[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Notices]
[Pages 26243-26244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13140]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37229; File No. SR-PHILADEP-95-12]


Self-Regulatory Organizations; The Philadelphia Depository Trust 
Company; Notice of Filing of a Proposed Rule Change Seeking To 
Establish a Centralized Office Processing System

May 20, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 19, 1995, the 
Philadelphia Depository Trust Company (``Philadep'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-PHILADEP-95-12), which Philadep amended on March 
20, March 27, March 28, and April 1, 1996,\2\ as described in Items I, 
II, and III below, which items have been prepared primarily by 
Philadep. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Letters from J. Keith Kessel, Esq., Compliance Officer, 
Philadep, to Peter R. Geraghty, Esq., Senior Counsel, Division of 
Market Regulation, Commission (March 20, March 22, March 28, and 
April 1, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Philadep proposes of offer to its participants a customer name 
safekeeping and branch receive processing service known as the 
Centralized Office Processing Service (``COPS'').

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

    In its filing with the Commission, Philadep 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. Philadep has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of such 
statements.\3\
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    \3\ The Commission has modified the text of the summaries 
submitted by PHILADEP.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    COPS is a customer name \4\ safekeeping and branch receive 
processing service that Philadep proposes to offer to interested 
participants for both depository eligible and ineligible securities 
provided that all such securities have a valid CUSIP number. The 
primary objective of COPS is to allow Philadep participants to utilize 
Philadep as a custodial agent for customer name securities.
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    \4\ Customer name securities refer to securities that are 
registered in the name of the beneficial owner.
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    COPS is designed to offer broker-dealers the opportunity to 
eliminate a labor intensive, low profit service from the broker-
dealers' operations. Philadep believes COPS will serve several 
functions including relieving Philadep participants from the processing 
and auditing responsibilities associated with receiving customer name 
securities, reducing the costs Philadep participants bear in connection 
with maintaining safekeeping for physical certificates, and 
centralizing more securities certificates in a depository environment.
    Under COPS, deliveries of customer name certificates from Philadep 
participants will be deposited into Philadep's vault for 
safekeeping.\5\ Upon an appropriate instruction from the submitting 
participant to withdrawn positions held in customer name or if a 
participant's customer wishes to sell the securities, Philadep may 
either (i) send these certificates to the participant or (ii) if the 
securities are depository eligible and possess all necessary 
endorsements and stock or bond powers, forward them to the transfer 
agent for reregistration into Philadep's nominee name and subsequently 
deposit them into the participant's general Philadep account.\6\
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    \5\ Philadep will segregate all customer name certificates from 
nominee name certificates in its vault.
    \6\ For customer name securities that are not depository 
eligible at the time a transfer request is made, Philadep will 
perform all necessary due diligence on such securities to make them 
depository eligible so that the securities can be registered in 
Philadep's nominee name and subsequently available for book-entry 
delivery into the participant's general Philadep account.
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    As proposed, COPS also will permit Philadep participants to 
collect, process, and forward certificates and related documentation 
directly to Philadep from their branch offices. This enables Philadep 
to operate as the participants' central processing office. Thus, COPS 
will eliminate steps in the ordinary certificates routing process by 
allowing participants' branch offices to forward these documents 
directly to Philadep. The branch receive processing facility will apply 
to both customer name safekeeping positions and to ordinary deposits 
that participants will forward to the depository to be placed in 
Philadep's nominee name.
    The COPS program will require Philadep participants utilizing the 
new service to send their securities to Philadep through Philadep's 
Automated Deposit System (``ADS''). This will allow Philadep 
participants to report their deliveries to Philadep in advance of the 
physical delivery.\7\ Philadep will verify the contents of the incoming 
deliveries and will provide intraday reconciliation through computer-
to-computer capabilities. Philadep will endeavor to resolve with the 
delivering participant any discrepancies between the ADS transmission 
and the contents of the packages. If the participant does not properly 
reconcile its submissions with Philadep or supply the proper 
instructions regarding these items within thirty days, Philadep will 
automatically send these exception items back to the respective 
participant's branch or central office. Philadep has not established 
fees for COPS; therefore, prior to its implementation, Philadep will 
file a proposed rule change with the Commission setting forth the fees 
for COPS.
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    \7\ In addition to reporting incoming deposits prior to physical 
delivery, ADS will check securities against Philadep's certificate 
master file to ascertain whether the securities possess a valid 
CUSIP number.
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    In connection with providing the COPS service, Philadep believes 
that it operates as a control location for securities deposited into 
COPS within the meaning of Section 15(c) of the Act and Rule 15c3-
3(c)(5) promulgated thereunder. In accordance with 15c3-3(c)(5), 
Philadep states (i) it qualifies as

[[Page 26244]]

a bank within the meaning of Section 3(a)(6) of the Act because it is a 
member of the Federal Reserve System, (ii) COPS is a custody business 
designed to hold securities in a depository ``free'' position, which 
will not require payment to return the securities to brokers and 
dealers, and (iii) securities deposited into COPS will not be subject 
to any right, charge, security interest, lien, or claim in favor of 
Philadep or any of its creditors.
    Philadep believes the proposed COPS service complies with Section 
17A of the Act insofar as it is contemplated to protect investors and 
the public interest, to foster cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions, and to further assure the safeguarding of securities 
which are in the custody and control of Philadep.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    Philadep believes that COPS will foster 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 with respect 
to the proposed rule change. However, Philadep has received several 
oral comments from its participants which support Philadep in 
developing the services contemplated by the proposed rule change. These 
comments focus of the benefits of cost reduction and Philadep 
participants' opportunity costs.

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 Philadep 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 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 Philadep. All submissions should 
refer to the file number SR-PHILADEP-95-12 and should be submitted by 
June 14, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-13140 Filed 5-23-96; 8:45 am]
BILLING CODE 8010-01-M