30910 Federal Register / Vol. 60, No. 112 / Monday, June 12, 1995 / Notices

9Each SRO has a uniform book-entry settlement

rule which generally requires SRO members to use

the facilities of a securities depository for the bookentry settlement of all transactions in depositoryeligible securities with another financial

intermediary (e.g. a broker, dealer, or bank) or

institutional customer. See, e.g., Amex Rules, Part

IV, Section 3, Rule 776; UPC Section 11; and NYSE

Rule 226.

10Currently, a flipping tracking system is being

developed that will include a securities depository

service that (i) can be activated upon the request of

the managing underwriter for a period of time that

the managing underwriter specifies, (ii) in certain

circumstances, will require the delivering

participant to provide to the depository information

sufficient to identify the seller of such shares as a

precondition to the processing of book-entry

delivery instructions for distributed shares, and (iii)

will report to the managing underwriter the identity

of any other syndicate member or selling group

member whose customer(s) sold distributed shares

(but will not report to the managing underwriter the

identity of such customer[s]) and, in certain

circumstances, will report to such syndicate

member or selling group member the identity of

such customer(s).

11 15 U.S.C. 78f(b)(5) (1988).

12 15 U.S.C. 78o–3(b)(6) (1988).

13 15 U.S.C. 78q—1 (1988)

14 15 U.S.C. 78q–1(e) (1988).

15Pub. L. No. 94–29, 89 Stat. 97 (1975) (codified

at 15 U.S.C. 77–80H (1988)).

16E.g., Securities Exchange Act Release Nos.

22021 (September 23, 1983), 48 FR 45167 (order

granting full registration to nine clearing agencies);

19698 (April 15, 1983), 48 FR 17604 (order

implementing The Depository Trust Company’s

(‘‘DTC’’) Fast Automated Securities Transfer

program); 30283 (January 23, 1992), 57 FR 3658

(order implementing DTC’s Deposit/Withdrawal at

Custodian program); 30505 (March 20, 1992), 57 FR

10683 (order eliminating DTC’s Certificate on

Demand service for most corporate issues); 31645

(December 23, 1992), 57 FR 62407 (order approving

rule change requiring that most interdealer

transactions in municipal securities be settled by

book-entry through a depository); and 32455 (June

11, 1993), 58 FR 33679 (order approving uniform

book-entry settlement rules).

17Securities Exchange Act Release No. 32455

(June 11, 1993), 58 FR 33679 (order approving

uniform book-entry settlement rules).

18Securities Exchange Act Release Nos. 33023

(October 6, 1993), 58 FR 52891 (adoption of Rule

15c6–1) and 34952 (November 9, 1994), 59 FR

59137 (change of effective date of Rule 15c6–1 from

June 1, 1995 to June 7, 1995).

19While the proposed rule changes should serve

to further reduce the number of transactions in

depository-eligible securities for which settlement

is effected by the delivery of physical certificates,

the rule changes will not eliminate the ability of

investors to obtain physical certificates after

settlement of the transaction. As the Commission

recently noted, subject to an issuer’s determination

whether to make physical certificates available to

shareholders, the Commission believes investors

should be able to obtain negotiable certificates on

request. Securities Exchange Act Release No. 35038,

(December 1, 1994) at note 17.

20Supra note 17 and accompanying Text.

21 15 U.S.C. 78s(b)(2) (1988).

22 17 CFR 200.30–3(a)(12) (1994).

The rule changes set forth additional

requirements that must be met before a

security will be deemed to be

‘‘depository eligible,’’ within the

meaning of the SROs’ ‘‘uniform bookentry settlement rules.’’ 9 The new rules

specify different requirements for

depository eligibility depending upon

whether a new issue is distributed by an

underwriting syndicate before or after

the date a securities depository system

is available for monitoring repurchases

of the distributed shares by syndicate

members (‘‘flipping tracking system’’).10

Prior to the availability of a flipping

tracking system, the managing

underwriter may delay the date a

security is deemed ‘‘depository eligible’’

for up to three months after trading has

commenced in the security. After the

availability of a flipping tracking

system, a new issue will be deemed to

be depository eligible upon

commencement of trading on a national

securities exchange or Nasdaq.

II. Discussion

The Commission believes that the rule

changes are consistent with Sections

6(b)(5) 11 and 15A(b)(6) 12 of the Act.

Sections 6(b)(5) and 15A(b)(6), among

other things, require that the rules of a

national securities exchange and a

national securities association,

respectively, be designed to remove

impediments to and perfect a national

market system, and in general, to protect

investors and the public interest. The

depository-eligibility requirement

should limit market impediments

arising from the physical delivery of

securities and thereby should promote

the perfection of a national market

system. Further, the rule changes should

serve to increase the efficiency of the

U.S. clearance and settlement system

and thereby should reduce the risks

associated with that system and should

serve to better protect investors and the

public interest.

Furthermore, the Commission

believes the rule changes should

promote the purposes of Section 17A of

the Act.13 In Section 17A, Congress

called for the establishment of a

national system for the prompt and

accurate clearance and settlement of

securities transactions. In Section

17A(e),14 Congress directed the

Commission to use its authority to end

the physical movement of securities

certificates in connection with the

settlement among brokers and dealers of

transactions in securities.

Book-entry settlement of interdealer

securities transactions has been a goal

since Congress enacted the Securities

Acts Amendments of 1975.15 Since

1975, substantial progress has been

made in reducing the flow of physical

certificates for settlement of interdealer

and institutional securities

transactions.16 In 1993, the Commission

approved the uniform book-entry

settlement rules applicable to

transactions in depository eligible

securities between SRO members and

their customers when the SRO member

extends certain credit privileges (i.e.,

delivery versus payment) as a means to

facilitate the conversion from a five-day

settlement cycle to a three-day

settlement cycle,17 which is set to occur

June 7, 1995.18 The present rule changes

are designed to facilitate efficient and

timely settlement of trades through the

various market facilities and to further

aid the transition to a three-day

settlement cycle by increasing the

number of depository-eligible

securities.19 The uniform depositoryeligibility requirement should reduce

costs, risks, and delays associated with

the physical delivery of securities

certificates and should eliminate many

of the labor intensive functions

associated with physical deliver of

nondepository eligible securities.

The SROs have requested that the

Commission find good cause for

approving the proposed rule changes

prior to the thirtieth day after the date

of publication of notice of the filing. The

Commission finds good cause for so

approving the proposed rule changes in

order that they become effective on June

7, 1995, contemporaneously with the

conversion to a three-day settlement

cycle.20

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposals are

consistent with Sections, 6, 15A, and

17A of the Act and the rules and

regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,21 that the

proposed rule changes (File Nos. SR–

Amex–95–17, SR–BSE–95–09, SR–

CHX–95–12, SR–NASD–95–24, SR–

NYSE–95–19, SR–PSE–95–14, and R–

PHLX–95–34) be and hereby are

approved for effectiveness on June 7,

1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.22

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–14253 Filed 6–9–95; 8:45 am]

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