Self-Regulatory Organizations; Philadelphia Depository Trust Company and Stock Clearing Corporation of Philadelphia; Notice of Proposed Rule Changes concerning Custodial and Non-Custodial Responsibilities and Certain Litigation Matters

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34560; File Nos. SR-Philadep-94-02 and SR-SCCP-94-04]

Self-Regulatory Organizations; Philadelphia Depository Trust

Company and Stock Clearing Corporation of Philadelphia; Notice of

Proposed Rule Changes concerning Custodial and Non-Custodial

Responsibilities and Certain Litigation Matters

August 19, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on July 19, 1994, the

Philadelphia Depository Trust Company (``Philadep'') and the Stock

Clearing Corporation of Philadelphia (``SCCP'') filed with the

Securities and Exchange Commission (``Commission'') the proposed rule

changes (File Nos. SR-Philadep-94-02 and SR-SCCP-94-04) as described in

Items I, II, and III below, which Items have been prepared primarily by

Philadep and SCCP, self-regulatory organizations (``SROs''). The

Commission is publishing this notice to solicit comments on the

proposed rule changes from interested persons.

I. Self-Regulatory Organizations' Statement of the Terms of Substance

of the Proposed Rule Changes

Philadep and SCCP propose to modify, respectively, Philadep Rule 18

and SCCP Rule 31 to: (1) further define the standard of care with

respect to custodial and noncustodial functions; (2) add a provision

limiting suits against Philadep and SCCP directors, officers,

employees, and agents; and (3) add a provision that requires Philadep

and SCCP participant, in certain circumstances, to pay the expenses and

outside attorneys' fees incurred by Philadep and SCCP defending a legal

proceeding instituted by such participant.

II. Self-Regulatory Organizations' Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Changes

In their filings with the Commission, Philadep and SCCP included

statements concerning the purpose of and basis for the proposed rule

changes and discussed any comments they received on the proposed rule

changes. The text of these statements may be examined at the places

specified in Item IV below. The SROs have prepared summaries, set forth

in sections A, B, and C below, of the most significant aspects of such

statements.

A. Self-Regulatory Organizations' Statements of the Purpose of, and

Statutory Basis for the Proposed Rule Changes

Basically, the purpose of the proposed rule changes is to amend

Philadep Rule 18 and SCCP Rule 31 to clarify the standard of care with

respect to custodial and noncustodial functions; to add language

restricting certain suits against Philadep's and SCCP's officers,

directors, and employees; and to insert provisions regarding

reimbursement of out-of-pocket expenses and outside attorneys' fees

from participants who initiate and fail to prevail in litigation

against Philadep and SCCP.

The proposed rule changes underscore that Philadep and SCCP shall

use their best efforts to perform their duties and responsibilities in

the manner specified in their rules. The proposals redefine Philadep's

and SCCP's standards of care to distinguish between custodial and

noncustodial functions. In the performance of their custodial duties

with respect to their safeguarding of securities and funds, Philadep

and SCCP will continue to be liable to participants for any loss, cost,

expense, damage, or liability attributable to the negligence or

misconduct of Philadep or SCCP or their officers, employees, or agents.

With respect to Philadep's or SCCP's noncustodial activities, Philadep

or SCCP will have no liability to any participant or any third party

for the performance or nonperformance of their duties except to the

extent Philadep's or SCCP's or their officers', employees', or agents'

actions or inactions constitute willful misconduct, gross negligence,

bad faith, or fraudulent or criminal acts. The proposed language

specifically states that the limitations of liability shall not apply

to violations of any federal securities laws.

The proposed rules also add provisions prohibiting current or

former Philadep and SCCP participants from suing any current or former

officer, director, employee, or agent of Philadep or SCCP or of any of

their affiliates, or of their parent corporation, the Philadelphia

Stock Exchange, if such officer, director, employee, or agent is acting

on the business of the Philadep or SCCP, their parent, or any of their

affiliates. The proposed provisions do not prohibit a participant from

suing Philadep or SCCP because of the actions of these individuals. The

proposal only prohibit a participant from suing the individuals acting

in the scope of their official capacities. The limitation does not

apply for violations of federal securities laws.

Finally, the proposed Philadep Rule 18 and SCCP Rule 31 provide

that Philadep and SCCP participants who initiate but fail to prevail in

a legal proceeding against Philadep or SCCP are required to pay the

out-of-pocket expenses and outside attorneys' fees incurred by Philadep

or SCCP, their parent, or affiliates in defending such a proceeding.\2\

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\2\The Commission requests comments on whether there should be a

minimum level of expenses and outside attorneys' fees that Philadep

and SCCP should incur before being entitled to reimbursement.

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Philadep and SCCP state that the proposed rule changes are

consistent with Section 17A of the Exchange Act\3\ in that it will

facilitate the safeguarding of securities and funds which are in

Philadep's custody or control or for which Philadep is responsible.

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\3\15 U.S.C. Sec. 78q-1 (1988).

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B. Self-Regulatory Organizations' Statement on Burden on Competition

Philadep and SCCP believe that the proposed rule changes will not

impose any burden on competition.

C. Self-Regulatory Organizations' Statement on Comments on the Proposed

Rule Change Received from Members, Participants or Others

Philadep nor SCCP have not solicited or received any comments on

the proposed rule changes.

III. Date of Effectiveness of the Proposed Rule Changes 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 such period that the SRO consent, the Commission

will:

(A) by order approve such proposed rule changes or

(B) institute proceedings to determine whether the proposed rule

changes 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 NW., Washington, D.C. 20549.

Copies of the submission, all subsequent amendments, all written

statements with respect to the proposed rule changes that are filed

with the Commission, and all written communications relating to the

proposed rule changes 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 filings will also be

available for inspection and copying at the principal offices of

Philadep and SCCP. All submissions should refer to File Nos. SR-

Philadep-94-02 and SR-SCCP-94-04 and should be submitted by September

19, 1994.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\4\

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\4\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-21179 Filed 8-26-94; 8:45 am]

BILLING CODE 8010-01-M