Transfer Agents Operating Direct Registration System, Assumption or Termination of Transfer Agents Services and Transfer Agents Rules; Rule and Proposed Rules SECURITIES AND EXCHANGE COMMISSION

SUMMARY: The Securities and Exchange Commission is soliciting comment

on the policy implications of, and the regulatory issues raised by, a

transfer agent operated book-entry registration system (hereinafter

referred to as the ``direct registration system'' or ``DRS'').

Investors who choose to participate in a direct registration system

could have their securities registered in book-entry form directly on

the books of the issuer and could receive a statement of ownership in

lieu of a securities certificate. The direct registration system would

extend book-entry registration to corporate equity and debt

securityholders; book-entry registration is currently offered to

dividend reinvestment plans and shares of registered investment

companies. This system is being considered by issuers and transfer

agents in preparation for faster trade settlements which will be

required on June 7, 1995.

DATES: Comments should be submitted on or before February 6, 1995.

ADDRESSES: Interested persons should submit three copies of their

written data, views, and opinions to Jonathan G. Katz, Secretary,

Securities and Exchange Commission, 450 Fifth Street, NW., Mail Stop 6-

9, Washington DC 20549. Comment letters should refer to File No. S7-34-

94. All comment letters will be available for public inspection and

copying at the Commission's Public Reference Room, 450 Fifth St., NW.,

Washington DC 20549.

FOR FURTHER INFORMATION CONTACT:

Ester Saverson, Jr., Senior Counsel, or Michele J. Bianco, Attorney, at

202/942-4187, Office of Market Supervision, Mail Stop 5-1, Division of

Market Regulation, Securities and Exchange Commission, Washington, DC

20549.

SUPPLEMENTARY INFORMATION: In October 1993, the Commission adopted Rule

15c6-1 under the Securities Exchange Act of 1934 (``Exchange Act'')

which, effective June 7, 1995, will shorten the standard timeframe for

settling securities transactions from five to three business days. The

shorter settlement period will, among other things, reduce the

potential for systemic risk, promote efficient and liquid markets, and

foster investor confidence in the U.S. securities markets. The

Commission took this step recognizing that the implementation of faster

settlement of securities transactions would require considerable

effort, including other changes in the clearance and settlement

process. Moreover, the Commission recognized that these changes would

have wider implications for investors, securities markets, and

financial intermediaries.\1\ Even before the Commission proposed to

require faster settlement of securities transactions, commenters

overwhelmingly expressed concern that changes in the settlement cycle

should not also result in mandatory elimination of the stock

certificate.\2\ In response to these concerns, the Commission noted in

the release proposing Rule 15c6-1 that ``the proposed rule should not

affect the ability of individual investors to obtain a physical

certificate. Individual investors who desire to maintain record

ownership in certificate form still will be able to do so.''\3\

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\1\See Securities Exchange Act Release No. 33023 (October 6,

1993), 58 FR 52891 (October 13, 1993) (hereinafter cited as ``T+3

Adopting Release'').

\2\See Securities Exchange Act Release No. 31904 (March 1,

1993), 58 FR 11806, 11808. The stock certificate evidences that the

owner is registered on the books of the issuer as a shareholder.

Because the certificate is a negotiable instrument under state

commercial laws, it allows the registered owner to deliver the

bundle of rights it represents to a third party without first having

to change the registration on the books of the issuer. Guttman,

Modern Securities Transfer,  1.01 at 1-2 (Warren, Gorham & Lamont

1987).

State commercial laws specify rules concerning the transfer of

the rights that constitute securities and the establishment of those

rights against the issuer and other parties. Official comment to

Sec. 8-101, The American Law Institute and National Conference of

Commissioners of Uniform State Laws, Uniform Commercial Code, 1990

Official Text with Comments, Article Eight at 708 (West 1991).

The American Law Institute and National Conference of

Commissioners on Uniform State Laws recently approved a revision to

Uniform Commercial Code (``UCC'') Article Eight. See Mooney, Jr.,

Rocks, Schwartz, An Introduction to the Revised U.C.C. Article 8 and

Review of Other Recent Developments with Investment Securities, 49

The Business Lawyer 1891 (August 1994).

\3\Securities Exchange Act Release No. 31904 (February 23,

1993), 58 FR 11806.

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Sparked by investor trends away from requesting physical

certificates,\4\ several corporations and transfer agents\5\ that

maintain their shareholder records want to expand their use of

automated systems for recording ownership of securities and related

transfer processing. As described below, they would offer shareholders

who opt for direct registration the opportunity to receive an account

statement instead of a negotiable certificates,\6\ the opportunity to

obtain a certificate upon demand, and the opportunity to direct the

transfer of the underlying position to a broker-dealer upon request.

For this system to be successful, broker-dealers, transfer agents and

clearing agencies must cooperate to establish the systems and

communication facilities to facilitate these services.

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\4\Individual investors can choose to be registered directly on

the issuer's register or they can engage a broker-dealer or bank to

act as the custodian of their investment portfolios. The use of a

broker-dealer or bank as a custodian typically is referred to as

``street name'' registration. See Final Report of the Securities and

Exchange Commission on The Practices of Recording the Ownership of

Securities in the Records of the Issuer in Other Than the Name of

the Beneficial Owner of Such Securities (December 3, 1976); Report

on Improving Communication Between Issuers and Beneficial Owners of

Nominee held Securities (June 1982). Securities held in street name

typically are on deposit with a securities depository where the

broker-dealer or bank (or its agent) participate. Securities

depositories for corporate equity securities include The Depository

Trust Company, The Depository Trust Company of Philadelphia, and The

Midwest Securities Trust Company. These depositories are limited

purpose trust companies, members of the Federal Reserve System, and

registered clearing agencies under the Exchange Act. In addition to

holding securities for their members (accepting deposits and

processing withdrawals), depositories provide book-entry delivery

and dividend and interest collection and payment services. In 1992,

the ratio of book-entry deliveries to certificate withdrawals was

12.9:1, almost six times greater than the 1982 ratio (2.3:1). See

U.S. Securities and Exchange Commission, 1993 Annual Report (1994)

at 125.

\5\Transfer agents are an integral component of the clearance

and settlement process. There are approximately 1,576 registered

transfer agents that maintain, on behalf of the issuers of

securities, the official register of stockholders or bondholders.

Transfer agents issue negotiable certificates evidencing security

ownership, communicate on behalf of issuers with securityholders,

and record changes in security ownership as a result of securities

transactions.

\6\The use of account statements instead of negotiable

instruments is commonplace for investment products, such as

securities issued by open-ended investment companies, and is

mandatory for investors who own U.S. Treasury bills, bonds, and

notes. Many open-end investment companies deal directly with

investors. They or their transfer agents maintain automated

ownership records and issue periodic statements to the owners

indicated on those records. Most of these companies also have

broker-dealers and other financial intermediaries as registered

owners who act as nominees for their customers. Under this

arrangement, the ultimate investor receives a statement reflecting

his or her portfolio from the nominee. The U.S. Department of the

Treasury no longer issues negotiable certificates evidencing

ownership of negotiatiable bonds, bills, and notes. Instead,

individual investors seeking direct registration can open accounts

under the ``Treasury Direct'' program. See Department of the

Treasury Direct Program, 31 CFR 357.

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The Commission is encouraged by these developments and believes

that in general, the direct registration concept is consistent with

Congressional objectives in section 17A(a)(1) of the Exchange Act.\7\

The Commission is soliciting comment on what steps are necessary to

further such initiatives, including whether it would be appropriate to

estabish turnaround, audit, or other standards to foster investor

confidence in the safety and efficiency of resulting systems.

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\7\See 15 USC 78q-1(a)(1).

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I. The Direct Registration Concept

A. Historical Background

Over the past ten years, regulators, representatives of private

industry, and the transfer agent community have worked together to

explore alternatives to maintaining ownership interest in securities

without reliance on negotiable securities certificates. For example, on

February 25 and 26 and March 8, 1985, the Division of Market Regulation

(``Division'') held ``Securities Immobilization Workshops'' to discuss

the use of central depositories to immobilize securities certificates

and the development of book-entry systems to register securities

ownership. Workshop participants were of the view that an alternative

to street name registration was needed to allow direct registration

evidenced by a negotiable securities certificate.\8\ Among other

things, workshop participants recognized the desirability of issuing

uncertificated securities through issuer or transfer agent operated

book-entry systems.

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\8\Progress and Prospects: Depository Immobilization of

Securities and Use of Book-Entry Systems, Draft Staff Report,

Division of Market Regulation, U.S. Securities and Exchange

Commission (June 14, 1985) (hereinafter cited as ``Immobilization

Report'').

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On November 27, 1990, the Commission held a Roundtable on Clearance

and Settlement to discuss the implementation of, and the status reports

of, the recommendations of the Group of Thirty U.S. Working Committee

regarding clearance and settlement.\9\ Participants at the Roundtable

discussed, among other things, ways in which investors could obtain the

benefits of direct registration without the issuance of securities

certificates and without street name registration. Participants noted

that the pressure to have securities available for settlement in a

three-days after trade date (``T+3'') environment will increase the

need for immobilizing securities certificates and the use of book-entry

transfer at the retail level. Thus, participants recognized the value

of developing a transfer agent operated book-entry registration system

as an alternative to street name registration.

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\9\In March 1989, the Group of Thirty released a report which

offered nine recommendations for reducing risk and improving

efficiency in the clearance and settlement systems in the world's

corporate securities markets. Clearance and Settlement Systems in

the World's Securities Markets, Group of Thirty New York and London

(1989). Those recommendations are described in an appendix to the

T+3 Adopting Release. Supra note 1, at Appendix 2 at n.6, 58 FR

52905 n.6. Subsequently, U.S. Steering and Working Committees were

formed to study the existing systems in the United States and to

recommend appropriate changes based upon the Group of Thirty's nine

recommendations. In November 1990, the U.S. Working Committee, Group

of Thirty, Clearance and Settlement Project issued a report,

entitled Implementing The Group of Thirty Recommendations in the

United States. In that report, the U.S. Working Group concluded that

the U.S. corporate clearance and settlement systems were not in

compliance with two of the recommendations, moving to a three

business day settlement period and adopting a same-day funds payment

system, and that these two recommendations should be implemented in

the U.S.

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In August 1991, the U.S. Working Committee, Group of Thirty

Clearance and Settlement Project, issued a report which, among other

things, identified the DRS as an alternative to owning certificated

securities.\10\ The report was promulgated by a Subcommittee of the

U.S. Working Committee of the Group of Thirty, the T+3 Direct

Registration Subcommittee, co-chaired by representatives of the

Securities Transfer Association (``STA'') and the American Society of

Corporate Secretaries (``ASCS''). This subcommittee viewed the DRS as

offering investors an additional choice of security ownership in the

form of an account statement, in which the securities would be

registered in the name of the investor and maintained on the books of

the issuer in a book-entry format.\11\

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\10\Providing Alternatives to Certificates For the Retail

Investor, U.S. Working Committee, Group of Thirty, Clearance and

Settlement Project (August 1991).

\11\As described in the subcommittee report, the DRS would allow

individual investors to hold securities in electronic form, without

putting those securities in street name at a financial intermediary,

by providing those investors who choose to be registered on the

books of the issuer with an optional custody arrangement with the

transfer agent. Under DRS, if a security is registered on the books

of the issuer, the investor would receive a statement reflecting his

or her ownership interest. An investor would retain the option of

selling securities through the broker of his or her choice by

notifying the transfer agent to move the securities from the books

of the issuer to the books of a broker-dealer. Certificates also

would be available on request.

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Although the U.S. Working Committee of the Group of thirty views

DRS as an alternative form of securities ownership, it decided that

elimination of certificates was not necessary at that time to achieve a

shorter settlement cycle, and thus did not endorse the DRS or any

specific book-entry system. The U.S. Working Committee, however,

encouraged the securities transfer agent community to continue its work

on developing a book-entry registration system.

In 1992, the STA, the Corporate Transfer Agents Association

(``CTAA''), and the Securities Industry Committee of ASCS formed the

Investor Registration Option Implementation Committee (``IRO/IC'') to

develop an issuer/transfer agent operated book-entry registration

system. The IRO/IC developed the concept of a book-entry direct

registration system operated by transfer agents (``DRS Concept''),

modeling it after the systems used in dividend reinvestment and stock

purchase programs (``DRSPPs'')\12\ which are currently offered by many

issuers or their transfer agents. This concept would allow any retail

investor who wants his or her securities to be registered directly on

the books of the issuer, but does not necessarily want to receive a

certificate, to register those securities in book-entry form directly

on the books of the issuer.

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\12\DRSPPs are programs offered by corporations or closed-end

investment companies that allow participants to purchase additional

shares of common stock by reinvesting their cash dividends and, in

many cases, by making optional cash payments. Certain DRSPPs permit

dividends on preferred stock and interest earned on debt securities

to be reinvested in shares of common stock. The earliest DRSPPs were

dividend reinvestment plans (``DRIPS'') in which participation was

limited to issuers' shareholders and employees and through which

additional shares could be purchased only with reinvested dividends.

Since the first DRIPS were introduced in the last 1960s, the

greatest changes have been in the method by which participants can

accumulate shares (i.e., optional cash payments), and the types of

persons that are permitted to participate (e.g., non-shareholders of

the corporation).

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B. The DRS Concept and Cross-Industry Consensus

After a series of discussions, the IRO/IC and the Securities

Industry Association (``SIA'') agreed in 1994 to the basis structure of

the DRS Concept.\13\ Agreement among transfer agents, corporations,

broker-dealers, and banks regarding the basic structure and operational

flows is critical because its implementation and operation must be

efficient, safe, and largely transparent to investors. At the same

time, issuers and transfer agents would be free to decide for

themselves whether they wanted to offer investors the services that

comprise DRS.

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\13\Letter from Raymond J. Riley, Co-Chair, IRO/IC and James J.

Volpe, Director, IRO/IC (February 16, 1994), to Jonathan Kallman,

Associate Director, Division of Market Regulation, Commission;

Letter from George McNamee, Chairman of Clearance and Settlement

Committee, and John Sanders, Chairman of Operations Committee, SIA

to Al DeMaio, et al (October 18, 1994).

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The agreement between the IRO/IC and the SIA calls for the

formation of a joint advisory committee to work with the registered

securities depositories to develop an electronic communication system

between transfer agents and depositories.\14\ This proposed system will

allow a broker-dealer to deliver electronically to a transfer agent a

customer's request that the securities be registered on the books of

the issuer in book-entry form. The proposed electronic system also will

allow the transfer agent to send an electronic acknowledgment to the

broker-dealer that the securities have been registered in the

customer's name on the books of the issuer in book-entry form.

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\14\The IRO/IC and the SIA agreed to the following six points:

1. Customers will be able directly or through their broker-

dealers to request a certificate electronically or otherwise at the

time of initial purchase.

2. Electronic acknowledgment that the securities have been

registered in book-entry form will be provided to the broker-dealer

with a written record of ownership forwarded to the customer.

Electronic communications between the issuer/transfer agent and the

depositories must be standardized.

3. Investor direct movement of securities will be provided in

electronic form from the books of the issuer to the books of the

investor's broker-dealer (which may not be the same broker-dealer

that initially purchased the shares on behalf of the customer).

4. Transfer agents will not use the shareholder list of one

issuer to solicit those shareholders to buy shares of other issuers

for which they act as transfer agent.

5. The IRO/IC and the SIA will form a joint advisory group to

work with the depositories to identify and design a process that

will allow the investor to instruct the transfer agent, through the

broker-dealer, to register shares on the books of the issuer in

book-entry form or to request a certificate. If an investor fails to

choose an option, the transfer agent will register the securities on

the books of the issuer in book-entry form.

6. The IRO/IC and the SIA will develop educational materials and

the programs to inform the brokerage community and customers about

the various forms of registration options, e.g., direct registration

evidenced by negotiable certificates, direct registration evidenced

by account statements, and indirect registration through a broker-

dealer.

The Commission invites comment as to whether the terms of the

agreement are consistent with the Exchange Act and whether any of

these terms impose a burden on competition. If commenters believe

one or more of these terms imposes a burden on competition, please

describe whether that burden is nonetheless necessary or appropriate

to achieve the goals of the Exchange Act.

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Under the DRS Concept, assuming the issuer and transfer agent elect

to offer DRS services, an investor may instruct the broker-dealer at

the time of purchase to register the securities directly on the books

of the issuer, to leave the securities with his broker in street name,

or to request a certificate.\15\ If an investor does not choose an

option, the securities will be registered on the books of the issuer in

book-entry form as the default form of registration. Assuming DRS

services are offered, an investor also may establish a DRS account, or

credit additional securities to his or her DRS account, by submitting

physical certificates to the transfer agent. In addition, issuers and

transfer agents could offer an option to non-shareholders to make

initial cash payments to the transfer agent thereby allowing an

investor with no prior relationship to the issuer to purchase shares

and participate in the DRS.\16\

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\15\If the issuer and transfer agent determines to provide DRS

services, investors could still choose between street name and

direct registration. Investors who choose direct registration would

receive negotiable certificates as a matter of course.

\16\Where an issuer or affiliate is offering securities,

compliance with the registration provisions of the Securities Act of

1933 (``Securities Act'') is required absent an exemption (e.g.,

section 5 of the Securities Act (15 U.S.C. 77e (1993)), as in

compliance with such other requirements as section 15(a) of the

Exchange Act (15 U.S.C. 78o(a) (1993)) and Rule 10b-6 under section

10(b) of the Exchange Act (17 CFR 240.10b-6). See also Letter re:

The Securities Transfer Association, Inc. (December 1994) Letter re:

First Chicago Trust Company of New York (December 1994).

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Under the DRS Concept the broker-dealer would communicate its

customers' registration option to the transfer agent through an

electronic communication link (e.g., computer to computer

transmissions) established with the depositories. Once the transfer

agent registers the securities on the books of the issuer, the transfer

agent would send an electronic acknowledgement of the registration to

the broker-dealer through the depository and would send an account

statement directly to the investor reflecting the number of securities

purchased. All subsequent securityholder communications, including

proxy solicitations, would be sent directly to the investor from the

transfer agent. The transfer agent would vote the securities in

accordance with the instructions received from the DRS participant. DRS

participants would have the option of either receiving their cash

dividends, or, if the issuer offers a DRSPP, reinvesting their cash

dividends in the purchase of new securities. Any dividends in the form

of securities, or any securities resulting from a stock split owed to a

DRS participant, would be credited to the DRS participant's account. As

with other DRSPPs today, no certificates would be issued unless the DRS

participant makes a specific request for certificates by phone,

facsimile, or mail.

II. Discussion

In light of the faster settlement processing standards that will be

imposed on retail customers in the T+3 environment, the Commission

believes that investors should have the choice to register their

securities in book-entry form directly on the books of the issuer

evidenced by an account statement.\17\ The Commission believes that

such an alternative is consistent with Congressional objectives in

section 17A(a)(1)(C) of the Exchange Act;\18\ new data processing and

communication techniques create the opportunity for more efficient,

effective, and safe procedures for clearance and settlement. Although

the SIA and the transfer agent community have agreed on the general

design of the electronic communication system, the Commission

understands that they have technical issues to resolve before the

securities depositories can provide the specifications to build the

electronic communication system that would allow the movement of

securities between transfer agents and broker-dealers.\19\ The

Commission urges the SIA, the transfer agent community, and the issuer

community, in cooperation with the depositories, to design the

electronic communication system, to build and test that system, and to

implement the DRS prior to the June 7, 1995 implementation date for T+3

settlement.\20\

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\17\Subject to an issuer's determination of whether to make

certificates available shareholders, the Commission believes

investors should be able to obtain negotiable certificates on

request. (State corporate laws generally entitle shareholders to

obtain certificates evidencing their investment. See e.g. 8 Del.

Code Ann. General Corporation Law Sec. 158 (1991); N.Y. Bus. Corp.

Law Sec. 508 (McKinney 1986)). The Commission continues to believe

that faster trade settlements should not require investors to forego

the benefits or direct registration or the opportunity to receive a

negotiable certificate evidencing their investment. The Commission

notes that Rule 15c6-1 does not require customers to leave funds,

securities, or both subject to the broker-dealers' possession or

control. Although in announcing the adoption of Rule 15c6-1, the

Commission noted that broker-dealers ``could encourage clients to

deposit funds or securities * * * upon placing an order, or to send

funds and securities that day,'' and although financial management

accounts have gained in popularity for various reasons, the

Commission advises broker-dealers to be careful not to represent to

their customers that the rule requires customers to leave securities

or funds with broker-dealers after trade settlement.

\18\See 15 USC 78q-1(a)(1)(C).

\19\The SIA stated that while there are unresolved technical

questions, none appear insurmountable. Letter from John J. Sanders,

Jr., Chairman, Operations Committee, SIA, and George C. McNamee,

Chairman, Clearance and Settlement Committee, SIA, to Al DeMaio, The

Midwest Securities Trust Company; Ron Burns, The Depository Trust

Company; and Keith Kessel, Philadelphia Depository Trust Company

(October 18, 1994).

\20\The Commission notes that Division staff today have issued

correspondence regarding a proposed expansion of shareholder

services that incorporates some of the DRS features. See Letter re:

First Chicago Trust Company of New York (December 1994).

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The Commission believes that the proposed agreement on the DRS

concept and the electronic link between transfer agents and

depositories necessary for timely and effective communication with

broker-dealers should enhance the efficiency of the clearance and

settlement system. Because the Commission is concerned about the

parties' ability to implement the system promptly and to follow through

on their commitments, the Commission invites commenters to address

whether the Commission or the self-regulatory organizations should take

a more active role in facilitating education regarding the registration

and safekeeping alternatives available to investors. Comments are also

requested as to whether the Commission should require broker-dealers to

disclose to customers at the time an account is opened that direct

registration is available as an alternative to street name

registration; what that disclosure might include; and whether

additional periodic disclosures should be required after the account is

opened.

In addition, the Commission requests comment as to whether transfer

agents that provide the DRS or other uncertificated recordkeeping

functions should be subject to increased regulatory oversight to

minimize any disruption of the marketplace and to provide greater

efficiency to the clearance and settlement system. For example, is

there a need for a Commission rule to prevent transfer agents from

using shareholder lists without issuer consent for any purpose other

than the transfer of that company's securities? To foster the efficient

operation of the DRS and to minimize any adverse effects on the

secondary market and the national clearance and settlement system,

should transfer agents that participate in the DRS be required to join

at least one of the registered securities depositories for the purposes

of performing the DRS functions?

The Commission believes that safe and efficient transfer agent

performance is critical to efforts by the securities industry to

provide alternative registration options. Transfer agent operated book-

entry systems, including the DRS, pose different and potentially

increased risks to investors. For example, increased reliance on the

records of transfer agents may place additional burdens on transfer

agents and could increase the risks to investors arising from

substandard transfer agent performance. Accordingly, commenters are

urged to review the companion release issued today, which invites

comment on the need for new and revised rules governing transfer agent

activities in light of the proposed DRS Concept, DRSPPs, and custodial

arrangements with registered securities depositories to hold securities

registered in the name of those depositories in book-entry form

(``uncertificated recordkeeping functions'').\21\ For example, the

companion release invites comment on whether the Commission should

develop additional processing, bookkeeping, net worth, and insurance

requirements for transfer agents that perform uncertificated

recordkeeping functions.

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\21\See Securities Exchange Act Release No. 35040 (December 1,

1994) (hereinafter referred to as ``companion release''). This

discussion is limited to transfer agent regulation and does not

address the application of the broker-dealer registration provisions

of the Exchange Act to the DRS or DRSPPs. Some of the activities in

connection with the DRS or DRSPPs may raise broker-dealer

registration issues under section 15(a) of the Exchange Act.

Section 15(a) of the Exchange Act generally provides that a

``broker'' or ``dealer'' that uses the mails or any means of

interstate commerce to effect transactions in, or to induce or

attempt to induce the purchase or sale of, any security must

register with the Commission, unless an exemption applies. Section

3(a)(4) of the Exchange Act defines a ``broker'' as any person

(other than a bank) engaged in the business of effecting

transactions in securities for the account of others. A ``dealer''

is defined in section 3(a)(5) of the Exchange Act as any person

(other than a bank) engaged in the business of buying and selling

securities for its own account, whether through a broker or

otherwise.

Broker-dealer registration serves to minimize the risks

typically associated with the execution of securities orders and the

handling and custody of funds and securities. The Commission's

financial responsibility rules applicable to registered broker-

dealers, for example, are designed to provide safeguards with

respect to customer funds and securities held by broker-dealers by

ensuring the accountability of those funds and securities and by

requiring the maintenance of accurate books and records and

sufficient liquid assets. See, e.g., 17 CFR 240.15c3-3 (prohibiting

a broker-dealer from using customer funds to finance its business,

except as related to customer transactions); 17 CFR 240.15c3-1

(prescribing minimum capital standards for broker-dealers).

In general, registered broker-dealers also must become members

of the Securities Investor Protection Corporation (``SIPC''). SIPC

was established by Congress as a means to protect investors' funds

and securities held by broker-dealers that undergo liquidation. In

addition, registered broker-dealers are subject to the rules of the

self-regulatory organizations (``SROs'') of which they are required

to be members under section 15(b)(8) of the Exchange Act. SRO rules,

among other things, are designed to ensure the maintenance of high

standards of ethical conduct and the observance of just and

equitable principles of trade.

In instances where an issuer performs some of the functions

discussed above in connection with its DRSPP, the staff has

determined that registration as a broker-dealer is not necessary if

the issuer limits its activities as described in Letter re:

Securities Transfer Association (December 1994) or if the issuer

delegates such functions to a registered broker-dealer or to a

``bank,'' as that term is defined in section 3(a)(6) of the Exchange

Act.

Questions concerning broker-dealer registration should be

directed to the Office of Chief Counsel, Mail Stop 7-10, Division of

Market Regulation, Securities and Exchange Commission, Washington,

DC 20549.

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III. Request for Comment

The Commission is interested in receiving comment on all aspects of

the DRS Concept in addition to the specific requests for comment made

in this release.

Dated: December 1, 1994.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-30124 Filed 12-17-94; 8:45 am]

BILLING CODE 8010-01-P