[Federal Register: October 31, 2005 (Volume 70, Number 209)]
[Notices]
[Page 62357-62359]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc05-80]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52665; File No. SR-DTC-2005-16]
Self-Regulatory Organizations; The Depository Trust Company;
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
(``Act''),\1\ notice is hereby given that on October 4, 2005, The
Depository Trust Company (``DTC'') 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 DTC. The Commission is publishing this notice to solicit comments on
the proposed rule change from interested parties.
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\1\ 15 U.S.C. 78s(b)(1).
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[[Page 62358]]
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
DTC to require that participants of DTC other than Limited Participants
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, 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 these
statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by DTC.
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(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: DTC, the National Securities Clearing Corporation (``NSCC''),
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\
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\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
attached to the proposed rule change as Exhibit 3 and is available
on DTC's Web site at http://www.dtc.org/impNtc/mor/index.html. 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 NSCC and FICC.
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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.
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\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
coowners 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 DTC
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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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
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,
DTC
[[Page 62359]]
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.
DTC 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 DTC because DTC believes the
proposed changes to the Current Shareholders Agreement will assure fair
representation of DTC's participants in the selection of DTC'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
DTC 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. DTC will notify the Commission of any
written comments received by DTC.
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 (http://www.sec.gov/rules/sro.shtml.
) or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-DTC-2005-16 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-DTC-2005-16. 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 (http://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 DTC and
on DTC's Web site, http://www.dtc.org/impNtc/mor/index.html. 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-DTC-2005-16 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-(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-5999 Filed 10-28-05; 8:45 am]
BILLING CODE 8010-01-P