Document ID: SEC-2010-0505-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Co.
Posted Date: 2010-04-05T04:00Z

[Federal Register: April 5, 2010 (Volume 75, Number 64)]
[Notices]               
[Page 17196-17197]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ap10-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61800; File No. SR-DTC-2010-03]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Order Granting Approval of a Proposed Rule Change To Eliminate the 
Option To Receive a Physical Certificate From DTC for Unsponsored 
American Depositary Receipts That Are Part of the Fast Automated 
Transfer Program

March 30, 2010.

I. Introduction

    On January 19, 2010, The Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2010-03 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 February 22, 2010.\2\ The 
Commission received no comment letters. For the reasons discussed 
below, the Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 61507 (February 5, 
2010), 75 FR 7641 (February 22, 2010).
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II. Description

    An ADR is a security that trades in the United States but 
represents a specified number of shares in a foreign corporation. ADRs 
are issued in the U.S. by depositary banks. An ADR issuance is 
``unsponsored'' when there is no formal agreement between the 
depositary bank(s) issuing the ADR and the foreign company whose 
underlying shares are the basis for the ADR. Because in unsponsored 
programs there is no agreement between the issuer and a specific 
depositary, more than one depositary can be involved in the issuance 
and cancellation of ADR programs. Unsponsored ADRs trade in the over-
the-counter market.
    Currently, in order to deposit an unsponsored ADR at DTC, a 
depositary bank that is also a DTC participant will have its transfer 
agent create a certificate for the new issue ADR, which is then 
deposited at DTC by the depositary bank. In an effort to eliminate some 
of the risks and costs related to the processing of securities 
certificates,\3\ DTC recently made unsponsored ADRs eligible for DTC's 
Fast Automated Securities Transfer Program (``FAST'').\4\
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    \3\ The costs and risks associated with physical certificates 
include, among other things, those associated with safekeeping, 
transfer, shipping and insurance costs.
    \4\ FAST was designed to eliminate some of the risks and costs 
related to the creation, movement, processing, and storage of 
securities certificates. Under the FAST program, FAST transfer 
agents hold FAST eligible securities in the name of Cede & Co. in 
custody and for the benefit of DTC. As additional securities are 
deposited or withdrawn from DTC, the FAST transfer agents adjust the 
size of DTC's position as appropriate and electronically confirm 
theses changes with DTC. For more information relating to FAST, see 
Securities Exchange Act Release Nos. 13342 (March 8, 1977) [File No. 
SR-DTC-76-3]; 14997 (July 26, 1978) [File No. SR-DTC-78-11]; 21401 
(October 16, 1984) [File No. SR-DTC-84-8]; 31941 (March 3, 1993) 
[SR-DTC-92-15]; and 46956 (December 6, 2002) [File No. SR-DTC-2002-
15].
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    DTC's withdrawal-by-transfer (``WT'') service allows a participant 
to instruct DTC to have securities assets that are held in the 
participant's DTC account reregistered in the name of the participant, 
an investor, or a third party. Upon receipt of a WT instruction from a 
participant, DTC either sends a certificate to the transfer agent for 
reregistration in the name of the person or entity identified in the WT 
instruction or instructs the transfer agent to debit DTC's FAST 
position and to issue securities in the name of the person or entity 
identified in the WT instruction.
    As part of DTC's response to an industry effort to reduce the 
number of securities certificates in the U.S. market (sometimes 
referred to as ``dematerialization''),\5\ DTC initiated a program of 
steadily increasing its fees for WTs and other withdrawals to create 
strong disincentives for the use of physical certificates. Consistent 
with that program, DTC is now eliminating participants' ability to use 
the WT service to have physical certificates issued for unsponsored 
ADRs that are a part of the FAST Program. DTC believes that this 
modification of its WT service reaffirms its goals of reducing the 
number of securities certificates in the U.S. markets. DTC participants 
will continue to have the ability to request a physical certificate 
directly from the transfer agent by using the DWAC process.\6\
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    \5\ For more information on dematerialization, see Securities 
Exchange Act Release No. 49405 (March 11, 2004), 69 FR 12922 (March 
18, 2004), (File No. S7-13-04).
    \6\ For more information about the DWAC service, see Securities 
Exchange Act Release No. 30283 (January 23, 1992), 57 FR 3658 
(January 30, 1992) (SR-DTC-91-16) (order granting approval of the 
DWAC service).
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III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions, assure 
the safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible, to 
foster cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions, to remove 
impediments to and perfect the mechanism of a national system for the 
prompt and accurate clearance and settlement of securities 
transactions, and, in general, to protect investors and the public 
interest.\7\ The rule change modifies a DTC service by discontinuing 
the WT services for unsponsored ADRs that are part of the FAST program, 
which should in turn decrease the use of securities certificates. As a 
result, DTC's rule change, as approved, should make processing 
securities transactions more safe and efficient by discouraging the use 
of securities certificates, which increase the risks and costs 
associated with processing securities transactions.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    Accordingly, for the reasons stated above the Commission believes 
that the rule change is consistent with DTC's obligation under Section 
17A of the Exchange Act, as amended, and the rules and regulations 
thereunder.

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 with the requirements of Section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the

[[Page 17197]]

proposed rule change (File No. SR-DTC-2010-03) be and hereby is 
approved.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7553 Filed 4-2-10; 8:45 am]
BILLING CODE 8011-01-P