[Federal Register Volume 60, Number 43 (Monday, March 6, 1995)]
[Notices]
[Pages 12258-12259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5374]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35424; File No. SR-MSTC-94-21]


Self-Regulatory Organizations; Midwest Securities Trust Company; 
Notice of Filing of Proposed Rule Change Seeking To Establish an 
Automated Program for the Transfer of Certain Securities Between the 
Midwest Securities Trust Company and Transfer Agents

February 28, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 28, 1994, the 
Midwest Securities Trust Company (``MSTC'') 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 MSTC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    MSTC proposes to establish an automated program, to be known as 
ATS, for the transfer of certain securities between MSTC and transfer 
agents.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, MSTC 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. MSTC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of and 
Statutory Basis for, the Proposed Rule Change

    The proposed rule change seeks to establish an automated program 
for the transfer of securities between MSTC and transfer agents. Under 
MSTC's proposed program, MSTC and the transfer agents participating in 
the program will use a master balance certificate\2\ to evidence the 
number of securities of a particular issue registered in MSTC's nominee 
name and transferred into or out of MSTC through the transfer agents. 
The transfer agents will have custody of the securities in the form of 
balance certificates registered in MSTC's nominee name. The balance 
certificates will be adjusted daily to reflect MSTC's withdrawal and 
deposit activity.

    \2\For the purpose of the ATS program, ``balance certificates'' 
shall mean a certificate registered in the name Kray & Co., which is 
MSTC's nominee name, which evidences (1) record ownership by Kray & 
Co. of the number of shares or units of the issue shown from time to 
time on the records of the issuer thereof or (2) the duties of the 
issuer thereof to perform the obligations shown from time to time on 
the records of the issuer thereof, which records are maintained by a 
transfer agent, as being evidenced by such certificate, which 
certificate shall be retained by a transfer agent.
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    Currently, if a participant requests the withdrawal of one hundred 
shares of a security from MSTC, MSTC will send a written instruction to 
the transfer agent followed by a physical surrender of the shares to 
the transfer agent. The transfer agent will reissue the shares in the 
requested name and will send the shares back to MSTC. Using the ATS 
program, an electronic instruction will immediately effectuate the 
withdrawal transfer thus eliminating the extra step of physically 
surrendering the security from MSTC to the transfer agent.
    For issues eligible for ATS, MSTC will deliver to participating 
transfer agents nominee and/or non-nominee certificates\3\ for each 
issue. The transfer agent will cancel the certificates delivered and 
issue one or more balance certificates per issue. The transfer agent 
will retain possession of the balance certificates and hold them in a 
secured area at all times.

    \3\For the purpose of the ATS program, the term ``nominee 
certificates'' shall mean a certificate of an issue registered in 
the name of Kray & Co. The term ``non-nominee certificate'' shall 
mean a certificate of an issue registered in a name other than Kray 
& Co.
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    In its normal course of business, MSTC will continue to deliver to 
participating transfer agents nominee certificates and/or non-nominee 
certificates with the instructions to register the transfer of the non-
nominee certificates into the account of Kray & Co. MSTC also will 
instruct the transfer agent to include the securities evidenced by the 
nominee and/or non-nominee certificates in the balance certificate for 
the issue represented by such balance certificate. MSTC also may issue 
instructions to the transfer agent to register the transfer of all or 
some of the securities evidenced by a balance certificate to a name 
other than Kray & Co. or to issue a certificate to a name other than 
Kray & Co. The transfer agent will increase or decrease the number of 
securities evidenced by the balance certificate so that at the end of 
each day the balance certificate will evidence the number of securities 
equal to the [[Page 12259]] previous balance plus any securities 
received from MSTC to be registered in the name Kray & Co. minus any 
transfers and issuance of certificates in a name other than Kray & Co. 
The transfer agent will confirm in writing, on a daily or other 
periodic basis as MSTC may reasonably request, the number of securities 
evidenced by each balance certificate.
    The obligations of the ATS transfer agents and MSTC will be set 
forth in a Balance Certificate Agreement (``Agreement'') executed by 
each ATS transfer agent and MSTC.\4\ The Agreement provides that all 
shares or units or the amount of any obligations evidenced by the 
balance certificate which come into possession of the transfer agent 
pursuant to ATS will be the sole property of MSTC. The transfer agent 
will not obtain any legal or equitable right, title, or interest in or 
to such securities evidenced by the balance certificates.

    \4\If a transfer agent employs a processor to perform the 
transfer agent's duties in ATS, the transfer agent and processor 
must enter into a separate agreement obligating the processor to 
perform the duties described in the Agreement. The transfer agent 
must notify MSTC if there is any material changed to the terms of 
the agreement between the transfer agent and processor, if there is 
a termination or anticipated termination of the agreement, or if 
there is a breach of the agreement or an event that will affect or 
might reasonably be expected to affect the processor's ability to 
perform any of its obligations under the agreement. MSTC only will 
permit a transfer agent to employ a processor as its agent if the 
transfer agent represents and warrants that it will bear any and all 
liability and responsibility for all securities held by, all actions 
taken by, and all obligations assigned to the processor with the 
same force and effect as if the securities were held by, the actions 
were taken by, or the obligations were those of the transfer agent.
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    The Agreement also provides that upon request from MSTC, the 
transfer agent will be obligated to deliver, within twenty-four hours, 
all securities evidenced by a balanced certificate. If the transfer 
agent determines that any security held by it is lost, destroyed, 
stolen, or otherwise unaccounted for, the transfer agent must notify 
MSTC immediately and issue a replacement certificate.
    The Agreement provides that the transfer agent must maintain an 
insurance policy in the form of a customary banker's blanket bond to 
cover any securities received from MSTC or held by the transfer agent 
pursuant to ATS. The bond must be in the maximum amount of one hundred 
million dollars. The Agreement further states that the transfer agent 
must provide annually to MSTC's satisfaction evidence that such blanket 
bond or comparable plan of insurance is in full effect.\5\ When the 
transfer agent is responsible for the shipment of securities, the 
Agreement requires that the transfer agent provides adequate insurance 
coverage or require coverage from the carrier to cover losses that 
occur while in transit to and until received by MSTC. The amount of 
coverage must be equal to or exceed 110% of the fair market value of 
the securities shipped. The transfer agent is not obligated to delivery 
shares evidenced by balance certificates within twenty four hours of 
such a request from MSTC if the aggregate value of the shares to be 
delivered exceeds the amount of the bankers blanket bond. The transfer 
agent will instead deliver or make available the certificates as 
promptly as possible.\6\

    \5\The transfer agent may limit, decrease, or cancel the blanket 
bond protection upon thirty days prior notice of such action to 
MSTC.
    \6\Before delivering the MSTC certificates with an aggregate 
current market value in excess of the maximum amount of the blanket 
bond, the transfer agent may not create or maintain certificates, 
other than any balance certificate, having a value in excess of the 
blanket bond.
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    Instructions from MSTC to register the transfer of securities 
evidenced by a balance certificate in a name other than Kray & Co. will 
constitute a presentation of the balance certificate to the transfer 
agent under applicable law. The same warranties that would apply if 
MSTC physically presented the balance certificate to the transfer agent 
will be applicable in this instance.
    MSTC believes the proposed rule change is consistent with section 
17A(b)(3)(A) of the Act\7\ in that it enhances MSTC's ability to 
facilitate the prompt and accurate clearance and settlement of 
securities transactions for which it is responsible and to safeguard 
securities and funds in its custody or control or for which it is 
responsible.

    \7\15 U.S.C. 78q-1(b)(3)(A) (1988).
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    MSTC also believes the rule change will further MSTC's goal of 
minimizing the exposure of securities to loss in transit between MSTC 
and transfer agents. The program will eliminate needless movement of 
securities. Under ATS, securities will be maintained in a form that 
will no longer permit the ready negotiation of the securities in the 
event of theft.

B. Self-Regulatory Organization's Statement on Burden on Competition

    MSTC does not believe that the proposed rule change will impose an 
inappropriate burden on competition.

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

    Written comments were neither solicited nor received.

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

    Within thirty-five days of the date of the 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 find such 
longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which MSTC consents, the Commission will:
    (a) By order approve such proposed rule change or
    (b) Institute proceedings to determine whether the proposed rule 
change would be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the forgoing. Persons making written 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 persons, 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 Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of MSTC. All submissions 
should refer to File No. SR-MSTC-94-21 and should be submitted by March 
27, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\17 CFR 200.20-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-5374 Filed 3-3-95; 8:45 am]
BILLING CODE 8010-01-M