Self-Regulatory Organizations; the Depository Trust Company; Order Approving a Proposed Rule Change Relating to Enhancements to the Automated Tender Offer Program

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33797; File No. SR-DTC-93-11]

Self-Regulatory Organizations; the Depository Trust Company;

Order Approving a Proposed Rule Change Relating to Enhancements to the

Automated Tender Offer Program

March 22, 1994.

On October 15, 1993, The Depository Trust Company (``DTC'') filed

with the Securities and Exchange Commission (``Commission'') a proposed

rule change (File No. SR-DTC-93-11) pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal

was published on December 17, 1993, in the Federal Register to solicit

comments on the proposed rule change.\2\ No comments were received. For

the reasons discussed below, the Commission is approving the proposed

rule change.

---------------------------------------------------------------------------

\1\15 U.S.C. 78s(b)(1) (1988).

\2\Securities Exchange Act Release No. 33322 (December 10,

1993), 58 FR 66043 (File No. SR-DTC-93-11).

---------------------------------------------------------------------------

I. Description of the Proposal

DTC is enhancing its Automated Tender Offer Program (``ATOP'') in

order to improve the processing of tender and exchange offers at

DTC.\3\ At present, a participant who wishes to submit a notice of

guaranteed delivery\4\ in a tender offer being processed in ATOP must

deliver outside of DTC a hard copy notice of guaranteed delivery to the

tender or exchange agent. Under the proposed rule change, participants

will be able to use ATOP to submit notices of guaranteed delivery in

the same way that they can now use ATOP to submit letters of

transmittal.\5\ When a participant utilizes ATOP to submit through

DTC's Participants Terminal System (``PTS'') a notice of guaranteed

delivery in a tender offer, the electronic instructions received by DTC

from the participant and retransmitted to the tender or exchange agent

will include a single character by which the participant acknowledges

its receipt of and agreement to be bound by the notice of guaranteed

delivery used in that offer.

---------------------------------------------------------------------------

\3\For a description of ATOP, refer to Securities Exchange Act

Release Nos. 27139 (August 14, 1989), 54 FR 34841 (File No. SR-DTC-

88-19) (order approving the ATOP program); 29168 (May 7, 1991), 56

FR 22742 (File No. SR-DTC-91-04) (order granting accelerated

approval on a temporary basis to modifications of ATOP); 30678 (May

7, 1992), 57 FR 20541 (File No. SR-DTC-91-11) (order approving

modifications of ATOP); and 32645 (July 16, 1993), 58 FR 39585 (File

No. SR-DTC-92-12) (order approving mandatory use of ATOP).

\4\Notices of guaranteed delivery, sometimes called protect

letters, are documents submitted to the tender agent prior to the

expiration of the tender offer whereby the offeror submitting the

notice guarantees delivery of securities after the expiration of the

tender offer but before the expiration of the protection period.

(The protection period usually lasts eight days after the expiration

of the tender offer.)

\5\For a description of submission of letters of transmittal

under ATOP, refer to Securities Exchange Act Release No. 32645 (July

16, 1993), 58 FR 39585 (File No. SR-DTC-92-12) (order approving

mandatory use of ATOP).

---------------------------------------------------------------------------

DTC also is modifying its DTC/Agent Letter of Agreement. Currently,

each time DTC handles a tender offer with a tender or exchange agent,

DTC and the agent sign a hardcopy DTC/Agent Letter of Agreement which

makes DTC's Voluntary Offerings Program Agents Procedures, including

the ATOP procedures, applicable to the tender offer. DTC then adds

attachments to the DTC/Agent Letter of Agreement to cover special

procedures to be followed in the offer. Under the proposed rule change,

DTC is eliminating the hardcopy DTC/Agent Letter of Agreement for each

tender offer and will use PTS to communicate with a tender or exchange

agent regarding each tender offer. The current form of the DTC/Agent

Letter of Agreement will be replaced with a hardcopy Master Agreement

which a tender or exchange agent will sign once. The Master Agreement

will provide that the Master Agreement and DTC's Voluntary Offerings

Program Agents Procedures will apply to all tender offers done

thereafter through ATOP for which the tender or exchange agent acts.

After a tender or exchange agent has entered into the Master Agreement

with DTC, PTS will be used to confirm the agreement between the agent

and DTC for each new tender offer in ATOP and to confirm any special

procedures for that tender offer.

II. Discussion

The Commission believes that the proposal is consistent with the

Act and particularly with section 17A of the Act.\6\ Sections 17A(b)(3)

(A) and (F) require that a clearing agency be organized and its rules

be designed to facilitate and promote the prompt and accurate clearance

and settlement of securities transactions.\7\ The proposed rule change

further automates the processing of tender offers involving securities

on deposit at DTC by eliminating the processing of hardcopy notices of

guaranteed delivery, and thereby, further alleviates problems such as

the risk of loss, delays during shipment, and the expense and labor

involved in the handling of physical documents. Furthermore, the

proposed rule change, which is an extension of DTC's existing,

Commission-approved ATOP program,\8\ will be implemented consistently

with the safekeeping requirements of sections 17A(b)(3) (A) and (F).\9\

---------------------------------------------------------------------------

\6\15 U.S.C. 78q-1 (1988).

\7\15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).

\8\Supra note 3.

\9\15 U.S.C. 78q-1(b)(3) (A) and (F) (1988). Sections 17A(b)(3)

(A) and (F) require that a clearing agency be organized and its

rules be designed to assure the safeguarding of securities and funds

in the clearing agency's custody or control or for which it is

responsible.

---------------------------------------------------------------------------

III. Conclusion

The Commission finds that the proposal is consistent with the

requirements of the Act and particularly with section 17A of the Act

and the rules and regulations thereunder.

It is therefore ordered, pursuant to section 19(b)(2) of the Act,

that the proposed rule change (File No. SR-DTC-93-11) be, and hereby

is, approved.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-7276 Filed 3-28-94; 8:45 am]

BILLING CODE 8010-01-M