Document ID: SEC-2006-0729-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2006-06-07T04:00Z

[Federal Register: June 7, 2006 (Volume 71, Number 109)]
[Notices]               
[Page 33009-33011]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07jn06-139]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53911; File No. SR-Amex-2006-40]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to Direct 
Registration System Eligibility Requirements

 May 31, 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 April 28, 2006, the American Stock Exchange LLC (``Amex'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I, II, and III below, which 
items have been prepared primarily by Amex. 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

    Amex is proposing to add new Rule 778 to its Rules and new Section 
135 to its Company Guide to require certain listed securities to be 
eligible for a Direct Registration System operated by a securities 
depository.\3\
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    \3\ The term ``securities depository'' means a securities 
depository registered as a clearing agency under Section 17A(b)(2) 
of the Act.
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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, Amex included statements 
concerning

[[Page 33010]]

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. 
Amex has prepared summaries, set forth in sections (A), (B), and (C) 
below, of the most significant aspects of these statements.\4\
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    \4\ The Commission has modified the text of the summaries 
prepared by the Amex.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
    In order to reduce the costs, risks, and delays associated with the 
physical delivery of securities certificates, Amex is proposing to 
require (i) all securities (other than the securities identified below) 
initially listing on Amex on or after January 1, 2007, to be eligible 
for a DRS and (ii) all securities (other than the securities identified 
below) listed on Amex on and after January 1, 2008, to be eligible for 
a DRS.\5\ The initial listing requirement set forth in (i) above will 
not apply to securities of issuers which already have securities listed 
on the Amex, securities of issuers which immediately prior to such 
initial Amex listing had securities listed on another national 
securities exchange, derivative products,\6\ or securities (other than 
stocks) which are book-entry-only. The ongoing listing requirement set 
forth in (ii) above will not apply to derivative products or securities 
(other than stocks) which are book-entry-only.
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    \5\ The New York Stock Exchange LLC (``NYSE'') and The NASDAQ 
Stock Market LLC (``Nasdaq'') have also filed proposed rule changes 
with the Commission that would require certain listed companies to 
become DRS eligible. Securities Exchange Act Release Nos. 53912 (May 
31, 2006) [File No. SR-NYSE-2006-29] and 53913 (May 31, 2006) [File 
No. SR-NASDAQ-2006-08].
    \6\ As defined in Article 1, Section 3(d) of Amex's 
Constitution, the term ``derivative products'' includes in addition 
to standardized options, other securities which are issued by The 
Options Clearing Corporation or another limited purpose entity or 
trust, and which are based solely on the performance of an index or 
portfolio of other publicly traded securities. The term ``derivative 
products'' does not include warrants of any type or closed-end 
management investment companies.
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    Securities certificates are used by issuers as a means to evidence 
and transfer ownership. Because securities certificates require manual 
processing and because trading volumes have increased, the manual 
clearance and settlement systems have become overburdened resulting in 
significant delays and expenses in processing securities transaction 
and in increased risks associated with lost, stolen, and forged 
certificates. In Section 17A of the Act,\7\ 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.
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    \7\ 15 U.S.C. 78q-1.
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    A DRS allows an investor to establish either through the issuer's 
transfer agent or through the investor's broker-dealer a book-entry 
securities position on the books of the issuer and to electronically 
transfer that securities position between the transfer agent and the 
broker-dealer through facilities administered by DTC.\8\ Instead of 
receiving a securities certificate, the investor receives a DRS 
statement as evidence of share ownership. Investors retain 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 shares and issuance of new shares are 
handled electronically with no securities certificates to be returned 
to or received from the transfer agent.
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    \8\ Currently, the only registered clearing agency operating a 
DRS is the Depository Trust Company (``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 and in turn satisfy the new listing 
standards as set forth in this proposed rule change. In order to make a 
security DRS-eligible, the issuer must have a transfer agent which is a 
DRS Limited Participants.\9\ Issuers will also need to meet certain DTC 
criteria, such as insurance and connectivity requirements, in order to 
make an issue DRS-eligible. Further, an issuer's corporate by-laws must 
permit the issuance of book-entry shares. Amex believes that the 
proposed deadlines for DRS eligibility coupled with proactive and 
instructive communication by Amex with issuers, will allow issuers 
sufficient time to make the necessary changes to comply with the 
proposed rule change.
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    \9\ For a description of DTC's rules relating to DRS Limited 
Participants and a description of 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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    While the propose rule change should significantly reduce the 
number of transactions in securities for which settlement is effected 
by the physical delivery of securities certificates, the proposed rule 
change will not eliminate the ability of investors to obtain securities 
certificates after the settlement of securities transactions, provided 
the issuer chooses to issue or continue to issue certificates.
(2) Statutory Basis
    Amex believes the proposed rule change is consistent with Section 
6(b) of the Act, in general, and furthers the objectives of Section 
6(b)(5) of the Act, in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to 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.\10\
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    \10\ 15 U.S.C. 78f(b)(5).
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    Amex believes that DRS eligibility listing requirements will limit 
market impediments arising from the physical delivery of securities 
certificates, thereby promoting the perfection of the national market 
system. Because investors will have the option of holding their 
securities in DRS only if the security is DRS-eligible, Amex believes 
that the proposed rule change is necessary to encourage listed issuers 
to limit the use of physical certificates. Further, the proposed rule 
change should serve to increase the efficiency of the clearance and 
settlement system and prevent forgery, theft, or other misappropriation 
thereby serving to better protect the public interest. Finally, because 
the costs, both direct and indirect, associated with securities 
certificates are ultimately borne by investors, Amex believes that 
investors in Amex listed securities covered by the proposed rule change 
should realize the benefits of accurate, quick, and cost-efficient 
transfers, rapid distribution of sale proceeds, reduced lost or stolen 
certificates and replacement fees, elimination of the risk associated 
with catastrophic events, and consistency of owning in book-entry 
across asset classes.

[[Page 33011]]

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

    Amex 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

    No written comments were solicited or received by Amex with respect 
to 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-Amex-2006-40 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-Amex-2006-40. 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 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 Amex 
and on Amex's Web site, http://www.amex.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-Amex-2006-40 and should be submitted on 
or before June 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E6-8817 Filed 6-6-06; 8:45 am]

BILLING CODE 8010-01-P