Document ID: SEC-2009-0200-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2009-02-11T05:00Z

[Federal Register: February 11, 2009 (Volume 74, Number 27)]
[Notices]
[Page 6934-6935]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe09-100]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59320; File No. SR-NYSE-2008-112]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change To Discontinue Policy of
Prohibiting Transfer Agents From Charging Fees for Issuing Stock
Certificates

January 30, 2009.

I. Introduction

    On October 30, 2008, the New York Stock Exchange LLC (``NYSE'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-NYSE-2008-112 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 December 29, 2008.\2\
The Commission received two comment letters.\3\ 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. 59106 (December 16,
2008), 73 FR 79531.
    \3\ Letters from Charles V. Rossi, President, The Securities
Transfer Association, Inc. (January 16, 2009); and Martin J. McHale,
Jr., President, U.S. Equity Services, Computershare (January 20,
2009).
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II. Description

    As a part of the securities industry moving towards eliminating the
use of physical certificates (i.e., dematerialization) by encouraging
investors to hold securities positions in book-entry form either in
street name at a broker-dealer or through the Direct Registration
System (``DRS''), the NYSE is discontinuing its long-standing,
unwritten policy of prohibiting NYSE listed companies from charging for
the issuance of stock certificates. DRS allows investors to have
securities directly registered in book-entry form on the records of the
issuer or its transfer agent without having a certificate issued.\4\
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    \4\ DRS allows securities positions to be electronically
transferred to a broker-dealer in order to effect a transaction
without the risk and delay associated with the use of paper
certificates. Since March 31, 2008, Section 501.00 of NYSE's Listed
Company Manual has required that all securities listed on the NYSE
must be eligible for participation in DRS. Approximately 2,428 NYSE
listed securities currently participate in DRS. Securities Exchange
Act Release No. 58398 (August 20, 2008), 73 FR 51546 (September 3,
2008) [File No. SR-NYSE-2008-069).
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    In its letter to the NYSE, the Securities Industry and Financial
Markets Association (``SIFMA''), which is one of the leaders in the
movement towards dematerialization, requested that the NYSE discontinue
its prohibition of issuers or their transfer agents charging fees in
connection with the issuance of securities certificates (``SIFMA
Letter'').\5\ SIFMA noted that almost 75% of physical certificates
deposited by broker-dealers and bank custodians at The Depository Trust
Company (``DTC''), a registered clearing agency that is the primary
custodian of securities traded in the United States, were issued within
the last six months. SIFMA stated its beliefs that these recent
deposits indicate that DTC participants (i.e., broker-dealers and
banks) are providing physical certificates to their customers only to
have the securities moved back into street name in a short period of
time. In SIFMA's view, this activity results in unnecessary expense and
in the risk that the certificates may be lost, destroyed, or stolen.
SIFMA stated that it had recently conducted a survey that showed that
more than 1.2 million certificates each year need to be replaced
because of loss, destruction, or theft at an approximate cost to the
transfer agents of $65 million.\6\
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    \5\ Letter to Stephen Walsh, Vice President, NYSE Euronext, from
Lawrence Morillo, SIFMA Operations Legal & Regulatory Sub-Committee
Chair. (August 26, 2008).
    \6\ ``Securities Industry Immobilization & Dematerialization
Implementation Guide--The Phase-Out of the Stock Certificate''
(SIFMA, 2008).
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    NYSE believes that securityholders derive no apparent benefit from
continuing to hold their securities in certificated form rather than in
uncertificated form in street name or through DRS and that the
inability of the issuers or their transfer agents to charge for the
issuance of securities certificates imposes a considerable cost on
issuers and transfer agents. Therefore, NYSE is discontinuing its
prohibition of issuers or their transfer agents charging fees for the
issuance of new certificates. Allowing transfer agents to charge for
the issuance of certificates should not only shift the cost of the
issuance of certificates from the issuers and transfer agents to the
requesting securityholders but should also have the added effect of
encouraging more securityholders to hold their securities in street
name or through DRS, which should further the dematerialization
movement. NYSE listed companies that want their investors to continue
to have access to the free issuance of new certificates will be able to
ensure the continuation of such practice through their contractual
arrangements with their transfer agents.

[[Page 6935]]

    NYSE believes that the rule change will help make the securities
markets more safe and efficient by encouraging the dematerialization of
securities and by correctly placing the cost of the use of certificates
on those investors requesting certificates. NYSE also believes that the
rule change is consistent with the protection of investors and the
public interest because holding a securities position in street name or
through DRS provides investors with the ability to hold their
securities in a safe and cost-effective manner without incurring the
costs associated with the issuance and processing of securities
certificates.

III. Comment Letters

    The Commission received two comment letters,\7\ both in support of
the proposed rule change. Computershare, a registered transfer agent,
and The Securities Transfer Association, an industry association
representing transfer agents, stated that the rule change was an
important step toward the goal of dematerialization by decreasing the
use of certificates in the marketplace and encouraging investors to
hold shares in DRS, thereby reducing the risk and unnecessary expense
for both issuers and shareholders of issuing and holding certificates.
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    \7\ Supra note 3.
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IV. Discussion

    Section 6(b)(5) of the Act requires, among other things, that the
rules of an exchange be designed 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 transaction in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.\8\ The Commission's approval
of the rule change should remove impediments to and perfects the
mechanism of a free and open market and a national market system in
that it encourages the dematerialization of securities, which should
improve the process of transferring securities in the public markets.
The rule change is also consistent with the protection of investors and
the public interest because investors can avoid the fees for the
issuance of certificates by holding their securities in street name or
through DRS which are safer and more cost effective alternatives to
holding securities in certificated form.
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    \8\ 15 U.S.C. 78f(b)(5).
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    Accordingly, for the reasons stated above the Commission believes
that the rule change is consistent with NYSE's obligation under Section
6 of the Act.

V. 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 6 of the Act and the
rules and regulations thereunder.\9\
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    \9\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NYSE-2008-112) be and hereby
is approved.

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-2853 Filed 2-10-09; 8:45 am]

BILLING CODE 8011-01-P