[Federal Register Volume 65, Number 234 (Tuesday, December 5, 2000)]
[Notices]
[Pages 75984-75985]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30877]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43628; File No. SR-DTC-00-8]


Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the Tax Certificate as to Beneficial Ownership

November 28, 2000.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act''), notice is hereby given that on June 1, 2000, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by DTC. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested persons.
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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 proposed rule change eliminates the requirement for DTC's 
participants to submit a ``Tax Certificate as to Beneficial Ownership'' 
form.\2\
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    \2\ A copy of the Tax Certificate is set forth in Exhibit 2 of 
DTC's proposed rule change, which is available through the 
Commission's Public Reference Room or through DTC.
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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, DTC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments that 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 such statements.\3\
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    \3\ 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 the 
Statutory Basis for, the Proposed Rule Change

    The proposed rule change eliminates the requirement that DTC 
participants file a ``Tax Certificate as to Beneficial Ownership'' form 
(``Tax Certificate'').\4\ The Tax Certificate requires participants to 
certify that each beneficial owner of a ``foreign security'' \5\ 
credited to the participant's DTC account will be entitled to the same 
reduction in rate or exemption from any applicable withholding tax as 
would apply if the owner of such foreign security were an individual 
citizen of the United States who (1) was a resident in the United 
States and (2) who had no connection with the jurisdiction imposing the 
tax that would affect the rate at which the tax is to be withheld or an 
exemption from the tax. By submitting the Tax Certificate, participants 
also represent that they will withdraw from custody outside of DTC any 
foreign security which becomes beneficially owned by a person not 
entitled to such tax treatment.
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    \4\ It has been DTC's practice to require applicants to submit 
the Tax Certificate prior to becoming DTC participants in order to 
continue as a participant. Under the proposed rule change, 
applicants will no longer be required to submit the certificate, and 
all such certificates previously submitted will be null and void.
    \5\ The Tax Certificate defines a ``foreign security'' as ``any 
security any income from which would be subject to withholding tax 
imposed by any country other than the United States.''
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    DTC began requiring the Tax Certificate in 1976, in conjunction 
with DTC's program to make foreign securities eligible for a full range 
of DTC services, in order to stop its participants from depositing at 
DTC physical certificates evidencing foreign issues beneficially owned 
by customers (primarily foreign persons) not entitled to a treaty rate 
or to an exemption. Based on the Tax Certificate, issuers could make 
payment of dividends and other distributions on foreign securities at 
single rate without regard to the varying withholding tax rates that 
might otherwise apply.
    DTC believes that developments in industry practices and DTC 
initiatives over the last twenty years make continued reliance upon the 
Tax Certificate inappropriate and unnecessary. Reliance on the Tax 
Certificate is no longer necessary because DTC has developed the 
TaxRelief service over DTC's Elective Dividend Service (``EDS''). Using 
this service, DTC can solicit certifications from participants 
regarding the characteristics of beneficial owners of foreign 
securities held in the participant's account at DTC. The certification 
can reflect various categories of the tax attributes of the beneficial 
owners, as relevant under the tax laws of the foreign jurisdictions and 
any relevant tax treaties, and in accordance with the extent of the 
participant's knowledge of the

[[Page 75985]]

beneficial owners' characteristics.\6\ In contrast, under the Tax 
Certificate, the participant was required to certify that every 
underlying beneficial owner was subject to the same withholding tax 
rate as would be a U.S. individual and to withdraw any foreign 
securities held by beneficial owners that were subject to different 
withholding rates (as for example might be the case for charitable 
organizations, pensions, and residents of certain other countries 
holding securities directly or indirectly in the participant's DTC 
account).
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    \6\ For a more complete discussion of DTC's EDS service (now 
called TaxRelief), refer to Securities Exchange Act Release Nos. 
29814 (October 11, 1991), 56 FR 52563 (October 21, 1991) and 32171 
(April 19, 1993), 58 FR 22003 (April 26, 1993).
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    In addition, DTC now admits foreign participants, which may be 
expected to hold securities on behalf of beneficial owners not meeting 
the criteria set forth in the text of the Tax Certificate.\7\ With 
regard to U.S. participants, most of which executed the Tax 
Certificates in the 1970s, it is doubtful that they have systems in 
place to prevent the prohibited deposits or to insure withdrawal after 
book-entry delivery for a prohibited beneficial owner. Also, book-entry 
only securities are now eligible for processing at DTC. In such cases, 
a participant may be unable to comply with the requirement that it 
withdraw a security in the event it becomes held by a beneficial owner 
not meeting the criteria.
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    \7\ See Securities Exchange Act Release Nos. 38600 (May 9, 
1997), 62 FR 27086 (May 16, 1997); 40064 (June 3, 1998), 63 FR 31818 
(June 10, 1998); and 41466 (May 28, 1999), 64 FR 30077 (June 4, 
1999).
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    Under current investment practices, beneficial owners of securities 
may now hold securities through several layers of custodians that cross 
country lines and even through foreign central securities depositories 
that have accounts at DTC. Given these practices, DTC believes that 
continued reliance on the Tax Certificate, in which every participant 
certifies that all beneficial owners have the same withholding tax 
status as U.S. individual residents, is no longer realistic.
    DTC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \8\ and the rules and 
regulations thereunder because it promotes the prompt and accurate 
clearance and settlement of securities transactions while ensuring the 
safeguarding of funds and securities in DTC's possession or control.
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    \8\ 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 impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    DTC proposed eliminating the Tax Certificate at meetings of the DTC 
Foreign Tax Legal Working Group, most recently at a meeting held on 
September 29, 1999, and requested comments from the participant 
representatives that comprise the group. No written comments were 
received and the members of the Foreign Tax Legal Working Group 
concurred with the proposal.

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

    The proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(4) \10\ promulgated 
thereunder because the proposed rule change effects a change in an 
existing DTC service that does not adversely affect the safeguarding of 
securities or funds in DTC's custody or control or for which DTC is 
responsible and does not significantly affect DTC's respective rights 
and obligations or persons using the service. At any time within sixty 
days of the filing of such proposed rule change, the Commission may 
summarily abrogate such rule change if it appears to the Commission 
that such action is necessary or appropriate in the public interest, 
for the protection of investors, or otherwise in furtherance of the 
purposes of the Act.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(4).
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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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 Room, 450 Fifth Street, N.W., Washington, 
DC. Copies of such filing also will be available for inspection and 
copying at DTC's principal office. All submissions should refer to File 
No. SR-DTC-00-8 and should be submitted by December 26, 2000.

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\11\
Margaret H. McFarland,
Deputy Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 00-30877 Filed 12-4-00; 8:45 am]
BILLING CODE 8010-01-M