23956 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Notices

6 15 U.S.C. 78f(b)(5).

7 15 U.S.C. 78s(b)(3)(A)(i).

8 17 CFR 240.19b–4(f)(1).

9 17 CFR 200.30–3(a)(12)

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

Section 6(b)(5) 6 of the Act, which

requires, among other things, the

Exchange’s rules to be designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, and, in

general, to protect investors and the

public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will result in

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

The Exchange did not solicit or

receive written comments on the

proposed rule change.

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)(i) of the Act 7 and

subparagraph (f)(1) of Rule 19b–4

thereunder 8 because it constitutes as a

stated policy, practice, or interpretation

with respect to the meaning,

administration, or enforcement of an

existing rule of the Exchange. At any

time within 60 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 the furtherance of the Act.

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. Copies of the filing will also be

available for inspection and copying at

the principal office of the Amex. All

submissions should refer to the File No.

SR–Amex–2001–24 and should be

submitted by May 31, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

athority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–11801 Filed 5–9–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44260; File No. SR–DTC–

2001–03]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing of Proposed Rule Change to

Make Foreign Securities Eligible for

Depository Services

May 4, 2001.

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

Securities Exchange Act of 1934

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

February 23, 2001, 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 on the proposed rule

change from interested parties.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change would

allow DTC to make eligible for

depository services foreign securities

that are presently eligible for the

National Securities Clearing

Corporation’s (‘‘NSCC’’) foreign security

comparison and netting service.

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 these statements.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to provide DTC and NSCC

participants who are presently using

NSCC’s foreign securities clearing

services the use, if applicable, of

depository services at DTC for these

securities. These securities are generally

foreign ordinary equities that have been

assigned security numbers (CINS) and

NASD symbols to automate the

comparison process. Most trades in

foreign ordinary shares that are

executed between two U.S. brokerdealers are forwarded to NASD’s

Automated Confirmation Transaction

system and submitted as locked-in

trades to NSCC.

Today, through NSCC’s Foreign

Securities Comparison and Netting

system, foreign securities are compared

and netted on a bilateral basis in a

standardized and automated fashion

through NSCC’s over-the-counter

system. Receive and deliver instructions

are automatically generated by NSCC

and are distributed to participants on

the morning after comparison, which

expedites the settlement process for

non-U.S. equity transactions. Trades are

netted on a bilateral participant-toparticipant basis thereby reducing the

number of deliveries for settlement in

the local market. NSCC does not

currently and will not under the

proposed rule change guarantee the

ultimate settlement of these transactions

or the clearance cash adjustment.

Given the increase in activity over the

last few years, U.S. broker-dealers have

become concerned about the number of

potential risk and operational issues

associated with the current process,

such as the lack of straight through

processing (‘‘STP’’) from the point of

trade to settlement. It is DTC’s plan to

enhance the settlement part of the

process and to deliver an automated

approach to complete the STP process

from trade to settlement. In doing so,

many operational issues will be

minimized or eliminated.

Today, there is a separation between

the physical movement of these foreign

securities and the money settlement of

the trades (i.e., there is no delivery

versus payment (‘‘DVP’’) as there is true

for U.S. trades). The delivery of the

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Notices 23957

2 DTC will submit a proposed rule change under

Section 19(b) before establishing any new link with

any foreign custodian.

securities occurs in the foreign markets

and then some time later the payment

is made in the U.S.

Currently, trades in these foreign

securities executed in the U.S. must

settle in the local market without the

benefit of any of DTC’s infrastructure.

Therefore, U.S. based broker-dealers

who trade in foreign securities in the

U.s. must set up correspondent

relationships in the local market.

Additionally, the U.S. broker-dealers

must each deal separately with the

inherent inefficiencies, such as large

time-zone differences, in this structure.

Also, the need to set up such

correspondent relationships puts

smaller broker-dealers at a disadvantage

because many smaller broker-dealers do

not have the resources or trading

volumes to justify such relationships

and therefore must enlist a large brokerdealer to perform such services for their

clients. As a result, trading costs for the

underlying investors are increased.

DTC’s plan is to open a custodial

account in a local market with an agent

bank or central securities depository

(‘‘CSD’’) (collectively ‘‘custodian’’) that

will hold shares on DTC’s behalf. DTC’s

participants will be able to

communicate with DTC with respect to

foreign securities as they do today with

respect to currently eligible U.S.

securities. Due to differences in local

market practice from that in the U.S.,

the eligibility procedures for foreign

securities will likely differ from those

currently used by DTC for eligible U.S.

securities. However, participants will be

made aware of this fact and of the

eligibility criteria and procedures. These

securities will be ‘‘tagged’’ in DTC’s

system in order for DTC participants to

readily identify them.

DTC’s first such link will be with

Citibank N.A., Hong Kong Branch,

acting as DTC’s custodian.2 Through the

custodian, a participant would move

overseas inventory from its current

custodian into DTC’s account at DTC’s

foreign custodian. Upon notification

from its custodian that the foreign

securities are being held in its account,

DTC would update the participant’s

securities position at DTC. Once the

position is on DTC’s books and records,

the participant would be able to move

the position by book-entry DVP if

desired. In addition, other activities,

such as automated customer account

transfer services and stock loan, that are

currently available for U.S. securities

would also be available for foreign

securities once they are made DTC

eligible.

The DTC Risk Management

Committee will review this service

before DTC goes live with it. The

committee will use the same due

diligence template that it has used on all

‘‘outward bound’’ links with foreign

CSDs.

The principal benefits that will attend

DTC’s making these foreign securities

eligible for certain depository services

are: (1) connecting the delivery to the

settlement on a DVP basis; (2)

accelerating the speed of settlement of

cross-border transactions in these

foreign securities; (3) eliminating most

physical movements of these foreign

securities; (4) reducing costs and risks to

DTC participants (DTC’s providing these

benefits to its participants is consistent

with DTC’s objective of providing

efficient book-entry clearance and

settlement facilities while at the same

time reducing risks to its participants.);

and (5) making these services available

to a large number of U.S. entities (i.e.,

DTC participants and their clients and

customers).

The proposed rule change is

consistent with the requirements of

Section 17A(b)(3)(A) and (F) of the Act

and the rules and regulations

thereunder applicable to DTC because

the proposed rule change will reduce

risks and associated costs to DTC

participants. Further, the proposed rule

change will be implemented and

designed to promote the prompt and

accurate clearance and settlement of

securities transactions and to assure

safeguarding of securities and funds that

are in the custody or control of DTC or

for which DTC is responsible.

(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

This concept was presented to the

operations and planning committee of

DTC and DTC Board of Directors. A

number of DTC firms have voiced strong

support of this project at the Board

level.

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 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,

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, N.W.,

Washington, D.C. 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, D.C. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of DTC. All submissions should

refer to File No. SR–DTC–2001–03 and

should be submitted by May 31, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–11804 Filed 5–9–01 8:45 am]

BILLING CODE 8010–01–M