14990 Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices

1 15 U.S.C. 78(b)(1) (1988).

2Securities Exchange Act Release No. 35424

(February 28, 1995), 60 FR 12258.

3For 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.

4For 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.

5 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 change 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 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.

6The transfer agent may limit, decrease, or cancel

the blanket bond protection upon thirty days prior

notice of such action to MSTC.

[Release No. 34–35484; File No. SR–MSTC–

94–21]

Self-Regulatory Organizations;

Midwest Securities Trust Company;

Order Granting Accelerated Approval

of a Proposed Rule Change

Establishing an Automated Program

for the Transfer of Certain Securities

Between the Midwest Securities Trust

Company and Transfer Agents

March 14, 1995.

On December 28, 1994, the Midwest

Securities Trust Company (‘‘MSTC’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

MSTC–94–21) under Section 19(b)(1) of

the Securities Exchange Act of 1934

(‘‘Act’’) 1 to establish an automated

program for the transfer of certain

securities between MSTC and transfer

agents. Notice of the proposal was

published in the Federal Register on

March 6, 1995.2 No comment letters

were received. For the reasons

discussed below, the Commission is

approving the proposed rule change on

an accelerated basis.

I. Description

MSTC is establishing an automated

program, to be known as ATS, for the

transfer of certain securities between

MSTC and transfer agents. Under

MSTC’s program, MSTC and the transfer

agents participating in the program will

use a master balance certificate 3 to

evidence the number of securities of a

particular issue transferred into or out of

MSTC and 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.

Previously, if a participant requested

the withdrawal of one hundred shares of

a security from MSTC, MSTC would

send an electronic or written instruction

to the transfer agent followed by a

physical transfer of the shares from

MSTC to the transfer agent. The transfer

agent would reissue the shares in the

requested name and would send the

shares back to MSTC. Using the ATS

program, an electronic instruction will

immediately effectuate the withdrawal

transfer, eliminating the extra step of

physically transferring 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 4 for each issue. The transfer

agent will cancel the certificates

delivered and issue one or more balance

certificates per issue in the name of

Kray & Co. The transfer agent will retain

possession of the balance certificates,

holding them in a secured area at all

times, and MSTC will be provided a

sample balance certificate for each

issue.

MSTC will deliver to participating

transfer agents nominee certificates and/

or non-nominee certificates with the

instructions to register the non-nominee

certificates into the name of Kray & Co.

and to include the securities evidenced

by the non-nominee and/or 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 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.

After issuing a balance certificate, the

transfer agent will increase or decrease

the number of securities evidenced by

the balance certificate so that at the end

of each day it will evidence the number

of securities equal to the previous

balance plus any securities received

from MSTC to be registered in the name

Kray & Co. less 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.5 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.

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 balance 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 bankers 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.6 When the transfer agent is

responsible for the shipment of

securities, the Agreement requires that

the transfer agent provide 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 deliver 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
Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14991

7Before delivering to 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.

8 15 U.S.C. 78q–1 (1988).

9 15 U.S.C. 78q–1(b)(3)(A) and (F) (1988).

10For a complete description of DRS, refer to

Securities Exchange Act Release No. 35038

(December 1, 1994), 59 FR 63652 [File No. S7–34–

94] (concept release soliciting comment on a

transfer agent operated book-entry registration

system).

11 17 CFR 200.30–3(a)(12) (1994).

1See letter from Michael D. Pierson, Senior

Attorney, PSE, to Jennifer S. Choi, Attorney,

Division of Market Regulation, SEC, dated March 2,

1995. Amendment No. 1 adds .02 of the

Commentary to the proposed rule change.

or make available the certificates as

promptly as possible.7

Instructions from MSTC to register the

transfer of securities evidenced by a

balance certificate in a name other than

MSTC 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.

II. Discussion

The Commission believes that

MSTC’s proposal is consistent with

Section 17A of the Act 8 and specifically

with Sections 17A(b)(3)(A) and (F).9

Sections 17A(b)(3)(A) and (F) require

that a clearing agency be organized and

its rules be designed to facilitate and

promote the prompt and accurate

clearance and settlement of securities

transactions and to assure the

safeguarding of securities and funds in

its custody or control or for which it is

responsible.

Under MSTC’s proposed rule change,

an electronic instructions will replace

the physical transfer of securities

between MSTC and transfer agents. The

proposal should help alleviate the

inefficiencies associated with the

physical transfer of securities and

should help reduce the possibility of

loss while securities are in transit

between MSTC and the transfer agent.

The transfer of securities will be factor

and more efficient with the likely effect

of reducing costs related to the

preparation of written instructions and

physical delivery of the securities.

MSTC’s proposed rule change also

should help MSTC fulfill its safekeeping

obligations by allowing MSTC to

maintain securities in a form which

should reduce the chances of loss and

theft.

MSTC’s proposed rule change

requires that the transfer agent be

insured by a customary bankers blanket

bond which will cover any securities

received from MSTC and/or held by the

transfer agent or processor on behalf of

MSTC under the Agreement. Where

balance certificates have an aggregate

current market value in excess of the

maximum value of the bankers blanket

bond, the transfer agent will not create

or maintain certificates in excess of that

value, other than any balance certificate,

prior to delivery to MSTC. These

insurance requirement should better

enable MSTC to safeguard securities

which are at the transfer agent or are in

transit from the transfer agent to MSTC

and should aid in the safekeeping of

securities with a market value in excess

of the bankers blanket bond.

MSTC has requested that the

Commission find good cause for

approving the proposed rule change

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 change

because the ATS program allows for an

electronic communication between

brokers and transfer agents through

MSTC. Such communication will be

necessary for transfer agents to

participate in the direct registration

system (‘‘DRS’’) recently proposed by

the Commission.10 The Commission

believes it is prudent to allow MSTC to

begin use of the ATS as soon as possible

in order that MSTC and its participants

will have time to become proficient in

using such a system before a DRS is

implemented. The Commission also

believes that accelerated approval will

allow MSTC participants to utilize and

to take full advantage in a more timely

fashion of the benefits of the ATS

service.

III. Conclusion

The Commission finds that MSTC’s

proposal is consistent with the

requirements of the Act and particularly

with Section 17A and the rules and

regulations thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

MSTC–94–21) be, and hereby is,

approved on an accelerated basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Jonathan G. Katz,

Secretary.

[FR Doc. 95–6841 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35497; File No. SR–PSE–

95–2]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Stock Exchange

Incorporated Relating to Obligations

for Regulatory Cooperation

March 15, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on February 8, 1995,

the Pacific Stock Exchange,

Incorporated (‘‘PSE’’ or ‘‘Exchange’’)

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 the selfregulatory organization. On March 3,

1995, the Exchange submitted to the

Commission Amendment No. 1 to the

proposed rule change, which is also

described below.1 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 Exchange is proposing to amend

its rules to require regulatory

cooperation by members, member

organizations, and others over whom

the Exchange has jurisdiction pursuant

to Rule 10.1(b) in connection with

certain investigations and proceedings

that are initiated by other exchanges or

self-regulatory organizations. The text of

the proposed rule change is as follow

[new text is italicized]:

Rule 10.2

Regulatory Cooperation

(d) No member, member organization,

person associated with a number or

member organization, or other person or

entity over whom the Exchange has

jurisdiction pursuant to Rule 10.1(b),

shall refuse to appear and testify before

another exchange or self-regulatory

organization in connection with a

regulatory investigation, examination,

or disciplinary proceeding or refuse to

furnish documentary materials or other

information or otherwise impede or

delay such investigation, examination

or disciplinary proceeding if the

Exchange requests such information or

testimony in connection with an inquiry

resulting from an agreement entered