Document ID: SEC-2006-1580-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-12-07T05:00Z

[Federal Register: December 7, 2006 (Volume 71, Number 235)]
[Notices]               
[Page 71013-71015]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07de06-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54834; File No. SR-Phlx-2006-69]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to a Direct 
Registration System

November 29, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 31, 2006, the Philadelphia Stock Exchange, Inc. (``Phlx'') 
filed with the Securities and Exchange Commission (``Commission'') and 
on November 14, 2006, amended the proposed rule change described in 
Items I, II, and III below, which items have been prepared primarily by 
Phlx. The Commission is publishing this notice to solicit comments on 
the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Phlx proposes to adopt new Rule 868 to require certain listed 
securities to be eligible for a Direct Registration System (``DRS'') 
operated by a securities depository registered as a clearing agency 
under Section 17A of the Act starting on January 1, 2007.

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

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

(1) Purpose
    The purpose of proposed new Phlx Rule 868 \4\ is to reduce the 
cots, risks, and delays associated with the physical delivery of 
securities certificates by requiring that certain securities be 
eligible for DRS.\5\ Proposed Rule 868 would require that on or after 
January 1, 2007, all securities initially listing on Phlx must be 
eligible for DRS operated by a securities depository that is a clearing 
agency registered under Section 17A of the Act (``securities 
depository''). This provision would not extend to (i) securities of 
companies which already have securities listed on Phlx; (ii) securities 
of companies which immediately prior to such listing had securities 
listed on another national securities exchange; (iii) derivative 
products,\6\ or (iv) securities (other than stocks) which are book-
entry-only.
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    \4\ The exact text of the Phlx proposed rule change is set forth 
in its filing, which can be found at http://www.phlx.com/exchange/rulefilngs/2006/S-2006-69.pdf
.

    \5\ The Commission has approved similar rule changes filed by 
the New York Stock Exchange LLC, NASDAQ Stock Market LLC, the 
American Stock Exchange LLC, and the NYSE Arca, Inc. that require 
certain listed companies securities become DRS eligible. Securities 
Exchange Act Release Nos. 54289 (August 8, 2006), 71 FR 47278 
(August 16, 2006) [File No. SR-NYSE-2006-29]; 54288 (August 8, 
2006), 71 FR 47276 (August 16, 2006) [File No. SR-NASDAQ-2006-008]; 
54290 (August 8, 2006), 71 FR 47262 (August 16, 2006) [File No. SR-
Amex-2006-40]; 54410 (September 7, 2006), 71 FR 54316 (September 14, 
2006) [File No. SR-NYSE Arca-2006-31].
    \6\ For purposes of proposed Rule 868, the term ``derivative 
products'' means standardized options issued by The Options Clearing 
Corporation (``OCC'') or other securities that are issued by OCC or 
another limited purpose entity or trust and that are based solely on 
the performance of an index or portfolio of other publicly traded 
securities. The term ``derivative product'' does not include 
warrants of any type or closed-end management investment companies.

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[[Page 71014]]

    Proposed Rule 868 would also require that on or after January 1, 
2008, all securities listed on the Phlx must be eligible for DRS 
operated by a securities depository. This provision would not extend to 
derivative products or securities (other than stocks) that are book-
entry-only.
    Securities certificates are used by issuers as a means to evidence 
and transfer ownership. Because securities certificates require manual 
processing, significant delays, expenses, and risks associated with 
lost, stolen, and forged certificates are attendant in processing 
securities transactions involving securities certificates. In Section 
17A of the Act, Congress recognized these concerns by calling for the 
establishment of a national system for the prompt and accurate 
clearance and settlement of securities transactions, including the 
transfer of record ownership and the safeguarding of securities.\7\
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    \7\ 15 U.S.C. 78q-1
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    DRS allows an investor to establish, either through an issuer's 
transfer agent or through the investor's broker-dealer, a book-entry 
position in a security and to electronically transfer that position 
between the transfer agent and the investor's broker-dealer of the 
investor's choice through a facility currently administered by The 
Depository Trust Company (``DTC'').\8\ By using DRS, investors receive 
a DRS statement as evidence of share ownership instead of a securities 
certificate. Investors retain all the rights associated with securities 
certificates, including such rights as control of ownership and voting 
rights, without having the responsibility of holding and safeguarding 
securities certificates. In addition, in corporate actions such as 
reverse stock splits and mergers, cancellation of old securities 
positions and issuance of new securities positions is handled 
electronically with no securities certificates to be returned to or 
received from transfer agents.
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    \8\ Currently, the only registered clearing agency operating a 
DRS is DTC. For a description of DRS and the DRS facilities 
administered by DTC, see Securities Exchange Act Release Nos. 37931 
(November 7, 1996), 61 FR 58600 (November 15, 1996), [File No. SR-
DTC-96-15] (order granting approval to establish DRS) and 41862 
(September 10, 1999), 64 FR 51162 (September 21, 1999), [File No. 
SR-DTC-99-16] (order approving implementation of the Profile 
Modification System).
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    Issuers and their transfer agents may incur initial costs when 
making an issue DRS-eligible as required by this proposed rule change. 
In order to make a security DRS-eligible, the issuer must have a 
transfer agent which is a DRS Limited Participant at DTC.\9\ Transfer 
agents will need to meet certain DTC criteria, such as insurance and 
connectivity requirements, in order to become a DRS Limited 
Participant. Further, issuers may need to amend their corporate 
documents, such as their by-laws or charter, in order to permit the 
issuance of book-entry shares. Phlx believes that the proposed 
deadlines for DRS eligibility coupled with instructive communication by 
Phlx to issuers, will allow issuers sufficient time to make the 
necessary changes to comply with the proposed rule change.
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    \9\ DTC's rules require that a transfer agent (including an 
issuer acting as its own transfer agent) acting for a company 
issuing securities in DRS must be a DRS Limited Participant. 
Securities Exchange Act Release No. 37931 (November 7, 1996), 61 FR 
58600 (November 15, 1996), [File No. SR-DTC-96-15].
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    While the proposed rule change should significantly reduce the 
number of transactions in securities for which settlement is effected 
by the physical delivery of securities certificates, the propose rule 
change will not eliminate the ability of investors to obtain securities 
certificates provided the issuer chooses to issue or continue to issue 
certificates.
(2) Statutory Basis
    Phlx believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange. In particular, the 
proposed rule change is consistent with Section 6(b)(5) of the Act 
because it would promote just and equitable principles of trade, foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest 
by confirming that certain Phlx's issuers would be required to make 
their securities eligible for a DRS operated by a securities 
depository.\10\
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    \10\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will impose any 
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

    Phlx has neither solicited nor received written comments on the 
proposed rule change.

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 the self-regulatory organization 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, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
) or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Phlx-2006-69 in the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2006-69. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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

[[Page 71015]]

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 Section, 100 F Street, NE., Washington, DC 20549. Copies of 
such filings also will be available for inspection and copying at the 
principal office of Phlx and on Phlx's Web site, http://www.phlx.com. 

All comments received will be posted without change; the Commission 
does not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-Phlx-2006-69 
and should be submitted on or before December 28, 2006.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-20726 Filed 12-6-06; 8:45 am]

BILLING CODE 8011-01-P