[Federal Register Volume 62, Number 152 (Thursday, August 7, 1997)]
[Notices]
[Pages 42614-42616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20749]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38890) ; File No. SR-Philadep-97-03]


Self-Regulatory Organizations; Philadelphia Depository Trust 
Company; Notice of Filing and Order Granting Accelerated Approval on a 
Temporary Basis of a Proposed Rule Change to Appoint the Canadian 
Depository for Securities Limited as a Correspondent Depository

July 30, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 18, 1997, the 
Philadelphia Depository Trust Company (``Philadep'') filed with the 
Securities and Exchange Commission (``Commission'') and on April 24, 
1997, filed an amendment to the proposed rule change as described in 
Items I and II below, which Items have been prepared primarily by 
Philadep. The Commission is publishing this notice and order to solicit 
comments from interested persons and to grant accelerated approval of 
the proposed rule change through October 31, 1997.
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    \1\ 15 U.S.C. 78s (b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to extend temporary 
approval of the appointment of The Canadian

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Depository for Securities Limited (``CDS'') as Philadep's nonexclusive 
agent and custodian in receiving securities deposited by CDS-sponsored 
participants for delivery to Philadep and to eliminate the family of 
accounts subaccounting designed for and pertaining to the individual 
participants of CDS.\2\
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    \2\ Letter from J. Keith Kessel, Compliance Officer, Philadep 
(April 24, 1997).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Philadep 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. Philadep has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by Philadep.
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    Effective November 1, 1996, CDS became a Philadep participant and 
has served as a non-exclusive agent and custodian for Philadep in 
receiving securities deposited by certain CDS-sponsored participants 
for credit to their respective subaccounts in CDS's account at 
Philadep. Pursuant to Philadep's proposed rule change, the operational 
arrangements will remain intact as represented in previous filings 
submitted to the Commission;\4\ however, Philadep will no longer use 
its subaccount feature for the CDS account. Philadep will now 
administer CDS like other Philadep participants.\5\
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    \4\ Securities Exchange Act Release No. 36782 (January 26, 
1996), 61 FR 3956 (File No. SR-Philadep-96-01) (order granting 
accelerated approval on a temporary basis of a proposed rule change 
to appoint the WCDTC as a correspondent depository); Securities 
Exchange Act Release No. 37383, (June 28, 1996), 61 FR 35292 (File 
No. SR-Philadep-96-09) (order granting accelerated approval on a 
temporary basis through December 31, 1996 of a proposed rule change 
seeking permanent approval of the designation of the WCDTC as a 
correspondent depository).
    \5\ Philadep will eliminate the family of accounts subaccounting 
function for the CDS account, and CDS activity will be processed in 
an omnibus account.
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    Philadep believes the proposed rule change is consistent with the 
requirements of Section 17A of Act and the rules and regulations 
thereunder because the rule proposal fosters cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transaction and further assures the safeguarding of 
securities and funds which are in the custody or control of Philadep or 
for which it is responsible.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    Philadep does not believe that the proposed rule change will impact 
or impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Written comments were neither solicited nor received with respect 
to the proposed rule change. Philadep will notify the Commission of any 
written comments received by Philadep.

III. Date of Effectiveness of the Proposed Rule Change and Timining for 
Commission Action

    Section 17A(b)(3)(F)\6\ of the Act requires that the rules of a 
clearing agency by designed to foster cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions. The Commission believes that Philadep's designation of 
CDS as Philadep's non-exclusive agent and custodian in receiving 
securities deposited by CDS-sponsored participants for delivery to 
Philadep is consistent with Philadep's obligations under Section 
17A(b)(3)(F) because the proposed rule change should help foster 
cooperation and coordination between the U.S. and Canada clearance and 
settlement systems.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    On January 26, 1996, the Commission granted approval to Philadep's 
proposal that it be allowed to appoint WCDTC as its nonexclusive agent 
and custodian in receiving certain securities deposits.\7\ On November 
1, 1966, the Commission granted temporary approval to Philadep's 
proposed rule change to allow Philadep to appoint CDS as its 
nonexclusive agent and custodian because CDS had purchased WCDTC and 
would continue the correspondent depository activities of WCDTC.\8\ In 
connection with this proposed rule change, Philadep has requested that 
the Commission grant Philadep the latitude to modify the extra 
financial protections that are currently being applied to the CDS 
account (i.e., $1 million participants fund deposit and $5 million 
(Canadian) letter of credit). Philadep contends that a decrease in the 
financial protections Philadep receives from CDS is justified given (1) 
Philadep's belief that the short selling activity in the CDS account 
may decrease; (2) that SCCP has filed a proposed rule change with the 
Commission to modify the participant's fund formula to account for 
short selling activity; (3) Philadep's belief that CDS has 
comprehensive and formalized risk management controls. However, 
Philadep has not provided the Commission with any supporting 
documentation regarding these assertions regarding CDS. Therefore, it 
is the Commission's position that the extra financial protections that 
are currently being applied to the CDS account (i.e., $1 million 
participants fund deposit and $5 million (Canadian) letter of credit) 
should remain in place at the same levels.
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    \7\ Supra note 4.
    \8\ Securities Exchange Act Release No. 37918 (November 1, 
1996), 61 FR 57938 (File No. SR-Philadep-96-17) (order granting 
accelerated approval on a temporary basis of a proposed rule change 
to appoint The Canadian Depository for Securities Limited as a 
correspondent depository).
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    On November 1, 1996, the Commission extended the temporary approval 
of Philadep's custodial arrangement with CDS so that Philadep and the 
Commission could further monitor, review, and analyze this custodial 
arrangement. The Commission is again granting temporary approval of the 
proposed rule change through October 31, 1997, so that CDS can continue 
to act as Philadep's non-exclusive agent and custodian and can continue 
its correspondence depository activities until similar arrangements can 
be implemented between CDS and The Depository Trust Company in 
connection with Philadep's ceasing to provide depository services. 
During this temporary approval period, Philadep should continue to 
monitor the nonexclusive agent and custodian arrangement between 
Philadep and CDS to ensure that proper risk management procedures are 
in place. In this regard, the Commission requests that Philadep 
continue to file monthly reports analyzing activity in CDS's omnibus 
account and subaccounts.
    Philadep has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication of notice of filing because accelerated 
approval will allow Philadep to extend CDS's appointment as its non-
exclusive agent and custodian thus allowing CDS to continue its 
correspondent depository activities. The staff of the Board of 
Governors of the Federal Reserve System concurred with

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the Commission's granting of accelerated approval.\9\
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    \9\ Telephone conversation with John Rudolph, Supervisory Trust 
Analyst, Board of Governors of the Federal Reserve Board.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submissions, 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 Room, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Copies of such filings will also be available for 
inspection and copying at the principal office of Philadep. All 
submissions should refer to file number SR-Philadep-96-17 and should be 
submitted by August 28, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-Philadep-97-03) be, and 
hereby is, approved through October 31, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-20749 Filed 8-6-97; 8:45 am]
BILLING CODE 8010-01-M