[Federal Register Volume 67, Number 110 (Friday, June 7, 2002)]
[Notices]
[Pages 39452-39454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14301]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-45994; File No. SR-DTC-2002-02]
Self-Regulatory Organizations; The Depository Trust Company;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to Modifications to the Existing Operational Arrangements
May 29, 2002.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 26, 2002, The
Depository Trust Company (``DTC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which items have been prepared
primarily by DTC. The Commission is publishing this notice to
[[Page 39453]]
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change consists of modifications to the existing
Operational Arrangements necessary for a securities issue to become
eligible for the services of DTC. These updated operational
arrangements are set forth in a document entitled ``Operational
Arrangements (Necessary for an Issue to Become and Remain Eligible for
DTC Services)'' dated February 2002.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, 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 such
statements.\2\
---------------------------------------------------------------------------
\2\ The Commission has modified parts of these statements.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
DTC's Operational Arrangements memorandum was first published in
June 1987. It was then updated in June 1988, in February 1992, in
December 1994, and most recently in January 1998.\3\ The purpose of
this proposed rule change is to update DTC's issue eligibility
requirements. In particular, the arrangements now expand use of blanket
letters of representation (``BLORs'').
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release Nos. 24818 (August 19,
1987), 52 FR 31833 [File No. DTC-87-10]; 25948 (July 27, 1988), 53
FR 29294 [File No. DTC-88-13]; 30625 (April 23, 1992), 57 FR 18534
[File No. DTC-92-06]; 35649 (April 26, 1995), 60 FR 21576 [File No.
DTC-94-19]; and 39894 (April 21, 1998), 63 FR 23310 [File No. DTC-
97-23].
---------------------------------------------------------------------------
DTC's Operational Arrangements are designed to maximize the number
of issues that can be made eligible while ensuring orderly processing
and timely payments to participants. DTC's experience demonstrates that
when issuers, underwriters, and their counsel are aware of DTC's
requirements, those requirements can be met almost without
exception.\4\
---------------------------------------------------------------------------
\4\ In 2001 a total of 181,599 new issues (CUSIPs) were made
eligible for DTC's services, representing over 99% of all new issues
submitted to DTC's Underwriting Department for eligibility
determinations during the year. These figures include equity,
corporate debt, municipal debt, and U.S. Government and Agency
securities. In the unusual circumstance in which the processing
characteristics of a new issue that is being structured would not
meet DTC's Operational Arrangements, if contacted early enough in
the planning process DTC staff is often able to assist in suggesting
restructuring alternatives that would permit the issue to be made
eligible at the depository.
---------------------------------------------------------------------------
The most significant difference between the new Operational
Arrangements and the Operational Arrangements currently in effect is
DTC's expansion of the use of BLORs to cover corporate book-entry-only
(``BEO'') issues.
In the interest of providing some background, DTC made eligible
181,599 CUSIPs last year, approximately 90% of which were BEOs. All BEO
issues were covered by either a letter of representation (``LOR'') or
in the case of some municipal issues a BLOR. LORs often cover multiple
CUSIPs.
In 1998, DTC first introduced the use of an issuer BLOR on an
optional basis for all municipal issues.\5\ An issuer needs to submit a
BLOR only once to DTC for all issues. This eliminates the need to
submit individual LORs each time the issuer wishes to distribute
securities of a type for which DTC requires an LOR.\6\ These modified
arrangements now extend the use of BLORs to corporate issues.
---------------------------------------------------------------------------
\5\ Securities Exchange Act Release No. 39894 (April 21, 1998),
63 FR 23310 [File No. DTC-97-23].
\6\ DTC undertakes to make available to issuers that execute
BLORs any future modifications in the Operational Arrangements
through publication on DTC's website at www.DTC.org. Upon review,
issuers will have the opportunity to withdraw their BLORs.
---------------------------------------------------------------------------
DTC's experience with BLORs in municipal issues has been quite
encouraging. In 2001, 85% of all municipal BEO issues that were made
DTC-eligible were covered by BLORs. This past year, 2,330 new BLORs
were filed for municipals and an additional 12,138 issues were covered
by existing BLORs \7\ while 2,550 issues were covered by individual
LORs.
---------------------------------------------------------------------------
\7\ As of end-of-year 2001, 22,603 municipal issuers had filed
BLORs with DTC since 1998 to cover their issues.
---------------------------------------------------------------------------
DTC estimates somewhat conservatively that the cost to the industry
in legal fees and delivery costs related to each individual LOR
approximates $250 per LOR. Even on the basis of such a conservative
estimate, the savings to the industry last year alone resulting from
DTC making the blanket letter process available to the 14,468 municipal
issues for which it was used exceeded $3.6 million.
In contrast 4,533 individual corporate LORs were submitted last
year to cover corporate issues. DTC now wishes to extend BLOR savings
and efficiencies to corporate BEO issues that are DTC-eligible.
The proposed rule change is consistent with the requirements of
Section 17A of the Act and the regulations thereunder because it
promotes efficiencies in the clearance and settlement of securities
transactions. It will expedite the process of making securities
eligible for DTC's services and will reduce risks and associated costs
to DTC participants.
(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, in the public interest, and for
the protection of investors.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments from DTC's participants have not been solicited
nor received on the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to section
19(b)(3)(A)(iii) of the Act \8\ and Rule 19b-4(f)(4) \9\ promulgated
thereunder because the proposal effects a change in an existing service
of DTC that (A) does not adversely affect the safeguarding of
securities or funds in the custody or control of DTC or for which it is
responsible and (B) does not significantly affect the respective rights
or obligations of DTC or persons using the service. At any time within
sixty days of the filing of the proposed rule change, the Commission
may summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(3)(A)(iii).
\9\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------
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.
[[Page 39454]]
Persons making written submissions should file six copies thereof with
the Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW., Washington, DC 20549-0609. 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, 450 Fifth Street, NW., Washington, DC 20549. Copies
of such filing will also be available for inspection and copying at the
principal office of the DTC. All submissions should refer to the File
No. SR-DTC-2002-02 and should be submitted by June 28, 2002.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14301 Filed 6-6-02; 8:45 am]
BILLING CODE 8010-01-P