Daily Rules, Proposed Rules, and Notices of the Federal Government
Currently, DTC participants (
In an effort to further reduce the industry's dependency on physical certificates, DTC is eliminating the issuance of physical certificates through its WT service for issues that participate in DRS. DTC believes this modification of its WT service reaffirms its goals of reducing the costs and risk associated with processing physical certificates.
Pursuant to the rule change, beginning January 1, 2009, DTC will no longer provide for the issuance of a certificate through the WT service if the issue is participating in DRS. Instead, DTC will instruct the issuer's transfer agent to establish a DRS position and to provide a DRS statement in lieu of a physical certificate. An investor will still be able to obtain a physical certificate to the person or entity identified in the WT instruction by taking the investor's DRS statement directly to the issuer's transfer agent for conversion to a certificate or by using DTC's Deposit and Withdrawal at Custodian ("DWAC") process.
The rule change will also eliminate a participant's ability to obtain a physical certificate through the WT service for issues eligible but not participating in DRS on or after July 1, 2009 ("elimination date"). For the small number of issues anticipated not to have become eligible to participate in DRS by the elimination date, WT instructions requesting a physical certificate may continue to be processed through DWAC or Rush WT processes.
Additionally, the rule change will eliminate DTC's Direct Mail by Depository ("DMD") service for all issues in the fourth quarter of 2009. As a result, DTC will no longer mail certificates to investors. Participants will still be able to use the Direct Mail by Agent ("DMA") service through which DTC instructs the transfer agent to provide DRS statements or physical certificates to investors or their
The Commission received two comment letters, one from an individual investor and the other from DTC.
To address the concerns raised by the commenter, DTC responded with a comment letter. DTC stated that the commenter's understanding of DRS is inaccurate because investors holding positions in DRS are actually registered directly on the records of the issuer in book-entry form and therefore are registered shareholders. Furthermore, DTC contended that DRS provides benefits such as reducing the risk of holding securities certificates and allowing the assets to be accurately and quickly moved from DRS to street name position for despositing, thereby assisting in the prompt and accurate clearance and settlement of securities transactions. DTC also noted that because investors holding DRS positions are registered shareholders, they will receive all communications and disbursements directly from the issuer and may request a certificate directly from the issuer's transfer agent.
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.
Contrary to the commenter's statements that DTC's proposed rule change would undermine the investor's ability to become a registered shareholder or eliminate the investor's ability to obtain a certificate, DTC's proposed rule change does neither. Only the issuer can decide whether to make securities eligible for DRS or make securities certificates available. DTC's proposed rule will simply eliminate the issuance of securities certificates through DTC's WT service for issues that are participating in DRS. Furthermore, as DTC noted, investor's holding their securities in DRS are registered shareholders and thereby eligible to all the same rights and obligations as are eligible to investors holding securities certificates.
Accordingly, for the reasons stated above the Commission believes that the rule change is consistent with DTC's obligation under Section 17A of the Act.
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.