[Federal Register: July 8, 2008 (Volume 73, Number 131)]
[Notices]
[Page 39064-39065]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy08-119]
[[Page 39064]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58055; File No. SR-DTC-2007-12]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Approval of a Proposed Rule Change Relating to DTC
Opening an Omnibus Account at Euroclear Bank
June 27, 2008.
I. Introduction
On September 12, 2007, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-DTC-2007-12 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 1, 2007.\2\ One
comment letter was received. For the reasons discussed below, the
Commission is granting approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 56706 (October 26,
2007). 72 FR 61923.
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II. Description
The proposed rule change allows DTC to open an omnibus account at
Euroclear Bank NA/SV (``ECB'') in order to facilitate the repositioning
of inventory between European markets and U.S. markets. This would
enable more efficient inventory positioning by participants of DTC and
ECB as needed in order to settle securities at ECB and at DTC.
The rule change is designed to accommodate dual listing of certain
foreign and domestic securities on both U.S. and European trading
platforms. One recent example of such a dual listing is the common
stock of NYSE Euronext Group. This U.S.-issued security, which resulted
from the merger of the NYSE Group and Euronext, is currently
registered, listed, and traded in the U.S. on the New York Stock
Exchange (``NYSE'') and in Europe on the Euronext platform. It is
eligible for settlement at both DTC and ECB. When traded on the NYSE,
the security is cleared and settled in the continuous net settlement
(``CNS'') system operated by National Securities Clearing Corporation
(``NSCC'') with the associated security movements taking place at DTC.
When traded on Euronext, the transaction is eligible for clearance
through the facilities of LCHClearnet SA and settlement effected by ECB
through the local central securities depository (``CSD''). ECB utilizes
the services of a U.S. custodian bank as agent to access DTC for
position management as it currently does for all other U.S. issues
eligible for settlement at ECB. Participants of ECB and DTC have the
ability to reposition their inventory of NYSE Euronext common stock
between ECB and DTC through this arrangement.
The proposed rule change allows a similar arrangement with ECB for
custody and repositioning movements of non-U.S. dually-listed
securities held on deposit with ECB to the extent such securities are
made eligible for listing and trading on U.S. domestic markets. Under
the new rule, ECB would act as DTC's custodian for issues on deposit at
ECB-controlled CSDs as well as at other CSDs in ECB's subcustody
network. This arrangement would enable DTC participants to settle
trades in foreign issues in U.S. dollars executed on a U.S. domestic
market through the normal clearance and DTC book-entry settlement
processes. Further, DTC/ECB common participants would be able to
reposition share balances between their DTC account and their ECB
account either directly or through their custodian agent to facilitate
settlements of trades in these dually-listed foreign issues executed in
either marketplace.
Specifically, the new account would allow for European securities
that are listed in the U.S. to be custodied by ECB for DTC. The
securities would be credited to an account that is maintained by or on
behalf of ECB at a European CSD. The process for creating a position at
DTC would be initiated by a participant of the European CSD delivering
the securities free to ECB's account or to the account of ECB's agent
at the European CSD. ECB would credit DTC's account at ECB, and DTC
would then credit the securities to the DTC participant account
designated by the delivering participant. The securities would then be
available for use at DTC (e.g., to satisfy settlements at DTC). To the
extent participants need to move position back to Europe to, for among
other reasons, facilitate settlements there, the process would be
reversed. Under this arrangement, for a security for which physical
certificates have been issued, there would be no need for transporting
the physical certificates to or from DTC. Any reregistration of
securities from one holder to another that is required due to the
market practices of any particular market would be processed by the
European registrar for the issue. Any position at DTC would be
represented by securities that are registered in the name of the
European CSD, ECB or ECB's agent.
ECB would provide subcustody services such as principal and income
collection and corporate action processing on securities held in DTC's
omnibus account at ECB in accordance with ECB procedures. DTC in turn
would provide its participants with principal and income payment and
corporate actions services without the need for its participants to
interact directly with ECB.
The primary benefits of the rule change are that it should
facilitate the expanded dual listing programs of marketplaces operating
in the U.S. and Europe and that it should help to reduce the number of
transactions that fail on settlement date because of inefficient
methods of inventory repositioning. The realization of these benefits
would be consistent with DTC's objectives of providing efficient book-
entry clearance and settlement facilities and of reducing risk to DTC
participants by immobilizing certificates.
III. Comments
The Commission received one comment to the proposed rule change.\3\
The comment letter was written on behalf of the Operations Committee of
the Securities Industry and Financial Markets Association (``SIFMA'').
The comment letter strongly supported the proposed rule change and
stated that it would facilitate the efficient processing of cross-
border securities transactions and reduce the risk and cost of such
transactions.
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\3\ Letter from Noland Cheng, Chairman, Operations Committee,
Securities Industry and Financial Markets Association (July 17,
2007).
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IV. Discussion
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 assure the
safeguarding of securities and funds in the custody or control of the
clearing agency or for which it is responsible.\4\ The proposed rule
change would allow DTC to establish an omnibus account with ECB so that
DTC participant can reposition securities that are listed on both U.S.
and European securities markets for settlement without physically
moving certificates outside of DTC's system. This arrangement should
reduce much of the time, expense, costs, and risks associated with
physically moving certificates between ECB and DTC.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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The Commission also believes that DTC has established the omnibus
account with ECB in a manner that is consistent with its safeguarding
obligations under the Act. In order to
[[Page 39065]]
assure itself that the linking with ECB is safe and prudent, DTC
completed an extensive review of such things as: (1) ECB's operational
controls, financial strength, technology capabilities, and audit
arrangements; (2) Belgian regulation of ECB; and (3) application and
effect of Belgian laws as they pertain to the account.
Accordingly, the Commission finds that the proposed rule change is
designed to promote the prompt and accurate clearance and settlement of
securities transactions and to assure the safeguarding of securities
and funds in the custody or control of the DTC or for which it is
responsible.
V. 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 Section 17A of the Act and the rules and regulations
thereunder.\5\
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\5\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formations. 15 U.S.C. 78c(f).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DTC-2007-12) be and hereby
is approved.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\6\
Florence E. Harmon,
Acting Secretary.
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\6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E8-15354 Filed 7-7-08; 8:45 am]
BILLING CODE 8010-01-P