Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of a Proposed Rule Change To Amend Rules Relating to the Requirement To Maintain a Balance Certificate in the Fast Automated Securities Transfer Program, 20061-20062 [2011-8553]
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Federal Register / Vol. 76, No. 69 / Monday, April 11, 2011 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64191; File No. SR–DTC–
2010–15]
Self-Regulatory Organizations; The
Depository Trust Company; Order
Granting Approval of a Proposed Rule
Change To Amend Rules Relating to
the Requirement To Maintain a Balance
Certificate in the Fast Automated
Securities Transfer Program
April 5, 2011.
I. Introduction
On November 5, 2010, The Depository
Trust Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–DTC–2010–15 pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’).1 Notice of the proposal
was published in the Federal Register
on November 23, 2010.2 The
Commission received two comment
letters.3 For the reasons discussed
below, the Commission is granting
approval of the proposed rule change.
II. Description
Under DTC’s FAST program, transfer
agents participating in FAST (‘‘FAST
transfer agents’’) hold DTC securities in
the form of balance certificates.4 The
balance certificates are registered in the
name of DTC’s nominee, Cede & Co.,
and evidence the record ownership by
Cede & Co. of each issue for which the
FAST transfer agent acts as transfer
agent. The Balance Certificate
Agreement is executed by each FAST
transfer agent and DTC and sets forth
the rights and obligations of FAST
transfer agents and DTC. As additional
securities are deposited or withdrawn
from DTC, the appropriate FAST
transfer agent adjusts the denomination
of the balance certificate and
srobinson on DSKHWCL6B1PROD with NOTICES
1 15
U.S.C. 78s(b)(1).
2 Securities Exchange Act Release No. 63320
(November 16, 2010), 75 FR 71473 (November 23,
2010).
3 Letters from Charles V. Rossi, President,
Securities Transfer Association (December 14, 2010)
and Candice Fordin, Associate Counsel, The
Depository Trust & Clearing Corporation (February
22, 2011).
4 FAST reduces the movement of certificates
between DTC and transfer agents, thereby reducing
the costs and risks associated with the creation,
movement, and storing of certificates. For a
description of DTC’s current rules relating to FAST,
see Securities Exchange Act Release Nos. 34–13342
(March 8, 1977) (File No. SR–DTC–76–3); 34–14997
(July 26, 1978) (File No. Sr–DTC–78–11); 34–21401
(October 16, 1984) (File No. SR DTC–84–8); 34–
31941 (March 3, 1993) (SR–DTC–92–15); and 34–
46956 (December 2, 2002) (File No. SR–DTC 2002–
15). In addition, see Securities Exchange Act
Release No. 34–60196 (June 30, 2009) 74 FR 33496
(File No. SR–DTC–2006–16).
VerDate Mar<15>2010
17:49 Apr 08, 2011
Jkt 223001
electronically confirms theses changes
with DTC.
Because transfer agents electronically
confirm with DTC the adjustments to
the denomination of the balance
certificates and balances with DTC on a
daily basis the number of shares
represented by the balance certificate,
some FAST transfer agents requested
that DTC remove the requirement that
they custody a balance certificate. As a
result, DTC has proposed to remove the
requirement that FAST transfer agents
maintain a balance certificate for only
those securities whose issuers are
‘‘participating’’ in the direct registration
system (‘‘DRS’’).5
Accordingly, pursuant to the rule
change being approved by this Order,
DTC will remove the requirement that
FAST transfer agents maintain a balance
certificate for those exchange listed
issues that are DRS eligible and that are
participating in DRS. However, DTC
will continue to reserve its rights to
draw down from the FAST balance and
to receive in lieu of a DRS position a
certificate registered in DTC’s nominee
name of Cede & Co. and reflecting any
number of shares up to and including
the total amount of shares due DTC from
the FAST transfer agents.
III. Comment Letters
The Commission received two
comment letters, one from the Securities
Transfer Association (‘‘STA’’) raising
several concerns about the filing and the
other from DTC responding to the STA’s
comments.6 While the STA strongly
supports DTC’s proposed rule to
eliminate the requirement for FAST
agents to maintain a balance certificate
for issues participating in DRS, the STA
believes the requirement to maintain a
balance certificate should also be
eliminated for those issues eligible for
DRS but not participating. The STA
reasons that DRS eligible issues can be
electronically reflected on the transfer
agent’s records and can still be moved
electronically through a Deposit
Withdrawal at Custodian transaction
5 DRS allows registered owners to hold their
assets on the records of the transfer agent in bookentry form rather than in certificated form and
provides investors with an alternate approach to
holding their securities either in certificated form
or in ‘‘street’’ name. Securities on deposit at DTC are
considered ‘‘DRS eligible’’ if the issuer’s by-laws
permit the issuance of book entry shares and the
CUSIP number has been designated as FAST
eligible by DTC. ‘‘Participating in DRS’’ means that
the issuer and its transfer agent have complied with
DTC’s requirements to participate in the DRS
program and actually allow investors to hold shares
in DRS. Issuers that participate in DRS have
acknowledged that the use of electronic registration
of securities is a valid method to evidence
ownership of their issued securities.
6 Supra note 3.
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
20061
(‘‘DWAC’’).7 The STA also noted that the
proposed requirement that reserves the
right for DTC to request a certificate may
be problematic for those issuers that do
not issue certificates.
DTC’s comment letter responded to
both concerns raised by the STA. First,
DTC contended that companies that
have issued securities that are fully
eligible and participating in DRS have
authorized the use of a statement to
evidence ownership. Without this
authorization by the issuer, DTC argues,
there is no ability to get an electronic
statement from the issuer’s transfer
agent and therefore no inherent
approval of statement form as a valid
evidence of ownership.8
Second, with regards to the provision
of DTC’s proposal reserving the right for
DTC to request a certificate, DTC
maintained that currently all issuers
eligible and participating in DRS are
required to maintain and provide DTC
upon request a FAST balance certificate.
DTC stated that it cannot anticipate
every situation that may arise where it
is in DTC’s best interest to certificate the
FAST balance but there are times when
obtaining a certificate is necessary, such
as when the issuer’s transfer agent or the
issuer itself no longer meets the criteria
to be in the FAST program.
IV. Discussion
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of a clearing agency be designed to
assure the safeguarding of securities and
funds which are in the custody or
control of the clearing agency or for
which it is responsible.9 The
Commission finds that DTC’s proposed
rule change is consistent with its
obligations under the Exchange Act
because it should allow DTC to reduce
the costs and risks associated with the
creation, storage, transfer, and
7 Through DTC’s DWAC service, participants are
permitted to make deposits and withdrawals
directly with a transfer agent for an issue evidenced
by a balance certificate registered in the name of
Cede & Co. and held for DTC by a transfer agent.
Issues eligible under DTC’s Fast Automated
Securities Transfer (‘‘FAST’’) are eligible for DTC’s
DWAC service. For more information about the
DWAC service, see Securities Exchange Act Release
No. 30283 (January 23, 1992), 57 FR 3658 (January
30, 1992) (SR–DTC–91–16).
8 In addition to the requirement that an issue be
eligible and participating in DRS, DTC’s proposed
rule change also requires that issue be exchange
traded. The STA did not raise any concerns in its
comment letter regarding this aspect of the
proposal. Nonetheless, DTC stated in its comment
letter that by waiving the requirement to maintain
a balance certificate for only those issues that are
listed on an exchange, DTC is able to rely on the
due diligence of the exchange to provide a level of
issuer transparency that DTC might not otherwise
be able to attain.
9 15 U.S.C. 78q–1(b)(3)(F).
E:\FR\FM\11APN1.SGM
11APN1
20062
Federal Register / Vol. 76, No. 69 / Monday, April 11, 2011 / Notices
replacement of physical certificates,
specifically in this case the balance
certificates, which should in turn allow
DTC to better safeguard the securities
which are in its custody or control or for
which it is responsible.
While the Commission understands
the STA would like to further promote
dematerialization by eliminating the
need for FAST agents acting for issues
that are eligible but not participating in
DRS to maintain a balance certificate,
we agree with DTC that at this time
allowing only those issues where the
issuer has expressly provided that
statements are evidence of ownership to
eliminate maintaining the balance
certificate better safeguards the
securities being custodied by the FAST
agent on DTC’s behalf. Furthermore, the
proposed rule change may encourage
those issuers that have made their
securities eligible but are not
participating in DRS to participate in
DRS, which would further facilitate the
STA’s goal of reducing the use of
physical certificates.
With regards to the STA’s concern
that requiring issuers or their transfer
agents to provide a balance certificate
upon request, the proposed rule change
does not change DTC’s current
requirements relating to certificating
FAST balance positions and therefore
should not present any new issues for
issuers or FAST transfer agents. DTC
was simply making clear in the
proposed rule change that it is
continuing to reserve the right to request
such a certificate.
Accordingly, for the reasons stated
above the Commission believes that the
proposed rule change is consistent with
DTC’s obligation under Section 17A of
the Exchange Act, as amended, and the
rules and regulations thereunder.10
srobinson on DSKHWCL6B1PROD with NOTICES
IV. 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 with the requirements of
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–
DTC–2010–15) be and hereby is
approved.
10 In approving this proposal, the Commission has
considered its impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
VerDate Mar<15>2010
17:49 Apr 08, 2011
Jkt 223001
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.11
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–8553 Filed 4–8–11; 8:45 am]
BILLING CODE 8011–01–P
sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64193; File No. SR–ISE–
2011–17]
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Amend ISE Rule 2102 To
Extend the Pilot Program
April 5, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on March 31,
2011, the International Securities
Exchange, LLC (the ‘‘Exchange’’ or the
‘‘ISE’’) filed with the Securities and
Exchange Commission (‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which items
have been prepared by the selfregulatory organization. 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 Exchange proposes to amend
Rule 2102 (Hours of Business) to extend
the expiration of the pilot rule.
The text of the proposed rule change
is available on the Exchange’s Internet
Web site at https://www.ise.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization 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.
The self-regulatory organization has
prepared summaries, set forth in
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
The Exchange proposes to amend ISE
Rule 2102 to extend the expiration of
the pilot rule. Initial amendments to ISE
Rule 2102 to allow the Exchange to
pause trading in an individual stock
when the primary listing market for
such stock issues a trading pause were
approved by the Commission on June
10, 2010 on a pilot basis to end on
December 10, 2010.3 The pilot was then
extended to expire on April 11, 2011.4
On September 10, 2010, ISE Rule 2102
was amended again to expand the pilot
rule to apply to the Russell 1000® Index
and other specified exchange traded
products.5 The Exchange now proposes
to extend the date by which this pilot
rule will expire to the earlier of August
11, 2011 or the date on which a limit
up/limit down mechanism to address
extraordinary market volatility, if
adopted, applies. Extending this pilot
program will provide the exchanges
with a continued opportunity to assess
the effect of this rule proposal on the
markets.
2. Basis
The statutory basis for the proposed
rule change is Section 6(b)(5) of the
Act,6 which requires the rules of an
exchange to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and, in
general, to protect investors and the
public interest. The proposed rule
change also is designed to support the
principles of Section 11A(a)(1) 7 of the
Act in that it seeks to assure fair
competition among brokers and dealers
and among exchange markets. The
Exchange believes that the proposed
rule meets these requirements in that it
promotes uniformity across markets
concerning decisions to pause trading in
a security when there are significant
price movements.
3 See Securities Exchange Act Release No. 62252
(June 10, 2010), 75 FR 34186 (June 16, 2010) (SR–
ISE–2010–48).
4 See Securities Exchange Act Release No. 63506
(December 9, 2010), 75 FR 78301 (December 15,
2010) (SR–ISE–2010–117).
5 See Securities Exchange Act Release No. 62884
(September 10, 2010), 75 FR 56618 (September 16,
2010) (SR–ISE–2010–66).
6 15 U.S.C. 78f(b)(5).
7 15 U.S.C. 78k–1(a)(1).
E:\FR\FM\11APN1.SGM
11APN1
]]>Agencies
[Federal Register Volume 76, Number 69 (Monday, April 11, 2011)]
[Notices]
[Pages 20061-20062]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8553]
[[Page 20061]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64191; File No. SR-DTC-2010-15]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Approval of a Proposed Rule Change To Amend Rules
Relating to the Requirement To Maintain a Balance Certificate in the
Fast Automated Securities Transfer Program
April 5, 2011.
I. Introduction
On November 5, 2010, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-DTC-2010-15 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal
was published in the Federal Register on November 23, 2010.\2\ The
Commission received two comment letters.\3\ For the reasons discussed
below, the Commission is granting approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 63320 (November 16,
2010), 75 FR 71473 (November 23, 2010).
\3\ Letters from Charles V. Rossi, President, Securities
Transfer Association (December 14, 2010) and Candice Fordin,
Associate Counsel, The Depository Trust & Clearing Corporation
(February 22, 2011).
---------------------------------------------------------------------------
II. Description
Under DTC's FAST program, transfer agents participating in FAST
(``FAST transfer agents'') hold DTC securities in the form of balance
certificates.\4\ The balance certificates are registered in the name of
DTC's nominee, Cede & Co., and evidence the record ownership by Cede &
Co. of each issue for which the FAST transfer agent acts as transfer
agent. The Balance Certificate Agreement is executed by each FAST
transfer agent and DTC and sets forth the rights and obligations of
FAST transfer agents and DTC. As additional securities are deposited or
withdrawn from DTC, the appropriate FAST transfer agent adjusts the
denomination of the balance certificate and electronically confirms
theses changes with DTC.
---------------------------------------------------------------------------
\4\ FAST reduces the movement of certificates between DTC and
transfer agents, thereby reducing the costs and risks associated
with the creation, movement, and storing of certificates. For a
description of DTC's current rules relating to FAST, see Securities
Exchange Act Release Nos. 34-13342 (March 8, 1977) (File No. SR-DTC-
76-3); 34-14997 (July 26, 1978) (File No. Sr-DTC-78-11); 34-21401
(October 16, 1984) (File No. SR DTC-84-8); 34-31941 (March 3, 1993)
(SR-DTC-92-15); and 34-46956 (December 2, 2002) (File No. SR-DTC
2002-15). In addition, see Securities Exchange Act Release No. 34-
60196 (June 30, 2009) 74 FR 33496 (File No. SR-DTC-2006-16).
---------------------------------------------------------------------------
Because transfer agents electronically confirm with DTC the
adjustments to the denomination of the balance certificates and
balances with DTC on a daily basis the number of shares represented by
the balance certificate, some FAST transfer agents requested that DTC
remove the requirement that they custody a balance certificate. As a
result, DTC has proposed to remove the requirement that FAST transfer
agents maintain a balance certificate for only those securities whose
issuers are ``participating'' in the direct registration system
(``DRS'').\5\
---------------------------------------------------------------------------
\5\ DRS allows registered owners to hold their assets on the
records of the transfer agent in book-entry form rather than in
certificated form and provides investors with an alternate approach
to holding their securities either in certificated form or in
``street'' name. Securities on deposit at DTC are considered ``DRS
eligible'' if the issuer's by-laws permit the issuance of book entry
shares and the CUSIP number has been designated as FAST eligible by
DTC. ``Participating in DRS'' means that the issuer and its transfer
agent have complied with DTC's requirements to participate in the
DRS program and actually allow investors to hold shares in DRS.
Issuers that participate in DRS have acknowledged that the use of
electronic registration of securities is a valid method to evidence
ownership of their issued securities.
---------------------------------------------------------------------------
Accordingly, pursuant to the rule change being approved by this
Order, DTC will remove the requirement that FAST transfer agents
maintain a balance certificate for those exchange listed issues that
are DRS eligible and that are participating in DRS. However, DTC will
continue to reserve its rights to draw down from the FAST balance and
to receive in lieu of a DRS position a certificate registered in DTC's
nominee name of Cede & Co. and reflecting any number of shares up to
and including the total amount of shares due DTC from the FAST transfer
agents.
III. Comment Letters
The Commission received two comment letters, one from the
Securities Transfer Association (``STA'') raising several concerns
about the filing and the other from DTC responding to the STA's
comments.\6\ While the STA strongly supports DTC's proposed rule to
eliminate the requirement for FAST agents to maintain a balance
certificate for issues participating in DRS, the STA believes the
requirement to maintain a balance certificate should also be eliminated
for those issues eligible for DRS but not participating. The STA
reasons that DRS eligible issues can be electronically reflected on the
transfer agent's records and can still be moved electronically through
a Deposit Withdrawal at Custodian transaction (``DWAC'').\7\ The STA
also noted that the proposed requirement that reserves the right for
DTC to request a certificate may be problematic for those issuers that
do not issue certificates.
---------------------------------------------------------------------------
\6\ Supra note 3.
\7\ Through DTC's DWAC service, participants are permitted to
make deposits and withdrawals directly with a transfer agent for an
issue evidenced by a balance certificate registered in the name of
Cede & Co. and held for DTC by a transfer agent. Issues eligible
under DTC's Fast Automated Securities Transfer (``FAST'') are
eligible for DTC's DWAC service. For more information about the DWAC
service, see Securities Exchange Act Release No. 30283 (January 23,
1992), 57 FR 3658 (January 30, 1992) (SR-DTC-91-16).
---------------------------------------------------------------------------
DTC's comment letter responded to both concerns raised by the STA.
First, DTC contended that companies that have issued securities that
are fully eligible and participating in DRS have authorized the use of
a statement to evidence ownership. Without this authorization by the
issuer, DTC argues, there is no ability to get an electronic statement
from the issuer's transfer agent and therefore no inherent approval of
statement form as a valid evidence of ownership.\8\
---------------------------------------------------------------------------
\8\ In addition to the requirement that an issue be eligible and
participating in DRS, DTC's proposed rule change also requires that
issue be exchange traded. The STA did not raise any concerns in its
comment letter regarding this aspect of the proposal. Nonetheless,
DTC stated in its comment letter that by waiving the requirement to
maintain a balance certificate for only those issues that are listed
on an exchange, DTC is able to rely on the due diligence of the
exchange to provide a level of issuer transparency that DTC might
not otherwise be able to attain.
---------------------------------------------------------------------------
Second, with regards to the provision of DTC's proposal reserving
the right for DTC to request a certificate, DTC maintained that
currently all issuers eligible and participating in DRS are required to
maintain and provide DTC upon request a FAST balance certificate. DTC
stated that it cannot anticipate every situation that may arise where
it is in DTC's best interest to certificate the FAST balance but there
are times when obtaining a certificate is necessary, such as when the
issuer's transfer agent or the issuer itself no longer meets the
criteria to be in the FAST program.
IV. Discussion
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a clearing agency be designed to assure the safeguarding
of securities and funds which are in the custody or control of the
clearing agency or for which it is responsible.\9\ The Commission finds
that DTC's proposed rule change is consistent with its obligations
under the Exchange Act because it should allow DTC to reduce the costs
and risks associated with the creation, storage, transfer, and
[[Page 20062]]
replacement of physical certificates, specifically in this case the
balance certificates, which should in turn allow DTC to better
safeguard the securities which are in its custody or control or for
which it is responsible.
---------------------------------------------------------------------------
\9\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
While the Commission understands the STA would like to further
promote dematerialization by eliminating the need for FAST agents
acting for issues that are eligible but not participating in DRS to
maintain a balance certificate, we agree with DTC that at this time
allowing only those issues where the issuer has expressly provided that
statements are evidence of ownership to eliminate maintaining the
balance certificate better safeguards the securities being custodied by
the FAST agent on DTC's behalf. Furthermore, the proposed rule change
may encourage those issuers that have made their securities eligible
but are not participating in DRS to participate in DRS, which would
further facilitate the STA's goal of reducing the use of physical
certificates.
With regards to the STA's concern that requiring issuers or their
transfer agents to provide a balance certificate upon request, the
proposed rule change does not change DTC's current requirements
relating to certificating FAST balance positions and therefore should
not present any new issues for issuers or FAST transfer agents. DTC was
simply making clear in the proposed rule change that it is continuing
to reserve the right to request such a certificate.
Accordingly, for the reasons stated above the Commission believes
that the proposed rule change is consistent with DTC's obligation under
Section 17A of the Exchange Act, as amended, and the rules and
regulations thereunder.\10\
---------------------------------------------------------------------------
\10\ In approving this proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
---------------------------------------------------------------------------
IV. 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 with the requirements of 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-DTC-2010-15) be and hereby
is approved.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\11\
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8553 Filed 4-8-11; 8:45 am]
BILLING CODE 8011-01-P
