SECURITIES AND EXCHANGE COMMISSION (Release No. 34-37778; File No. SR-DTC-96-15) October 3, 1996 Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change Relating to the Procedures to Establish a Direct Registration System Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"),1 notice is hereby given that on September 17, 1996, 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 solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change will establish (1) a new service called the Direct Registration System ("DRS"), which was developed by the securities industry, and (2) a new category of participants whose use of DTC's services will be limited to DRS. 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 (A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The proposed rule change will amend DTC's rules (1) to establish a new category of participant called a limited participant which would be authorized to use only certain services of the depository; (2) to describe the DRS service to be offered by DTC; and (3) to set forth the requirements for (a) the admission of limited participants authorized to use only the DRS service and (b) the eligibility of securities for the DRS service. DRS will permit an investor to hold a security directly in electronic form as the registered owner of the security on the books of the issuer rather than (1) indirectly through a financial intermediary that holds the security in street name or in an account with a depository or (2) in the form of a certificate. The investor will have the right to transfer its DRS position in the security to a financial intermediary in order to sell or pledge the security or to receive a certificate representing the security.3 To facilitate the transfer of a DRS position to a financial intermediary, DTC will offer a new service to transfer agent, bank, and broker-dealer participants of DTC. A transfer agent that participates in the Fast Automated Transfer ("FAST") program at DTC and meets the other qualifications described below will be able to become a DRS limited participant. Using the DRS service, an investor's DRS position could be transferred by the DRS limited participant (i.e., the transfer agent) to the financial intermediary acting for the investor (i.e., a bank or broker- dealer participant) through the facilities of DTC. Specifically, the limited participant will credit its DTC FAST account with the amount of the security to be transferred, and DTC in turn will credit the account of the receiving participant with that amount of the security.4 To qualify for admission as a limited participant for DRS services, an applicant must be a partnership, corporation, or other organization or entity that (1) is registered as a transfer agent pursuant to Section 17A(c) of the Act and Rule 17Ac2-1 thereunder, (2) participates in the FAST program, (3) provides Direct Mail Service on transfers, (4) accepts dividend reinvestment instructions from DTC on DRS eligible securities that offer dividend reinvestment plans, (5) communicates with DTC using DTC computer-to-computer ("CCF") platforms, and (6) executes an accountholder agreement.5 To qualify as an eligible security for processing through the DRS service, a security must be eligible for the FAST program. A DRS limited participant will be charged the following fees: 1. Limited Participant Accountholder fee........................$225 per month 2. Deliver Order transaction processing fee.....................$.45 per transaction DTC participants receiving such a DRS delivery will also be charged $.45 per transaction. In addition, when a DTC participant instructs a transfer agent to establish a DRS account for a shareholder and the transfer agent subsequently mails a transaction advice to the shareholder confirming that such an account has been established at the transfer agent, the transfer agent's fee of $.55 for mailing and handling the DRS transaction advice will be charged back to the participant directly by DTC. DTC will collect the advice fees and will periodically remit such fees to the transfer agent. The proposed rule change is consistent with the Congressional objectives in Section 17A(a)(1) of the Act6 in that it promotes efficiencies in the prompt and accurate clearance and settlement of securities transactions. DRS will enhance the availability of securities for settlement in a three business day settlement ("T+3") environment. Individual investors electing book-entry positions on the books of the issuers (i.e., DRS positions) will be able to subsequently arrange to have such positions transferred electronically to banks or broker-dealers in connection with sales or other dispositions of the securities. By effecting transfers through automated linkages between transfer agents and DTC, the DRS service to be offered by DTC will promote efficiencies in the clearance and settlement system. Moreover, DRS will foster cooperation and coordination between DTC and other entities engaged in the clearance and settlement of securities transactions. (B) Self-Regulatory Organization's Statement on Burden on Competition DTC perceives no impact on competition by reason of the proposed rule change. (C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule change Received from Members, Participants or Others Although DTC did not solicit comments on DRS, over the last two years, a joint committee of representatives of the Securities Transfer Association, the Securities Industry Association, the Corporate Transfer Agents Association, and the depositories has met and agreed on the features of DRS. 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 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 Room in Washington, D.C. Copies of such filing will also be available for inspection and copying at the principal office of DTC. All submissions should refer to the file number SR-DTC-96-15 and should be submitted by [insert date 21 days after the date of this publication]. For the Commission by the Division of Market Regulation, pursuant to delegated authority. Jonathan G. Katz Secretary SEC NEWS DIGEST SELF-REGULATORY ORGANIZATIONS PROPOSED RULE CHANGE The Depository Trust Company has filed a proposed rule change (File No. SR-DTC-96-15 ) under the Securities Exchange Act of 1934 relating to the establishment of procedures to implement a direct registration system. Publication is expected in the Federal Register during the week of October , 1996. (Release No. 34-37778) _______________________________ 1 15 U.S.C. 78s(b)(1) (1988). 2 The Commission has modified parts of these statements. 3 For a complete description of DRS, refer to Securities Exchange Act Release No. 35038 (December 1, 1994), 59 FR 63652 (concept release on a transfer agent operated book- entry registration system). 4 A complete description of the DRS service may be found in the Important Notices issued by DTC on the implementation of a DRS, which are attached as Exhibit A and Exhibit B. Important Notice B# 1368-96 (July 15, 1996) and Important Notice B# 1505-96 (July 26, 1996). 5 Under the accountholder agreement, the transfer agent, among other things, agrees to continue to meet the admission criteria, pay all applicable fees, and indemnify DTC for any expense caused by the limited participant's act or omission. 6 15 U.S.C. 78q-1(a)(1) (1988).