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Notice

Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change Relating to Adopting Unitary Action Procedures

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Information about this document as published in the Federal Register.

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Start Preamble January 18, 2002.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] notice is hereby given that on April 12, 2001, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule Start Printed Page 4300change (File No. SR-DTC-2001-05) as described in Items I, II, III below, which items have been prepared primarily by DTC. The Commission is publishing this notice to solicit comments from interested persons.

I. Self Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

DTC proposes to adopt procedures to enable its nominee, Cede & Co., to exercise certain rights as the recordholder of securities on deposit at DTC where Cede & Co. is only permitted to act with respect to 100% of the securities on deposit or not act at all. This is known as a “Unitary Action” situation.[2]

II. Self-Regulatory Organization's Statement of the Purpose of, and the 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.[3]

A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change

Under DTC's current procedures, in situations involving solicitations when an issuer has announced an annual or special shareholders meeting or consent solicitation and where a record date has been established, DTC assigned applicable Cede & Co. voting rights or consenting rights to its participants that have securities credited to their accounts on the record date and issues an omnibus proxy and forwards it to the issuer or trustee. DTC also assists its participants in exercising other rights available to Cede & Co. as the recordholder of securities on deposit at DTC, such as the right to dissent and seek an appraisal of stock, the right to inspect a stock ledger, and the right to accelerate a bond. Participants may seek DTC's assistance in exercising such rights on their own behalf or on behalf of their customers. DTC will act in these matters only upon written instructions from participants with securities credited in its DTC free account.

In a Unitary Action situation, however, DTC cannot follow the procedures described above.[4] DTC's proposed rule change would enable DTC, in its sole discretion, to determine whether it has a reasonable amount of time to solicit and receive instructions from participants in advance of taking the Unitary Action. If DTC believes it has time to solicit and receive information from its participants, as a general rule DTC will use reasonable efforts to obtain instructions from participants holding a position in the affected security as to how to act. DTC will then act in accordance with the instructions timely received from the holders of a plurality of the number of shares or principal amount of bonds or notes of the affected security registered in Cede & Co.'s name. For matters that are ministerial or otherwise nonsubstantive in nature, DTC may in its sole discretion announce to its participants an action that it plans to take. DTC shall then be deemed to be authorized by participants to take such action, absent instructions timely received to the contrary from its participants representing a majority of the number of shares or principal amount of bonds or notes of the affected security registered in Cede & Co.'s name.

When involved in a situation requiring a Unitary Action where DTC in its sole discretion determines that it does not have a reasonable amount of time to solicit and receive instructions from participants in advance of taking the Unitary Action, DTC may use reasonable efforts to act for the benefit of participants holding positions in the affected security but shall have no obligation to do so.

Under the proposed Unitary Action procedures, DTC will not be liable for any losses arising from Unitary Actions it takes or fails to take in connection with the above-described procedures, other than those losses that are directly caused by DTC's gross negligence or willful misconduct. Moreover, under DTC Rule 20, DTC may charge each participant that holds a position in the affected security a pro rate share (based on the number of shares or principal amount of bonds or notes) of expenses related to DTC's taking a Unitary Action. In such a situation, DTC may incur unusual expenses (e.g., hiring outside counsel) that are specifically attributable to the securities that are subject to the Unitary Action, whereas the Unitary Action does not involve any other securities on deposit with DTC.

DTC believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to DTC since the proposed rule change will, by clarifying the procedures that DTC will follow in situations calling for Unitary Actions, promote the prompt and accurate clearance and settlement of securities transactions.

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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

Written comments from DTC participants have not been solicited or received on the proposed rule change.

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 such longer period (i) as the Commission may delegate up to ninety days of such date if it finds such longer period to be appropriate and published 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 including whether the proposed rule change is consistent with the Act. 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 Start Printed Page 4301the Commission's Public Reference Room, 450 Fifth Street, NW., Washington, DC. Copies of such filing will also be available for inspection and copying at DTC's principal office. All submissions should refer to File No. SR-DTC-2001-05 and should be submitted by February 19, 2002.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[5]

J. Lynn Taylor,

Assistant Secretary.

End Signature End Preamble

Footnotes

2.  The text of DTC's Unitary Action Procedures is labeled as Exhibit 2 of DTC's proposed rule change and is available through the Commission's Public Reference Room or through DTC.

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3.  The Commission has modified the text of the summaries prepared by DTC.

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4.  DTC has experienced only one Unitary Action event. That event involved a non U.S.-issuer in a bankruptcy situation.

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[FR Doc. 02-2070 Filed 1-28-02; 8:45 am]

BILLING CODE 8010-01-M