[Federal Register Volume 62, Number 4 (Tuesday, January 7, 1997)]
[Notices]
[Pages 1015-1016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-241]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38099; File Nos. SR-Philadep-96-20 and SR-SCCP-96-09]


Self-Regulatory Organizations; Philadelphia Depository Trust 
Company and Stock Clearing Corporation of Philadelphia; Notice of 
Filing and Order Granting Permanent Approval on an Accelerated Basis of 
Proposed Rule Changes Concerning the Adoption of Article 8 of the New 
York Uniform Commercial Code to Govern Certain Transactions

December 30, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 15, 1996, the 
Philadelphia Depository Trust Company (``Philadep'') and the Stock 
Clearing Corporation of Philadelphia (``SCCP'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
changes (File Nos. SR-Philadep-96-20 and SR-SCCP-96-09) as described in 
Items I and II below, which Items have been prepared primarily by 
Philadep and SCCP. The Commission is publishing this notice and order 
to solicit comments from interested persons and to grant permanent 
approval of the proposed rule changes on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organizations' Statement of the Terms of 
Substance of the Proposed Rule Changes

    Philadep and SCCP request permanent approval for their respective 
adoption of Article 8 of the State of New York's Uniform Commercial 
Code (``UCC'') to govern certain transactions involving Philadep, SCCP, 
their participants, and pledgees. On June 28, 1996, the Commission 
temporarily approved through December 31, 1996, Philadep's and SCCP's 
adoption of New York's U.C.C. Article 8.\2\
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    \2\ Securities Exchange Act Release Nos. 36781 (January 26, 
1996), 61 FR 3958 [Files Nos. SR-SCCP-96-01 and SR-Philadep-96-01] 
and 37382 (June 28, 1996), 61 FR 35291 [File Nos. SR-Philadep-96-08 
and SR-SCCP-96-04] (orders granting accelerated approval on a 
temporary basis of proposed rule changes to provide for the 
application of Article 8 of the New York UCC).
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II. Self-Regulatory Organizations' Statements of the Purpose of, 
and Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, Philadep and SCCP included 
statements concerning the purpose of and the basis for the proposed 
rule changes and discussed any comments received on the proposed rule 
changes. The text of these statements may be examined at the places 
specified in Item IV below. Philadep and SCCP have prepared summaries, 
as set forth in sections (A), (B), and (C) below, of the most 
significant aspects of these statements.

(A) Self-Regulatory Organizations' Statements of the Purpose of, and 
the Statutory Basis for, the Proposed Rule Changes

    Philadep and SCCP propose to permanently adopt Rule 32 and Rule 41, 
respectively, and to permanently amend Rule 1 of their rules. The 
proposed rule change codifies Philadep's and SCCP's decision to elect 
Article 8 of the New York UCC to govern certain transactions for the 
purpose of providing a uniform, consistent, and predictable body of 
law. Specifically, Rule 32 and Rule 41 will assure that the rights and 
obligations of Philadep and SCCP, their participants, and their 
pledgees with respect to transfers and pledges of securities, to the 
extent Article 8 of the UCC applies thereto, will be governed by and 
construed in accordance with Article 8 of the UCC of New York in effect 
from

[[Page 1016]]

time to time. Rule 1 will define the term ``security'' by citing the 
definition of security in Article 8 of New York's UCC.
    Philadep and SCCP note that uncertainty exists as to whether New 
York law or Pennsylvania law applies to particular transfers and as to 
whether some transfers within Philadep's or SCCP's systems may be 
governed by Pennsylvania's UCC Article 8 while other transaction within 
such systems may be governed by New York's UCC Article 8. With so many 
of the transactions for which Philadep and SCCP provide depository, 
clearance, and settlement services potentially being affected [e.g., 
those transactions effected through interface with broker-dealers, 
banks, and other institutions which are participants in The Depository 
Trust Company (``DTC'') and National Securities Clearing Corporation 
(``NSCC'')], it is problematic that different rules of law under 
Article 8 of the UCC may govern the rights and obligations of parties 
to such transfers. Therefore, Philadep and SCCP have chosen to elect 
the application of New York's UCC Article 8 rather than Pennsylvania's 
UCC Article 8. The choice of New York law also assures that DTC, NSCC, 
and their respective participants and pledgees will find harmonious 
commercial code provisions governing their extensive dealings with 
Philadep and SCCP, their participants, and pledgees in this area as the 
New York based groups already are subject to New York law.
    Philadep and SCCP state that they believe the proposed rule changes 
are consistent with Section 17A of the Act and the rules and 
regulations thereunder because the rules are designed to promote the 
prompt and accurate clearance and settlement of securities 
transactions, 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, to foster cooperation and coordination with persons 
engaged in the clearance and settlement of securities, to remove 
impediments to and perfect the mechanism of a national market system 
for the prompt and accurate clearance and settlement of securities 
transactions, and, in general, to protect investors and the public 
interest.

(B) Self-Regulatory Organizations' Statements on Burden on Competition

    Philadep and SCCP do not believe that the proposed rule changes 
will impact or impose a burden on competition.

(C) Self-Regulatory Organizations' Statements on Comments on the 
Proposed Rule Changes Received From Members, Participants or Others

    No written comments have been solicited or received.

III. Date of Effectiveness of the Proposed Rule Changes and Timing 
for Commission Action

    Section 17A(b)(3)(F) of the Act \3\ requires the rules of a 
clearing agency be designed to foster cooperation and coordination with 
persons engaged in the clearance and settlement of securities. As 
stated in previous orders,\4\ the Commission believes the proposed rule 
changes are consistent with this requirement because the adoption of 
Article 8 of the New York UCC should help provide certainty with 
respect to the substantive rights and obligations under UCC Article 8 
that are applicable to Philadep and SCCP and their participants 
particularly with respect to transactions with broker-dealers, banks, 
and other institutions that are participants of other foreign or 
domestic clearing entities.
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
    \4\ Securities Exchange Act Release Nos. 36781 and 37382, supra 
note 2.
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    Philadep and SCCP have 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. Currently, the 
Canadian Depository for Securities (``CDS'') acts as a corresponding 
depository for Philadep and is a participant of SCCP so that 
transactions in certain Canadian and U.S. brokers-dealers can be 
cleared and settled through the facilities of Philadep and SCCP.\5\ 
According the Philadep and SCCP, their arrangement with CDS is possible 
because Article 8 of New York's UCC, unlike Article 8 of Pennsylvania's 
UCC, provides for book-entry transfers of securities when the 
certificated security is in the custody of certain foreign clearing 
organizations. Therefore, to enable Philadep and SCCP to continue to 
provide without any disruption clearance, settlement, and depository 
services for certain securities transactions between U.S. broker-
dealers and Canadian broker-dealers, the Commission finds good cause 
for so approving the proposed rule change prior to the thirtieth day 
after the date of publication of the notice of the filing.\6\ The 
Commission also notes that during the previous temporary approval 
periods neither SCCP, Philadep, nor the Commission have received any 
adverse comments regarding the adoption of Article 8 of the New York 
UCC.
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    \5\ For a complete description of the clearance and settlement 
activities among CDS, Philadep, and SCCP, refer to Securities 
Exchange Act Release No. 37918 (November 8, 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 CDS as a 
correspondent depository).
    \6\ The staff of the Board of Governors of the Federal Reserve 
System has concurred with the Commission's granting of accelerated 
approval. Telephone conversation between John Rudolph, Board of 
Governors of the Federal Reserve System, and Chris Concannon, Staff 
Attorney, Division of Market Regulation, Commission (December 30, 
1996).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making such submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
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. Sec. 552 will be available for inspection and copying in 
the Commission's Public Reference Room, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filings will also be available for 
inspection and copying at the principal offices of Philadep and SCCP. 
All submissions should refer to File Nos. SR-Philadep-96-20 SR-SCCP-96-
09 and should be submitted by January 28, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule changes (File Nos. SR-Philadep-96-20 and SR-
SCCP-96-09) be, and hereby are, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation pursuant 
to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-241 Filed 1-6-97; 8:45 am]
BILLING CODE 8010-01-M