Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Notices 9473

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 37314 (July

14, 1996), 61 FR 29158 [File No. SR–DTC–96–08]

(order approving a proposed rule change

establishing custody service) (‘‘July approval

order’’). In the July approval order, the Commission

required that DTC provide the Commission with at

least thirty days advance notice of the

implementation of reorganization processing

(‘‘Phase II’’). The July approval order also required

DTC to seek the Commission’s reapproval of Phase

II if the manner of implementation or operation of

Phase II deviated from the plan described in the

original filing [File No. SR–DTC–96–08]. DTC has

represented to the Commission that the manner of

implementation of Phase II does not differ

substantially from the plan previously submitted,

and therefore, DTC plans to implement Phase II of

the custody service on April 1, 1997. Letter from

Lori A. Brazer, Assistant Counsel, DTC (February 4,

1997).

3The Commission has modified the text of the

summaries submitted by DTC.

4For a more detailed description of the custody

service, refer to the July approval order, supra note

2.

5 In the July approved order, the Commission

noted that securities certificates will be held in

customer or firm name only and would not be

transferred into DTC’s nominee name utilized for

regular depository eligible securities, Cede & Co.

Although the basic custody service and the

redemption and reorganization services phases do

not require custody issues to be registered in the

new DTC nominee name, participants wishing to

use the dividend processing feature of the custody

service for custody issues must register such

custody issues in the new nominee name of DTC

& Co.

6Letter from Lori A. Brazer, Assistant Counsel,

DTC (February 4, 1997). 7 15 U.S.C. 78q–1.

[Release No. 34–38323; File No. SR–DTC–

97–01]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of a Proposed Rule Change

Implementing the Dividend Processing

Phase of the Custody Service for

Certain Non-depository Eligible

Securities

February 21, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

January 23, 1997, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–DTC–97–01) as

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 persons.

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 implement the dividend

processing phase of DTC’s custody

service for certain non-depository

eligible securities. The Commission has

already approved establishment of the

basic custody service and the

redemption and reorganization

processing phase.2

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

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

Under the proposed rule change, DTC

will implement the third phase of its

custody service to offer to its

participants dividend processing

services for certain non-depository

eligible securities.4 In connection with

the new service, DTC will announce,

collect, and distribute dividend,

interest, periodic principal, and other

distributions (‘‘dividend payments’’) to

participants that hold securities through

DTC’s custody service (‘‘custody

issues’’).

In order to facilitate the collection of

dividends on custody issues and to

permit the book-entry movement of

securities when a customer wishes to

move his account from one participant

to another, DTC proposes to register

certificates held in its custody service in

a second nominee name, DTC & Co.,

when requested to do so by a

participant.5 DTC believes that such

registration is necessary in order to

permit DTC, under its nominee name

DTC & Co., to collect dividend

payments relating to custody issues

directly from paying agents.6 Without

such registration, paying agents would

disburse individual dividend payments

for the custody issues directly to the

participant or participants’ customer

instead of DTC.

DTC believes that registration in its

new nominee name will result in

efficiencies for participants by enabling

DTC to offer dividend collection and

disbursement services for custody

issues. DTC also believes that nominee

name registration will facilitate the

book-entry movement of custody issues

if a customer wishes to move its

position from one participant to

another. Furthermore, DTC believes that

registration into a second nominee name

has the collateral benefit of identifying

a security as a deposit that is eligible for

only limited DTC custody services and

not for full DTC book-entry services.

DTC believes the proposed rule

change is consistent with the

requirements of Section 17A of the Act 7

and the rules and regulations

thereunder because it will promote the

prompt and accurate clearance and

settlement of securities transactions by

reducing the costs and risks associated

with the collection and disbursement of

dividend payments. Furthermore, DTC

believes that the proposed service will

reduce processing expenses and labor

costs for participants by establishing

uniform procedures for clearance and

settlement which will increase the

protection of investors and persons

facilitating transactions by and acting on

behalf of investors.

(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, in the public

interest, and for the protection of

investors.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

DTC has not solicited participant

comments on the proposed rule change.

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 DTC 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.

Persons making written submissions

should file six copies thereof with the
9474 Federal Register / Vol. 62, No. 41 / Monday, March 3, 1997 / Notices

28 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2The Commission has modified the text of the

summaries prepared by DTC.

3For a more detailed description of the Foreign

Tax Withholding Service, refer to Securities

Exchange Act Release No. 3211 (April 19, 1993), 58

FR 22003 [File No. SR–DTC–92–17] (notice of filing

and immediate effectiveness relating to eligibility in

the foreign securities option of the existing elective

dividends function).

4EDS was developed for issues from foreign

countries that have tax treaties with the U.S. that

permit the withholding of foreign taxes from

distributions of foreign issues at different rates for

different classes of beneficial owners. EDS enables

a DTC participant to use PTS to certify the number

of foreign securities credited to the participant’s

account as of the record date that are entitled to

favorable tax treatment at source (i.e., the tax

exempt benefit to which the participant is entitled

will be included in the payment DTC receives from

the foreign payor). Without this service, many DTC

participants that are entitled to favorable tax

treatment find the procedures for claiming refunds

so burdensome that they forgo their refund and

thereby frustrate the purpose of the tax treaty.

5Securities Exchange Act Release No. 31673

(December 30, 1992), 58 FR 3046 [File No. SR–

DTC–92–16] (order approving proposed rule

change).

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. 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

filing will also be available for

inspection and copying at the principal

office of DTC.

All submissions should refer to the

file number SR–DTC–97–01 and should

be submitted by March 24, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland

Deputy Secretary.

[FR Doc. 97–5079 Filed 2–28–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38333; File No. SR–DTC–

97–02]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Immediate Effectiveness of

a Proposed Rule Change Relating to

Fees and Charges

February 24, 1997.

Pursuant to Section 19(b)(1) 1 of the

Securities Exchange Act of 1934

(‘‘Act’’), notice is hereby given that on

February 3, 1997, 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 primarily by DTC. The

Commission is publishing this notice to

solicit comments from interested

persons on the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change establishes

fees for DTC’s Foreign Tax Withholding

Service and Non-Transferable Issue

Safekeeping Service and eliminates the

fee DTC charges its participants for

unnecessary inquiries.

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 such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

(1) Foreign Tax Withholding Service Fee

DTC’s Foreign Tax Withholding

Service allows DTC participants to

certify to foreign-issue paying agents for

DTC-eligible issues the tax-treaty and,

where applicable, the tax exempt

withholding rates that they are entitled

to based on the tax classes of their

customers.3 DTC’s participants make the

certification to the foreign-issue paying

agents by using the Elective Dividend

Service (‘‘EDS’’) which is supported by

DTC’s Participant Terminal System

(‘‘PTS’’). This procedure eliminates the

need for processing more complex and

time-consuming reclamations of

previously withheld taxes.4

According to DTC, it has expended

considerable time and incurred

significant legal fees to implement the

Foreign Tax Withholding Service and

continues to devote its resources to

monitoring individual distributions to

ensure that existing arrangements are

processed correctly or to facilitate any

special arrangements, if necessary. DTC

also states that the processing of

withholding certifications on individual

distributions sometimes requires DTC’s

staff to contact the participant to obtain

additional information to complete the

certifications. Accordingly, the

proposed rule change establishes a fee

for DTC’s Foreign Tax Withholding

Service of $7.00 per CUSIP regardless of

the number of tax classifications

requested by a participant for a single

CUSIP. This fee is in addition to the

cash or stock dividend fee, as

applicable, which is charged on a per

credit basis.

(2) Non-Transferable Issue Safekeeping

Fee

DTC established the Non-Transferable

Issue Safekeeping Service to allow

nontransferable securities to be

deposited at DTC.5 The service requires

DTC’s staff to periodically follow up on

each nontransferable security (i.e.,

generally, at least annually) to

determine the issuer’s status in its state

of incorporation, to determine if the

issue is again transferable, and to make

the results of these inquiries available to

interested participants.

According to DTC, as a result of its

absorption of the Midwest Securities

Trust Company, the number of

nontransferable issues on DTC’s books

has doubled from roughly 8,000 to more

than 16,000. DTC also believes that the

ongoing effort and cost to carefully

monitor these additional nontransferable issues should be

apportioned among those holding

positions in these securities. Therefore,

the proposed rule change establishes a

fee for DTC’s Non-Transferable Issue

Safekeeping Service of $.17 per CUSIP

per month in addition to regular

monthly long position charges for these

issues.

(3) Elimination of Fees Regarding

Unnecessary Dividend, Reorganization

and Reconciliation Inquiries

Currently, DTC charges its

participants $6.00 when a participant

submits certain unnecessary inquiries

for processing at DTC’s Dividends,

Reconciliation, and Reorganization

departments. DTC classifies an inquiry

as unnecessary if a participant could

have obtained the information

independently from automated DTC

sources readily available to a participant

rather than have DTC staff conduct the

research. An inquiry with incomplete or

inaccurate data from a participant also

is considered unnecessary. Because the

average daily volume of unnecessary