Document ID: SEC-2008-0356-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Depository Trust Company
Posted Date: 2008-03-06T05:00Z

[Federal Register: March 6, 2008 (Volume 73, Number 45)]
[Notices]               
[Page 12236-12237]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06mr08-115]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57406; File No. SR-DTC-2007-06]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change To Modify the Hearing Procedures 
Afforded to Interested Persons for Membership and Harmonize Them With 
Similar Rules of Its Affiliates

February 29, 2008.

I. Introduction

    On April 30, 2007, the Depository Trust Company (``DTC'') filed 
with the Securities and Exchange Commission (``Commission'') proposed 
rule change SR-DTC-2007-06 pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'').\1\ The proposed rule change 
was published for comment in the Federal Register on December 6, 
2007.\2\ No comment letters were received on the proposal. This order 
approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 56863 (Nov. 29, 2007), 
72 FR 68920.
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II. Description

    The proposed rule change (1) modifies DTC's rules regarding hearing 
procedures afforded to Interested Persons \3\ and (2) where practicable 
or beneficial, harmonizes such rules with similar rules of DTC's 
affiliates, the Fixed Income Clearing Corporation (``FICC'') and the 
National Securities Clearing Corporation (``NSCC'').\4\
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    \3\ An Interested Person is defined by DTC's Rules as a 
Participant, Pledgee, or applicant to become a Participant or 
Pledgee, or issuer of a Security. Rule 22, Section 1.
    \4\ FICC and NSCC have filed similar proposed rule changes. 
Securities Exchange Act Release No. 56864 (Nov. 29, 2007), 72 FR 
68922, Securities Exchange Act Release No. 57405 (Feb. 29, 2008) 
[SR-FICC-2007-06]. Securities Exchange Act Release No. 56865 (Nov. 
29, 2007), 72 FR 68930, Securities Exchange Act Release No. 57404 
(Feb. 29, 2008) [SR-NSCC-2007-06].
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A. Minor Rule Violation Plan

    In 1984, the Commission adopted amendments to Rule 19d-1(c) under 
the Act \5\ that allow self-regulatory organizations with Commission 
approval to adopt plans for the disposition of minor violations of 
rules.\6\
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    \5\ 17 CFR 240.19d-1(c).
    \6\ Securities Exchange Act Release No. 21013 (June 1, 1984), 49 
FR 23828 (June 8, 1984) [File No. S7-983A].
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    Currently under DTC's rules, an Interested Person subject to 
disciplinary action has a right to a hearing before a panel selected by 
the Chairman of the Board from a pool of persons that are employed by 
or are partners of DTC's participants. Because some rule violations are 
not sufficiently serious to merit Board review, DTC is adopting a Minor 
Rule Violation Plan within the meaning of Rule 19d-1(c)(2) under the 
Act for those rule violations DTC deems minor. Consistent with Rule 
19d-1(c)(2) under the Act, DTC is designating as minor rule violations 
those rule violations for which a fine may be assessed in an amount not 
to exceed $5,000. If an Interested Person disputes a fine imposed by 
DTC by filing a written request for hearing and a written statement 
setting forth, among other things, the action or proposed action with 
respect to which the hearing is being requested and the basis for 
objection to such action, DTC management would have the authority to 
waive the fine. DTC management would notify the Board of Directors or a 
Committee authorized by the Board of Directors of its determination to 
waive the fine and would provide the reasons for the waiver. The Board 
or Committee could in its discretion decide to reinstate any fine 
waived by DTC management. If DTC management were not to waive the fine, 
the Interested Person could appeal the decision to a panel comprised of 
DTC officers (``Minor Rule Violation Panel'').

B. Hearings for All Other Violations and Minor Rule Violation Appeals

    For matters involving (1) an alleged violation of a DTC rule for 
which a fine in an amount of over $5,000 is assessed, (2) applicants 
for membership, (3) other disciplinary actions to which the Minor Rule 
Violation Plan would not apply, or (4) for appeals from a Minor Rule 
Violation Panel decision adverse to an Interested Person, the 
Interested Person is entitled to a hearing before a panel selected by 
the Chairman of the Board from a pool of persons that are employed by 
or are partners of participants. Members of the pool are appointed by 
the Board or by the Chairman. Decisions of the panel are final; 
however, the full Board of Directors retains the right to modify any 
sanction or reverse any decision of the panel that is adverse to the 
Interested Person.
    Currently with respect to hearings, an Interested Person is 
afforded the opportunity to be heard and may be represented by counsel 
if desired. A record is kept of the hearing, and at the discretion of 
the panel, the associated cost may be charged in whole or part to the 
Interested Person in the event that the decision is adverse to the 
Interested Person. The Interested Person is advised of the panel's 
decision within ten

[[Page 12237]]

business days after the conclusion of the hearing. These procedures 
would also apply with respect to the Minor Rule Violation Plan.

C. Administrative Changes: Uniformity of Time Frames

    The rule changes will implement uniform time periods among DTC, 
FICC, and NSCC governing actions an Interested Person would be required 
to take in order to request a hearing.\7\ Under the rule change, an 
Interested Person has five business days from the date on which DTC 
first informs it of a sanction or a denial of membership in which to 
request a hearing.
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    \7\ Except that FICC and NSCC rules impose an accelerated 
deadline for a member or applicant to request a hearing in the case 
of summary action taken against the member or applicant. A summary 
action is an action taken prior to a hearing to determine the 
propriety of the action.
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    Within seven business days, or three business days in the case of a 
summary action taken against the Interested Person, after filing a 
request for a hearing with DTC, the Interested Person is required to 
submit to DTC a clear and concise written statement setting forth the 
action or proposed action of DTC with respect to which the hearing is 
requested, the basis for objection to such action, whether the 
Interested Person intends to attend the hearing, and whether the 
Interested Person chooses to be represented by counsel at the hearing.

III. Discussion

    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 registered clearing agency. In particular, 
the Commission believes the proposal is consistent with the 
requirements of Section 17A(b)(3)(F),\8\ which, among other things, 
requires that the rules of a clearing agency are designed to remove 
impediments to and perfect the mechanisms of a national system for the 
prompt and accurate clearance and settlement of securities transactions 
and with the requirements of Section 17A(b)(3)(H) \9\ which, among 
other things, requires that the rules of a clearing agency provide a 
fair procedure with respect to the disciplining of participants and the 
denial of participation to any person seeking to be a participant. The 
Commission finds that the proposed rule change, which harmonizes DTC's 
hearing procedure rules with those of FICC and NSCC and which adopts a 
Minor Rule Violation Plan, is consistent with those statutory 
obligations.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
    \9\ 15 U.S.C. 78q-1(b)(3)(H).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \10\ and the 
rules and regulations thereunder.
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    \10\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-DTC-2007-06) be, 
and hereby is, approved.\12\
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 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).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-4342 Filed 3-5-08; 8:45 am]

BILLING CODE 8011-01-P