[Federal Register Volume 75, Number 64 (Monday, April 5, 2010)]
[Notices]
[Pages 17196-17197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-7553]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61800; File No. SR-DTC-2010-03]
Self-Regulatory Organizations; The Depository Trust Company;
Order Granting Approval of a Proposed Rule Change To Eliminate the
Option To Receive a Physical Certificate From DTC for Unsponsored
American Depositary Receipts That Are Part of the Fast Automated
Transfer Program
March 30, 2010.
I. Introduction
On January 19, 2010, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-DTC-2010-03 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 February 22, 2010.\2\ The
Commission received no comment letters. 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. 61507 (February 5,
2010), 75 FR 7641 (February 22, 2010).
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II. Description
An ADR is a security that trades in the United States but
represents a specified number of shares in a foreign corporation. ADRs
are issued in the U.S. by depositary banks. An ADR issuance is
``unsponsored'' when there is no formal agreement between the
depositary bank(s) issuing the ADR and the foreign company whose
underlying shares are the basis for the ADR. Because in unsponsored
programs there is no agreement between the issuer and a specific
depositary, more than one depositary can be involved in the issuance
and cancellation of ADR programs. Unsponsored ADRs trade in the over-
the-counter market.
Currently, in order to deposit an unsponsored ADR at DTC, a
depositary bank that is also a DTC participant will have its transfer
agent create a certificate for the new issue ADR, which is then
deposited at DTC by the depositary bank. In an effort to eliminate some
of the risks and costs related to the processing of securities
certificates,\3\ DTC recently made unsponsored ADRs eligible for DTC's
Fast Automated Securities Transfer Program (``FAST'').\4\
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\3\ The costs and risks associated with physical certificates
include, among other things, those associated with safekeeping,
transfer, shipping and insurance costs.
\4\ FAST was designed to eliminate some of the risks and costs
related to the creation, movement, processing, and storage of
securities certificates. Under the FAST program, FAST transfer
agents hold FAST eligible securities in the name of Cede & Co. in
custody and for the benefit of DTC. As additional securities are
deposited or withdrawn from DTC, the FAST transfer agents adjust the
size of DTC's position as appropriate and electronically confirm
theses changes with DTC. For more information 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 6, 2002) [File No. SR-DTC-2002-
15].
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DTC's withdrawal-by-transfer (``WT'') service allows a participant
to instruct DTC to have securities assets that are held in the
participant's DTC account reregistered in the name of the participant,
an investor, or a third party. Upon receipt of a WT instruction from a
participant, DTC either sends a certificate to the transfer agent for
reregistration in the name of the person or entity identified in the WT
instruction or instructs the transfer agent to debit DTC's FAST
position and to issue securities in the name of the person or entity
identified in the WT instruction.
As part of DTC's response to an industry effort to reduce the
number of securities certificates in the U.S. market (sometimes
referred to as ``dematerialization''),\5\ DTC initiated a program of
steadily increasing its fees for WTs and other withdrawals to create
strong disincentives for the use of physical certificates. Consistent
with that program, DTC is now eliminating participants' ability to use
the WT service to have physical certificates issued for unsponsored
ADRs that are a part of the FAST Program. DTC believes that this
modification of its WT service reaffirms its goals of reducing the
number of securities certificates in the U.S. markets. DTC participants
will continue to have the ability to request a physical certificate
directly from the transfer agent by using the DWAC process.\6\
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\5\ For more information on dematerialization, see Securities
Exchange Act Release No. 49405 (March 11, 2004), 69 FR 12922 (March
18, 2004), (File No. S7-13-04).
\6\ For more information about the DWAC service, see Securities
Exchange Act Release No. 30283 (January 23, 1992), 57 FR 3658
(January 30, 1992) (SR-DTC-91-16) (order granting approval of the
DWAC service).
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III. Discussion
Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions, assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, to
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions, to remove
impediments to and perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of securities
transactions, and, in general, to protect investors and the public
interest.\7\ The rule change modifies a DTC service by discontinuing
the WT services for unsponsored ADRs that are part of the FAST program,
which should in turn decrease the use of securities certificates. As a
result, DTC's rule change, as approved, should make processing
securities transactions more safe and efficient by discouraging the use
of securities certificates, which increase the risks and costs
associated with processing securities transactions.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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Accordingly, for the reasons stated above the Commission believes
that the rule change is consistent with DTC's obligation under Section
17A of the Exchange Act, as amended, and the rules and regulations
thereunder.
IV. 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 17A of the Act and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the
[[Page 17197]]
proposed rule change (File No. SR-DTC-2010-03) be and hereby is
approved.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-7553 Filed 4-2-10; 8:45 am]
BILLING CODE 8011-01-P