Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Notices 48411 

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

2Securities Exchange Act Release No. 57392 

(February 27, 2008), 73 FR 12485. 

3The National Securities Clearing Corporation 

(‘‘NSCC’’) filed and the Commission has approved 

a similar proposed rule change that would permit 

NSCC to adopt a similar policy statement with 

respect to the admission of foreign entities as 

members. Securities Exchange Act Release No. 

58344 (August 12, 2008) (File No. SR–NSCC–2007–

15). 

4Securities Exchange Act Release No. 28754 

(January 8, 1991), 56 FR 1548 (January 15, 1991) 

(File No. SR–DTC–90–01). 

5 DTC recognized, however, that any person 

designated by the Commission pursuant to Section 

17A(b)(3)(B)(vi) of the Act, even if not subject to 

such regulatory oversight, would be eligible for 

admission. The 1990 Policy Statement was 

approved by the Commission on January 8, 1991. 

6 DTC’s proposed ‘‘Policy Statement on the 

Admission of Non-U.S. Entities as Direct Depository 

Participants’’ is attached as Exhibit 5 to its filing, 

which can be found at http://www.dtcc.com/

downloads/legal/rule_filings/2007/dtc/2007–16.pdf. 

7Time zone differences may complicate 

communications between a foreign participant and 

its U.S. Settling Bank with respect to the timely 

payment of the participant’s net debit to DTC 

including intraday demands for payment. These 

differences may also delay DTC’s receipt of 

information available in the foreign participant’s 

home country to others including its other creditors 

about the foreign participant’s financial condition 

on the basis of which DTC would have taken steps 

to protect the interests of DTC and its participants. 

8 In the Foreign Entity Policy Statement, DTC has 

reserved the right to waive certain of these criteria 

where such criteria are inappropriate to a particular 

applicant or class of applicants (e.g., a foreign 

government or international or national central 

securities depositories). 

SECURITIES AND EXCHANGE 

COMMISSION 

Sunshine Act Meeting 

Notice is hereby given, pursuant to 

the provisions of the Government in the 

Sunshine Act, Pub. L. 94–409, that the 

Securities and Exchange Commission 

will hold a Closed Meeting on 

Thursday, August 21, 2008 at 2 p.m. 

Commissioners, Counsel to the 

Commissioners, the Secretary to the 

Commission, and recording secretaries 

will attend the Closed Meeting. Certain 

staff members who have an interest in 

the matters also may be present. 

The General Counsel of the 

Commission, or his designee, has 

certified that, in his opinion, one or 

more of the exemptions set forth in 5 

U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) 

and 17 CFR 200.402(a)(3), (5), (7), 9(ii) 

and (10), permit consideration of the 

scheduled matters at the Closed 

Meeting. 

Commissioner Paredes, as duty 

officer, voted to consider the items 

listed for the Closed Meeting in closed 

session. 

The subject matter of the Closed 

Meeting scheduled for Thursday, 

August 21, 2008 will be: 

Formal orders of investigation; 

institution and settlement of injunctive 

actions; 

institution and settlement of 

administrative proceedings of an 

enforcement nature; and 

adjudicatory matters. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

For further information and to 

ascertain what, if any, matters have been 

added, deleted or postponed, please 

contact: 

The Office of the Secretary at (202) 

551–5400. 

Dated: August 14, 2008. 

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19214 Filed 8–18–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58345; File No. SR–DTC–

2007–16] 

Self-Regulatory Organizations; The 

Depository Trust Company; Order 

Granting Approval of a Proposed Rule 

Change Relating to the Admission of 

Foreign Entities as Direct Depository 

Participants 

August 12, 2008. 

I. Introduction 

On November 16, 2007, The 

Depository Trust Company (‘‘DTC’’) 

filed with the Securities and Exchange 

Commission (‘‘Commission’’) and on 

February 5, 2008, amended proposed 

rule change SR–DTC–2007–13 pursuant 

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

Exchange Act of 1934 (‘‘Act’’).1 Notice 

of the proposal was published in the 

Federal Register on March 7, 2008.2 No 

comment letters were received. For the 

reasons discussed below, the 

Commission is granting approval of the 

proposed rule change as modified by 

Amendment No. 1. 

II. Description 

The proposed rule change amends 

DTC’s policy statement regarding the 

admission of participants to permit 

entities that are organized in a foreign 

country and are not subject to U.S. 

federal or state regulation (‘‘foreign 

entities’’) to become eligible to become 

direct DTC participants (‘‘Foreign Entity 

Policy Statement’’).3

In 1990, DTC adopted a Policy 

Statement on the Admission of 

Participants (‘‘1990 Policy Statement’’) 

to make clear that in determining 

whether to grant access to its services, 

DTC regards as a critical factor that an 

applicant is subject to comprehensive 

U.S. federal or state regulation relating 

to, among other things, capital 

adequacy, financial reporting and 

recordkeeping, operating performance, 

and business conduct.4 Generally under 

the 1990 Policy Statement, unless an 

applicant is subject to U.S. federal or 

state regulatory agency oversight, the 

applicant would not be eligible to 

become a DTC participant.5 Since 1990, 

DTC has admitted a small number of 

foreign entities where their obligations 

to DTC have been guaranteed by 

creditworthy DTC participants. 

The purpose of the proposed Foreign 

Entity Policy Statement is to establish 

admissions criteria that will permit 

well-qualified foreign entities to become 

participants of DTC and to obtain direct 

access to DTC’s services while assuring 

that the unique risks associated with the 

admission of foreign entities are 

adequately addressed.6

The admission of foreign entities as 

participants raises a number of unique 

risks and issues, including that (1) the 

entity is not subject to U.S. federal or 

state regulation, (2) that the operation of 

the laws of the entity’s home country 

and time zone differences 7 may impede 

the successful exercise of DTC’s rights 

and remedies particularly in the event 

of the entity’s failure to settle, and (3) 

financial information about the foreign 

entity made available to DTC for 

monitoring purposes may be less 

adequate than the financial information 

about U.S.-based entities. 

The Foreign Entity Policy Statement 

requires that in addition to executing 

the standard DTC Participation 

Agreement the foreign entity enter into 

a series of undertakings and agreements 

that are designed to address 

jurisdictional concerns and to assure 

that DTC is provided with audited 

financial information that is acceptable 

to DTC.8 The proposed policy statement 

would also require that the foreign 

entity (1) be subject to regulation in its 

home country and (2) be in good 


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48412 Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Notices 

9Securities Exchange Act Release Nos. 38600 

(May 9, 1997), 62 FR 27086 (May 16, 1997) (File No. 

SR–DTC–96–13); 40064 (June 3, 1998), 63 FR 31818 

(June 10, 1998) (File No. SR–DTC–98–11); 41466 

(May 28, 1999), 64 FR 30077 (June 4, 1999) (File 

No. SR–DTC–99–12); 42865 (May 30, 2000), 65 FR 

36188 (June 7, 2000) (File No. SR–DTC–00–07); 

44470 (June 22, 2001), 66 FR 34972 (July 2, 2001) 

(File No. SR–DTC–2001–10). Approval of the 

Foreign Entity Policy Statement as previously filed 

and temporarily approved by the Commission 

extended through May 31, 2002. 

10Additionally, in the Foreign Entity Policy 

Statement, DTC has reserved the right to require a 

foreign entity to deposit additional amounts to 

DTC’s participants fund and the right to require a 

letter of credit as the form of participant fund 

collateral where DTC in its sole discretion believes 

the entity presents legal risk. 11 15 U.S.C. 78q–1(b)(3)(F). 

12Securities Exchange Act Release No. 51385 

(March 16, 2005), 70 FR 14736 (March 23, 2005) 

(File No. SR–FICC–2004–14). 

13 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition and capital formation. 15 

U.S.C. 78c(f). 

standing with its home country 

regulator. 

The Foreign Entity Policy Statement 

was previously approved by the 

Commission on a temporary basis in 

1997.9 As currently proposed, the 

Foreign Entity Policy Statement would 

retain all the requirements of the 

previous version with the exception of 

the ‘‘special financial conditions’’

requirements, as explained below. It 

would also include new requirements 

with respect to non-U.S. GAAP financial 

statements and anti-money laundering 

(‘‘AML’’) risk. 

The Foreign Entity Policy Statement 

previously included ‘‘special financial 

conditions’’ requirements applicable to 

participants that were foreign entities. 

The special financial conditions 

requirements mandated that a foreign 

entity have and maintain minimum net 

capital of 1000% of the minimum net 

capital for the admission of a U.S. 

entity. A foreign entity was also 

required to have additional ‘‘special 

collateral’’ in its account equal to fifty 

percent of its net debit cap. Any net 

debit of the foreign entity had to be 

supported by the value of other, nonspecial collateral including securities 

received by the participant valued in 

accordance with DTC’s customary 

haircuts. Except for U.S. Treasury 

securities, which received a haircut of 2 

percent, securities posted as special 

collateral received a haircut of 50% of 

their market value. The foreign entity 

did not receive credit for special 

collateral in DTC’s collateral monitor. 

DTC now believes that its net debit cap, 

collateral monitor, and other risk 

management controls and procedures 

applicable to all participants together 

with the other requirements of the 

Foreign Entity Policy Statement would 

adequately limit DTC’s exposure in the 

event of a failure to settle and 

insolvency of a foreign participant 

without the need for the special 

financial conditions requirement.10

The Foreign Entity Policy Statement 

also previously required foreign entities 

to provide to DTC for financial 

monitoring purposes audited financial 

statements prepared in accordance with 

U.S. generally accepted accounting 

principles (‘‘GAAP’’) or other generally 

accepted accounting principles that 

were satisfactory to DTC. As proposed, 

the Foreign Entity Policy Statement will 

provide for the submission of audited 

financial statements other than U.S. 

GAAP, but to address the risk presented 

by accepting financial statements 

prepared in non-U.S. GAAP, DTC would 

increase the existing minimum financial 

requirements for any foreign entity 

submitting its financial statements in 

non-U.S. GAAP by a premium. The 

premiums would be as follows: 

(i) 11⁄2 times the existing requirement 

for a foreign entity submitting financial 

statements prepared in accordance with 

International Financial Reporting 

Standards (‘‘IFRS’’), the Companies Act 

of 1985 (‘‘UK GAAP’’), or Canadian 

GAAP; 

(ii) 5 times the existing requirement 

for a foreign entity submitting financial 

statements prepared in accordance with 

a European Union (‘‘EU’’) country 

GAAP other than UK GAAP; and 

(iii) 7 times the existing requirement 

for a foreign entity submitting financial 

statements prepared in accordance with 

any other type of GAAP. 

Finally, DTC is proposing to add a 

new requirement to the Foreign Entity 

Policy Statement that a foreign entity 

must provide sufficient information to 

DTC so that DTC can evaluate AML risk. 

III. Discussion 

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

requires that the rules of a clearing 

agency be designed 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.11 When the Commission 

previously approved DTC’s Foreign 

Entity Policy Statement it found that the 

policy statement was designed to 

address the jurisdiction differences in 

regulatory structure and in business 

operations of non-U.S. entities with 

respect to risk control and management. 

Additionally, the Commission found 

that the policy statement was designed 

to bind non-U.S. entities to DTC’s rules 

and procedures in a manner similar to 

domestic participants and was designed 

to lesson or eliminate the negative 

effects that jurisdictional issues could 

have on DTC’s exercise of its rights 

against non-U.S. entities. The proposed 

rule change adopts a Foreign Entity 

Policy Statement that is substantially 

similar to the one previously approved 

by the Commission. DTC has eliminated 

the special financial conditions that 

were included in the earlier policy 

statement and has added a new 

requirement to increase the minimum 

financial requirements if the foreign 

participant submits audited financial 

statements prepared using non-U.S. 

GAAP. The multiples used to calculate 

the premiums DTC will charge for nonU.S. GAAP are identical to those the 

Commission previously approved for 

the Government Securities Division and 

MBS Division of the Fixed Income 

Clearing Corporation.12 Although DTC 

will collect less collateral than was 

required under the earlier policy 

statement, we are satisfied with DTC’s 

explanation that its other financial 

controls, such as in its discretion 

requiring a letter of credit, are 

sufficiently designed to limit risk of loss 

to DTC or its participants as a result of 

a foreign participant’s insolvency. In 

addition, recent changes in bankruptcy 

law have raised questions about 

whether DTC could enforce its rights to 

a participant’s collateral in non-U.S. 

jurisdictions. The changes with respect 

to the participants’ minimum financial 

requirements should help to ensure that 

all foreign participants have sufficient 

financial resources to be participants in 

and meet their settlement obligations to 

DTC. Accordingly, based on this and the 

earlier findings, we find that the Foreign 

Entity Policy Statement is designed 

assure the safeguarding of securities and 

funds which are in which are in the 

custody or control of DTC or for which 

it is responsible. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act and in 

particular Section 17A of the Act and 

the rules and regulations thereunder.13

It is therefore ordered, pursuant to 

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

proposed rule change (File No. SR–

DTC–2007–16), as modified by 

Amendment No. 1, be and hereby is 

approved. 


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Federal Register / Vol. 73, No. 161 / Tuesday, August 19, 2008 / Notices 48413 

14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 58029 

(June 26, 2008), 73 FR 38016. 

4 15 U.S.C. 78f(b)(5). In approving this proposed 

rule change, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

5 17 CFR 229.404 and 17 CFR 228.404. 

6See Securities Exchange Act Release No. 

54302A (August 29, 2006), 71 FR 53158 (September 

8, 2006). 

7See Nasdaq Rule 4200(a)(15) and IM–4200. 

8 15 U.S.C. 78s(b)(2). 

9 17 CFR 200.30–3(a)(12). 

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

2Securities Exchange Act Release No. 57391 

(February 27, 2008), 71 FR 76414. 

3The Depository Trust Company (‘‘DTC’’) filed 

and the Commission has granted approval of a 

similar proposed rule change that would permit 

DTC to adopt a similar policy statement with 

respect to the admission of foreign entities as 

participants. Securities Exchange Act Release No. 

58345 (August 12, 2008) (File No. SR–DTC–2007–

16). 

4Time zone differences could complicate 

communications between the foreign member and 

its U.S. Settling Bank with respect to the timely 

payment of the member’s net debit to NSCC, 

including intraday demands for payment. These 

differences could also delay NSCC’s receipt of 

information available in the member’s home 

country to others (including its other creditors) 

about the member’s financial condition on the basis 

of which NSCC would have taken steps to protect 

the interests of NSCC and its members. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19133 Filed 8–18–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58335; File No. SR–

NASDAQ–2008–053] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Order 

Granting Approval of Proposed Rule 

Change To Modify the Definition of 

‘‘Independent Director’’

August 8, 2008. 

On June 6, 2008, The NASDAQ Stock 

Market LLC (‘‘Nasdaq’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

modify Nasdaq’s definition of 

‘‘independent director.’’ The proposed 

rule change was published for comment 

in the Federal Register on July 2, 2008.3

The Commission received no comments 

on the proposal. 

Currently, Nasdaq Rule 4200(a)(15)(B) 

provides that a director of a listed 

company who accepted, or has a family 

member who accepted, any 

compensation from the company in 

excess of $100,000 during any period of 

twelve months within the preceding 

three years cannot be deemed an 

independent director (with certain 

exceptions). The proposed rule change 

would change this threshold amount to 

$120,000. 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

exchange, and in particular with Section 

6(b)(5) of the Act.4 The Commission 

notes that Regulation S–K, Item 404, 

under the Act,5 which requires public 

companies to disclose certain material 

information regarding the independence 

of directors (among other ‘‘related 

persons’’ associated with the company), 

establishes $120,000 as the amount 

above which financial transactions and 

relationships involving a company and 

its directors must be disclosed.6 The 

Commission believes that it is 

appropriate for Nasdaq to use this same 

threshold amount with regard to its 

definition of ‘‘independent director’’ in 

Nasdaq Rule 4200(a)(15) as a ‘‘bright 

line’’ test to determine whether a 

director of a listed company would be 

precluded from being considered 

independent. The Commission further 

notes that even if a director (or a family 

member) received less than $120,000 in 

compensation from the listed company, 

the company’s board still would have to 

make an affirmative determination that 

the director has no relationship with the 

listed company that, in the board’s 

opinion, would interfere with the 

exercise of his or her independent 

judgment in carrying out the 

responsibilities of a director.7

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,8 that the 

proposed rule change (SR–NASDAQ–

2008–053) be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.9

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19113 Filed 8–18–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58344; File No. SR–NSCC–

2007–15] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Granting Approval 

of a Proposed Rule Change Relating to 

the Admission of Foreign Entities 

August 12, 2008. 

I. Introduction 

On November 16, 2007, National 

Securities Clearing Corporation 

(‘‘NSCC’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

proposed rule change SR–NSCC–2006–

15 pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’).1 Notice of the proposal was 

published in the Federal Register on 

March 10, 2008.2 No comment letters 

were received. For the reasons 

discussed below, the Commission is 

granting approval of the proposed rule 

change. 

II. Description 

The proposed rule change establishes 

a policy statement regarding the 

admission of entities that are organized 

in a foreign country and are not subject 

to U.S. federal or state regulation 

(‘‘foreign entities’’) as members of 

NSCC.3 NSCC Rule 2 and Addendum B 

to NSCC’s Rules address the admission 

of applicants as NSCC members. NSCC’s 

Rules provide that admission as a 

member is subject to an applicant’s 

demonstration that it meets NSCC’s 

standards of financial responsibility, 

operational capability, and character. 

Additionally, each member must 

continue to be in a position to 

demonstrate to NSCC that it meets these 

standards. The purpose of the proposed 

rule change is to establish admission 

criteria that will permit well-qualified 

foreign entities to become NSCC 

members and thereby obtain direct 

access to NSCC’s services while 

assuring that the unique risks associated 

with the admission of foreign entities 

are adequately addressed. 

The admission of foreign entities as 

members raises a number of unique 

risks and issues, including that (1) the 

entity is not subject to U.S. federal or 

state regulation, (2) the operation of the 

laws of the entity’s home country and 

time zone differences 4 may impede the 

successful exercise of NSCC’s rights and 

remedies particularly in the event of the 

entity’s failure to settle, and (3) financial 

information about the foreign entity 

made available to NSCC for monitoring 

purposes may be less adequate than 

information about U.S.-based entities. 


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