to require that members of NSCC other than Mutual Fund/Insurance
Services Members purchase shares of common stock of The Depository
Trust & Clearing Corporation (``DTCC'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.\2\
---------------------------------------------------------------------------
\2\ The Commission has modified the text of the summaries
prepared by NSCC.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(a) DTCC is a holding company for three registered clearing
agencies: NSCC, The Depository Trust Company (``DTC''), and the Fixed
Income Clearing Corporation (``FICC''). Pursuant to DTCC's current
Shareholders Agreement (``Current Shareholders Agreement''),
substantially all members and participants of DTC, NSCC, and FICC
(``Participants'') are entitled but are not required to purchase DTCC
common shares. Participants are allocated an entitlement to purchase
DTCC common shares on the basis of their relative use of the services
of DTC, NSCC, and FICC. As of the last periodic allocation of share
entitlements in 2003, approximately 1,100 Participants had a right to
purchase DTCC common shares; however, only 190 Participants currently
own any DTCC common shares and of these only 86 own DTCC common shares
up to the full amounts of their share entitlements.
DTCC is currently soliciting the consent of its common shareholders
to amend the Current Shareholders Agreement pursuant to which
Participants of DTC, NSCC, and FICC that make full use of the services
of one or more of these clearing agency subsidiaries of DTCC would be
required to purchase DTCC common shares (``Mandatory Purchaser
Participants'') \3\ in accordance with the terms of the Current
Shareholders Agreement while preserving the right but not the
obligation of other Participants that make only limited use of their
services to purchase DTCC common shares (``Voluntary Purchaser
Participants'').\4\
---------------------------------------------------------------------------
\3\ Under the proposed Shareholders Agreement, a Mandatory
Purchaser Participant that is a Participant in more than one
clearing agency will be required to purchase DTCC common shares
based upon its relative use of the services of all clearing agencies
of which it is a Participant.
\4\ The proposed DTCC Shareholders Agreement (``Proposed
Shareholders Agreement'') marked to show the proposed amendments is
attchaed to the propose rule change as Exhibit 3 and is available on
NSCC's Web site at https://www.nscc.com/legal. The effective date of
the Proposed Shareholders Agreement would be the later of (i)
approval by DTCC common shareholders owning two-thirds of the
outstanding DTCC common shares and (ii) approval by the Commission
of the proposed rule change and similar proposed rule changes being
submitted by DTC and FICC.
---------------------------------------------------------------------------
Holders of DTCC common shares are entitled to elect all of the
directors of DTCC other than two directors that DTCC preferred
shareholders are entitled to elect.\5\ DTCC common shareholders are
entitled to vote on all other matters submitted to a vote of DTCC
shareholders, and each DTCC common shareholder is entitled to one vote
per DTCC common share. DTCC common shareholders are entitled to
cumulate their votes for the election of directors. In addition, DTCC
common shareholders are entitled to receive, when and if declared by
the Board of Directors of DTCC, out of assets of DTCC dividends payable
in cash or stock or otherwise. However, since DTC, NSCC, and FICC
provide their services to their Participants on a cost-basis with
revenues in excess of expenses and necessary reserves rebated or on a
discounted basis, as a matter of policy and practice DTCC does not pay
any dividends on DTCC common shares. The proposed amendments to the
Current Shareholders Agreement will have no effect on these rights of
DTCC common shareholders and preferred shareholders.
---------------------------------------------------------------------------
\5\ In connection with the 1999 integration of DTC and NSCC and
formation of DTCC, the New York Stock Exchange (``NYSE'') and the
National Association of Securities Dealers (``NASD''), the then
owners of NSCC, each received 10,000 DTCC preferred shares in
exchange for their NSCC common stock. DTCC preferred shareholders
have no right to vote on any matters submitted to a vote of DTCC
shareholders except that each of the two DTCC preferred shareholders
are entitled to elect one director. DTCC preferred shareholders have
no right to vote on any matters submitted to a vote of DTCC
shareholders except that each of the two DTCC preferred shareholders
are entitled to elect one director. DTCC preferred shareholders have
no right to receive any dividends. In the event of any liquidation,
dissolution or winding up of the affairs of DTCC, DTCC preferred
shareholders are entitled to a liquidation preference of $300 per
share of DTCC preferred stock.
---------------------------------------------------------------------------
Pursuant to certain covenants in the Current Shareholders
Agreement, a person elected a director of DTCC also serves as a
director of each of DTC, NSCC, and FICC. The proposed changes in the
Current Shareholders Agreement will have no effect on these covenants.
The system for allocating entitlements to purchase shares, which
was incorporated into the Current Shareholders Agreement, was first
implemented by DTC with respect to DTC common shares in 1973. At that
time, the banks that were users of DTC's services purchased their DTC
common shares directly but for logistical and other reasons the NYSE,
the NASD and the American Stock Exchange (``AMEX'') (collectively, the
``Self-Regulatory Organizations'') purchased the DTC common shares
allocated to the broker-dealers that were members of the Self-
Regulatory Organizations and users of the services of DTC. It was
anticipated that over time as broker-dealers exercised their right to
purchase DTC common shares, the number of DTC common shares held by
broker-dealers directly would increase and the number of DTC common
shares held by the Self-Regulatory Organizations would correspondingly
decrease, potentially to zero, since the share entitlements of the
Self-Regulatory Organizations were a function of the unexercised share
entitlements of their members.
The Self-Regulatory Organizations, notwithstanding the passage of
time and the opportunity afforded their members to purchase DTCC common
shares, continue to hold a significant block of DTCC common shares.
NYSE holds approximately 29% of the outstanding DTCC common shares, and
the NASD and the AMEX each holds approximately 3.7%. Accordingly, a
total of approximately 36.4% of the outstanding DTCC common shares are
not held by Participants but rather are held in a representative
capacity by the Self-Regulatory Organizations for broker-dealer
Participants which have not purchased any DTCC common shares or have
not purchased DTCC common shares commensurate with their share
entitlements. It is also the case that a significant number of
[[Page 62366]]
Participants other than broker-dealers have not purchased any DTCC
common shares or have not purchased DTCC common shares commensurate
with their share entitlements. Ownership of DTCC common shares (and
previously ownership of DTC common shares) is not a financial
investment but instead is a vehicle for supporting each registered
clearing agency and influencing its policies and operations through the
election of directors.
By providing that all DTCC common shares are owned by Participants,
NSCC believes that these proposed rule changes and the proposed
amendments to the Current Shareholders Agreement will guarantee that
Participants continue to govern and control the activities of DTC,
NSCC, and FICC, including the kinds and quality of services provided
and the service fees charged. In particular, Participants will be in a
position to assure that DTC, NSCC, and FICC continue the practices of
establishing fees that are cost-based and use-based and of returning to
Participants in the form of cash rebates or discounts revenues in
excess of expenses and necessary reserves. Finally, because they
introduce the greatest risks to the clearing agencies and obtain the
greatest benefits from clearing agency services, it is appropriate to
require those Participants making full use of the services of DTC,
NSCC, or FICC to contribute to DTCC's capital through the purchase of
its common shares.
NSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \6\ and the rules and
regulations thereunder applicable to NSCC because NSCC believes the
proposed changes to the Current Shareholders Agreement will assure fair
representation of NSCC's members in the selection of NSCC's directors
and the administration of its affairs.
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\6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change will have any
impact or impose any burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments relating to the proposed rule change have not yet
been solicited or received. NSCC will notify the Commission of any
written comments received by NSCC.
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 the self-regulatory organization 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
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml) or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NSCC-2005-14 in the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NSCC-2005-14. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Section, 100 F Street,
NE., Washington, DC 20549. Copies of such filings also will be
available for inspection and copying at the principal office of NSCC
and on NSCC's Web site, https://www.nscc.com\legal. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NSCC-2005-14 and should be
submitted on or before November 21, 2005.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-5990 Filed 10-28-05; 8:45 am]
BILLING CODE 8010-01-P
