[Federal Register Volume 61, Number 18 (Friday, January 26, 1996)]
[Notices]
[Pages 2554-2555]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1271]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36739; File No. SR-MSTC-95-11]


Self-Regulatory Organizations; Midwest Securities Trust Company; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change Relating to a Contingency Plan for Participants in 
Connection With Midwest Securities Trust Company's Decision to Withdraw 
From the Securities Depository Business

January 19, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 26, 1995, the 
Midwest Securities Trust Company (``MSTC'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change (File 
No. SR-MSTC-95-11) as described in Items I and II below, which items 
have been prepared primarily by MSTC. The Commission is publishing this 
notice and order to solicit comments from interested persons and to 
grant accelerated approval of the proposed rule change.

    \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 add Article VIII to its rules to provide for a 
contingency plan, to be implemented in MSTC's sole discretion, in the 
event that certain MSTC participants have not made arrangements for 
alternate service providers by January 19, 1996.\2\

    \2\ MSTC's filing refers to January 15, 1996, as the date by 
which MSTC participants must have made arrangements with alternate 
service providers. This date was postponed to January 19, 1996. 
Telephone conversation between J. Craig Long, Foley & Lardner, 
[counsel to MSTC], and Jerry Carpenter, Assistant Director, Peter 
Geraghty, Senior Counsel, and Cheryl Tumlin, Staff Attorney, 
Division of Market Regulation, Commission (January 18, 1996).
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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 section (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\3\

    \3\ The Commission has modified the text of the summaries 
prepared by MSTC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    On January 5, 1996, the Commission approved a proposed rule change 
filed by MSTC relating to its withdrawal from the securities depository 
business in conjunction with an agreement with The Depository Trust 
Company (``DTC'').\4\ This filing provides for a contingency plan for 
current participants of MSTC that are unable to find alternative 
securities depository services by January 19, 1996.

    \4\ For a description of the agreement, refer to Securities 
Exchange Act Release No. 36684 (January 5, 1996), [File No. SR-MSTC-
95-10] (order approving proposed rule change).
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    Pursuant to MSTC's proposed contingency plan, MSTC in its sole 
discretion may become a member of DTC for the limited purpose of 
temporarily enabling Temporary Sponsored Participants (``TSPs'') to 
utilize the depository services of DTC. If implemented, only entities 
that are depository participants of MSTC as of January 19, 1996 will be 
eligible to be TSPs. The purpose of the TSP membership category is to 
provide existing MSTC depository participants that are unable to find 
appropriate alternative arrangements by the January 19, 1996 deadline, 
temporary securities depository arrangements.\5\ This TSP 

[[Page 2555]]
membership category will terminate on or before March 31, 1996, at 
which time MSTC will definitively cease to act for all TSPs. The only 
services that MSTC will provide to TSPs is to provide access to the 
facilities of DTC.

    \5\ By an Important Notice dated November 17, 1996, MSTC 
informed its participants that it intended to cease providing 
depository services on January 15, 1996, and that participants 
should make arrangements for alternate depository services by that 
date. The date was postponed to January 19, 1996. Note 2, supra.
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    Under the proposed arrangement, MSTC will maintain subaccounts at 
DTC for each TSP. DTC will transmit the settlement obligations of TSPs 
to MSTC. Based on DTC's final settlement figures, MSTC will use funds 
received by MSTC from a TSP or will initiate payments against a TSP's 
bank account to satisfy a TSP's payment obligation. In this regard, 
each TSP will be required to maintain funds that are sufficient for 
purposes of settlement and that are accessible to MSTC. If a TSP has a 
credit balance, DTC will forward the credit to MSTC, and MSTC will make 
available to the TSP the amount of the credit balance. Alternatively, 
upon notice to and authorization by MSTC, TSPs can settle directly with 
DTC.
    TSPs will be required to contribute to a temporary sponsored 
account fund. The required contribution will consist of the greater of 
$15,000 or 110% of the required contribution to the participants fund 
of DTC. MSTC also may require a TSP to deposit a supplemental 
contribution not based on a TSP's usage of MSTC's services. All 
contributions to the temporary sponsored account fund must be in cash. 
All temporary sponsored account fund contributions not forwarded by 
MSTC to DTC may be invested by MSTC. The sponsored account fund may be 
used to cover losses in a manner similar to that provided for in the 
current MSTC participants fund rules.
    While TSPs will not be obligated to comply with all of MSTC's 
current rules, TSPs will be obligated to comply with the MSTC rules 
designated in Article VIII as being applicable to TSPs. Among other 
things, Article VIII provides that TSPs must comply with MSTC's rules 
relating to losses, indemnification, and MSTC's ceasing to act. TSPs 
also must comply with the rules of DTC.
    MSTC believes the proposed rule change is consistent with Section 
17A of the Act in that it is designed to promote the accurate clearance 
and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in MSTC's custody or 
control or for which MSTC is responsible.

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

    MSTC does not believe the proposed rule change will impose a 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

    Written comments on the proposal have not been solicited or 
received.

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

    Section 17A(b)(3)(F) <SUP>6 of the Act requires the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible. The 
Commission believes the proposal is consistent with MSTC's obligations 
under Section 17A of the Act because it should help ensure that MSTC 
participants unable to find alternative securities depository services 
by January 19, 1996, will have access to safe and efficient securities 
depository services for a period of time that should be sufficient to 
enable such participants to obtain permanent alternate services. This 
should help protect against disruption in these participants' 
businesses upon MSTC's withdrawal from the securities depository 
business. Furthermore, MSTC's coordination with DTC in establishing 
securities depository services for TSPs through temporary sponsored 
accounts and the requirement of a temporary sponsored account fund to 
cover losses that could be suffered by MSTC incident to the operation 
of the temporary sponsored accounts should help MSTC safeguard the 
securities and funds which are in its custody or control or for which 
it is responsible.

    \6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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    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 proposal is 
critical to MSTC's orderly withdrawal from the securities depository 
business with minimal business disruption by its announced deadline of 
January 19, 1996. Furthermore, because the Commission received only one 
comment letter \7\ during the comment period of MSTC's proposal to 
withdraw from the securities depository business,\8\ the Commission 
does not believe it will receive negative comment letters on this 
proposal.

    \7\ Letter from Leland W. Hutchinson, Jr., Freeborn & Peters, 
[counsel for Scattered Corporation and Laura Bryant, members of CHX] 
to Richard R. Lindsey, Director, Division of Market Regulation, 
Commission (December 15, 1995).
    \8\ See, Securities Exchange Act Release No. 36684 (January 5, 
1996), [File No. SR-MSTC-95-10] (order approving MSTC's proposal to 
withdraw from the securities depository business).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., 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. Sec. 552 will be available for inspection and copying in 
the Commission's Public Reference Room, 450 Fifth Street, NW., 
Washington, DC. Copies of such filing also will be available for 
inspection and copying at the principal office of MSTC. All submissions 
should refer to the file number SR-MSTC-95-11 and should be submitted 
by February 16, 1996.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-MSTC-95-11) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-1271 Filed 1-25-96; 8:45 am]
BILLING CODE 8010-01-M