[Federal Register: October 22, 1999 (Volume 64, Number 204)] [Notices] [Page 57168] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr22oc99-106] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-42013; File No. SR-DTC-99-11] Self-Regulatory Organizations; The Depository Trust Company; Order Approving a Proposed Rule Change Relating to Liability With Respect to Affiliated Entities October 15, 1999. On May 12, 1999, The Depository Trust Company (``DTC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-DTC-99-11) 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 August 3, 1999.\2\ On August 9. 1999, DTC amended the proposed rule change.\3\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ Securities Exchange Act Release No. 41663 (July 27, 1999), 64 FR 42157. \3\ The amendment represented technical amendments to the proposed rule change and as such did not require republication of notice. --------------------------------------------------------------------------- I. Description The Boards of Directors of DTC and the National Securities Clearing Corporation (``NSCC'') have initiated a plan to integrate DTC and NSCC. As a step in the integration plan, a holding company has been established which will own DTC and NSCC as operating subsidiaries.\4\ DTC has informed the Commission that a consideration in the DTC/NSCC integration plan is to insulate DTC and NSCC from the risks and obligations of the other. --------------------------------------------------------------------------- \4\ For a description of the holding company structure, refer to Securities Exchange Act Release No. 41786 (August 24, 1999), 64 FR 47882 [File No. SR-DTC-99-17]. --------------------------------------------------------------------------- The rule change adds a new section 7 to DTC Rule 2 to provide that notwithstanding any affiliation between DTC and any other entity, including any clearing agency, except as otherwise expressly provided by written agreement: (1) DTC shall not be liable for any obligations of such other entity; (2) the participants fund or other assets of DTC shall not be available to such other entity; (3) such other entity shall not be liable for any obligations of DTC; and (4) any assets of such other entity shall not be available to DTC. The Commission has approved similar revisions to NSCC's rules.\5\ --------------------------------------------------------------------------- \5\ Securities Exchange Act Release No. 42014 (October 15, 1999), [File No. SR-NSCC-99-07] --------------------------------------------------------------------------- As a separate matter, DTC's rules currently provide that if it were to cease providing some or all of its services, DTC's participants fund would be available to cover any DTC wind down costs not otherwise defrayed by service fees or other available resources. The rule change amends Section 1 of DTC Rule 4 to make it clear that the required funds deposits of participants would be increased if necessary to cover such costs. II. Discussion Section 17A(b)(3)(F) of the Act\6\ requires that the rules of a clearing agency assure the safeguarding of securities and funds which are in the custody of control of the clearing agency or for which it is responsible. The Commission believes that the proposed rule change is consistent with DTC's obligations under Section 17A(b)(3)(F) because it should ensure that DTC's assets, including it participants fund, are not diminished as a result of its affiliation with NSCC. In addition, the proposed rule change should ensure that DTC would have available to it funds sufficient to cover its costs if it were to voluntarily cease operations. This should help to ensure that any voluntary liquidation of DTC would be carried out in an orderly manner. --------------------------------------------------------------------------- \6\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- III. Conclusion On the basis of the foregoing, the Commission finds that DTC's proposal 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-99-11) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\7\ --------------------------------------------------------------------------- \7\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 99-27600 Filed 10-21-99; 8:45 am] BILLING CODE 8010-01-M