Document ID: SEC-2008-1106-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The Depository Trust Co.
Posted Date: 2008-08-11T04:00Z

[Federal Register: August 11, 2008 (Volume 73, Number 155)]
[Notices]               
[Page 46693-46695]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11au08-128]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58292; File No. SR-DTC-2008-07]

 
Self-Regulatory Organizations; The Depository Trust Company; 
Notice of Filing of Proposed Rule Change to Implement Processing 
Enhancements to the Profile Modification System Used in the Direct 
Registration System

August 1, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 7, 2008, The 
Depository Trust Company (``DTC'') filed with the Securities and 
Exchange Commission (``Commission'') proposed rule change No. SR-DTC-
2008-07. The Commission is publishing this notice to solicit comments 
from interested parties on the proposed rule change as described in 
Items I, II, and III below, which items have been prepared primarily by 
the DTC.\2\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ The exact text of the DTC's proposed rule change can be 
found at http://www.dtcc.com/legal/rule_filings/dtc/2008.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    DTC is proposing to enhance its Profile Modification System in 
order to allow a ``move all'' instruction and to allow a second 
taxpayer identification number or social security number to be used to 
verify instructions, DTC is also proposing to impose new participant 
fees to reimburse transfer agents for the cost of implementing and 
maintaining the proposed Profile enhancements.

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

    In its filing with the Commission, the DTC 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. DTC 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 DTC.
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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 Direct Registration System (``DRS'') allows investors to hold 
their securities positions on the records of the issuer in book-entry 
form rather than in certificated form. In May 2000, DTC established the 
Profile Modification System (``Profile'') which allows its participants 
(i.e., broker-dealers and banks) and DRS Limited Participants (i.e., 
transfer agents) to electronically change an investor's securities 
positions from street-name ownership to direct registration book-entry 
position and vice versa.\4\ Specifically, Profile allows

[[Page 46694]]

participants to electronically submit an investor's instruction that 
its share positions be moved from the investor's DRS account to the 
investor's broker-dealer's participant account at DTC. Profile also 
allows DRS Limited Participants to submit an investor's instruction for 
the movement of its share positions from the investor's broker-dealer's 
participant account at DTC to an account maintained by the DRS Limited 
Participant. Currently, DTC receives on average approximately 50,000 
Profile instructions per month and that volume is expected to rise.
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    \4\ Transfer agents acting as DRS Limited Participants must meet 
certain criteria established by DTC, which includes, among other 
things, that the transfer agent also be eligible to participate in 
DTC's Fast Automated Securities Transfer Program (``FAST''). For 
securities that are part of FAST, the DRS Limited Participants hold 
the securities registered in the name of DTC's nominee, Cede & Co., 
in the form of balance certificates. As additional securities are 
deposited or withdrawn (``deposit-by-transfer'' and ``withdrawal-by-
transfer'', respectively) from DTC, the DRS Limited Participant 
adjusts the denomination of the balance certificate as appropriate, 
and electronically confirms these changes with DTC. As such, the 
program reduces the movement of physical certificates between DTC 
and DRS Limited Participants, reducing costs and risks to DTC, its 
participants, issuers and transfer agents associated with the 
creation, movement, and storing of certificates. For a description 
of DTC's current rules 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 2, 2002) (File No. SR-DTC 2002-15).
    In addition, DTC has filed a proposed rule change with the 
Commission relating to updating its FAST and DRS program 
requirements. See Securities Exchange Act Release No. 57362 
(February 20, 2008) [File No. SR-DTC-2006-16].
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    As the use of DRS continues to grow, attention has centered on 
reducing the number of rejected instructions submitted through Profile. 
In order to effectively transfer an investor's securities position 
using Profile, the participant must enter into Profile an instruction 
containing certain identifying criteria of the investor, such as share 
quantity and a taxpayer identification number (``TIN'') or Social 
Security number. If the submitted information does not match the 
information the DRS Limited Participant has on its file, the Profile 
instruction is rejected, which may result in a rejection fee assessed 
by the DRS Limited Participant. More importantly, the rejection can 
also result in delays in transferring the position, possibly causing 
financial harm to an investor.
    Today, nearly 25% of all Profile instructions are rejected by the 
transfer agents. The two most common reasons for rejections are the 
Profile instruction not matching the share quantity and the Profile 
instruction not matching the investor's TIN or Social Security number 
on the transfer agent's records. The DRS Ad Hoc Committee, an industry 
committee established to address operational issues related to DRS, 
believes that by implementing certain system and processing 
improvements, the industry can potentially eliminate about 7,000 
Profile rejections per month.
    a. Proposed Changes to Profile
    In an effort to decrease the number of rejections in Profile, 
members of the DRS Ad Hoc Committee have agreed that DTC should enhance 
the Profile functionality and that these changes should be required of 
all Profile users. Accordingly, DTC is proposing to make the following 
enhancements to Profile functionality:
    Move All Instruction. Currently, Profile requires a participant to 
enter a specific share quantity or dollar value (in the case of debt) 
in their Profile instruction. Under the proposed rule change, the 
participant submitting an instruction in Profile would be allowed to 
select one of the following options: (1) Enter a specific share 
quantity or dollar value; (2) move all of the investor's whole shares 
\5\ to the requesting participant's account at DTC; (3) move all of the 
investor's whole shares to the requesting participant's account at DTC, 
liquidate any fractional share positions remaining in the account at 
the transfer agent, and have the cash proceeds mailed directly to the 
investor; (4) move all of the investor's whole shares to the requesting 
participant's account at DTC, liquidate any fractional share positions 
remaining in the account at the transfer agent, have the cash proceeds 
mailed directly to the investor, and close the investor's DRS and 
Dividend Reinvestment Plan (``DRIP'') account.\6\ By using the ``move-
all'' functionality, participants can forgo referencing a specific 
share quantity in the Profile instruction, which DTC believes should 
eliminate a major cause of Profile rejections.\7\
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    \5\ DTC's systems only process whole shares, not fractional 
shares and only allow whole shares to be held in participants' 
accounts at DTC.
    \6\ Some transfer agents maintain separate investor accounts for 
DRIP shares and DRS positions. The participant's instruction via 
Profile to close the account would require a DRS Limited Participant 
to close both the DRIP and the DRS account.
    \7\ Although DRS Limited Participants are able to enter Profile 
instructions to move DRS positions from a participant account at DTC 
to the investor's account on the books of the issuer, the proposed 
rule change will not permit the ``move all'' function in Profile to 
be available to the DRS Limited Participant at this time.
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    Dual TIN or Social Security Numbers. Currently, participants are 
permitted to enter only one TIN or Social Security number in its 
Profile instruction. Under the proposed rule change, participants may 
elect to submit a Profile instruction with two TINs or Social Security 
numbers instead of one. The option to submit a Profile instruction with 
two TIN or Social Security numbers may be necessary, for example, where 
the investor's account is a joint account. For those Profile 
instructions with two TIN or Social Security Numbers, the DRS Limited 
Participant will only need to match one of the TIN or Social numbers on 
the Profile instruction to the DRS Limited Participant's records for 
the investor account.
    The proposed rule change will require participants and DRS Limited 
Participants that process their DRS transactions through a direct 
electronic computer-to-computer link with DTC to make internal system 
enhancements to accommodate DTC's changes to Profile.\8\ Specifically, 
internal systems will need to be enhanced so that they are able to 
accept DRS Profile instructions to ``move all'' shares from the 
investor's DRS Limited Participant account to the investor's 
participant's account at DTC. They will also need to be enhanced so 
that they are able to allow participants to submit Profile transactions 
with a second TIN/Social security number.
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    \8\ It is anticipated that for those users that communicate 
Profile instructions through DTC via a dedicated terminal (PTS or 
PBS), they will only need to update their internal procedures and 
workflow.
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    b. Proposed Remuneration
    Members of the DRS Ad Hoc Committee have also agreed that 
participants will pay DRS Limited Participants two types of 
remuneration: (1) Reimbursement to compensate for the initial system 
development of the enhancements contemplated under the move-all 
proposal and (2) a transaction fee to pay for the on-going 
administration of the proposed new functions. Accordingly, DTC is 
proposing to require participants to pay for seventy-five percent of 
all system costs with a maximum payment of $200,000 per DRS Limited 
Participant for project plans submitted by DRS Limited Participants to 
DTC by September 1, 2008. For project plans that will be managed by a 
third party vendor, participants would be required to pay a 
remuneration based on the vendor's total project cost. DTC would act as 
a conduit to collect and distribute the remuneration from the 
participants to DRS Limited Participants.
    Under the proposed rule change, DRS Limited Participants will be 
required to submit a project plan to DTC by September 1, 2008, and be 
ready to implement the ``move all'' Profile functionality by November 
1, 2008, in order to be eligible to receive the system cost 
remuneration. DTC will make a one time payment to eligible DRS Limited 
Participants no later than 90 calendar days after the completion of the 
move all and dual TIN or Social security functionality going live. DTC 
proposes to collect a surcharge of $1.00 from participants, for no more 
than twenty-

[[Page 46695]]

four calendar months, for each Profile transaction submitted by a 
participant in order to offset the up-front remuneration made by DTC to 
DRS Limited Participants. DTC will eliminate the surcharge at the end 
of twenty-four calendar months or sooner if the total amount of up-
front remuneration paid by DTC is collected before the twenty-four 
month period has expired.
    DTC also proposed to charge participants $.75 per Profile 
transaction to offset the on-going cost to DRS Limited Participants of 
supporting the ``move all'' function. The transaction fee will be 
adjusted annually to reflect DRS Profile transactional volume changes. 
The proposed rule change will require DRS Limited Participants that 
wish to receive a transaction fee to submit their project plan by 
September 1, 2008. The DRS Limited Participants represented on the DRS 
Ad Hoc Committee have agreed that the monthly transactional fee will be 
no more than $25,000 per year per DRS Limited Participant. DTC will pay 
each eligible DRS Limited Participant with 2,000 or more Profile 
transactions monthly a set monthly amount of $2,080, or $24,960 
annually. DTC will pay each eligible DRS Limited Participant with at 
least 200 transactions monthly but less than 2,000 transactions monthly 
a set monthly amount of $800, or $9,600 annually. DTC will not pay DRS 
Limited Participants with less than 200 transactions a month.
    c. Proposed DRS Limited Participant Eligibility Requirements
    DTC proposes to amend its DRS Limited Participant rules to require 
transfer agents to be able to process Profile instructions requesting 
the ``move all'' options and instructions including dual TIN or Social 
Security numbers. To maintain eligibility as a DRS Limited Participant, 
all current DRS Limited Participants must provide ``move all'' and dual 
TIN or Social Security number processing capability by no later than 
December 31, 2008.
2. Statutory Basis
    DTC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act, as amended,\9\ and the rules 
and regulations thereunder because it improves efficiency and reduces 
risks associated with processing DRS transaction through Profile and 
improves the standards relating to the eligibility of transfer agents 
effecting DRS transactions.
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    \9\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DTC 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

    DTC 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-DTC-2008-07 in the subject line.

Paper Comments

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

All submissions should refer to File Number SR-DTC-2008-07. 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, on official business days between the hours 
of 10 a.m. and 3:30 p.m. Copies of such filings also will be available 
for inspection and copying at the principal office of the DTC and on 
the DTC's Web site, http://www.dtcc.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-DTC-2008-07 and should be submitted on 
or before September 2, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\10\
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    \10\ 15 U.S.C. 78q-1.
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18421 Filed 8-8-08; 8:45 am]

BILLING CODE 8025-01-P