Self-Regulatory Organizations; Philadelphia Depository Trust Company; Notice of Filing and Order Granting Accelerated Approval on a Temporary Basis of a Proposed Rule Change Seeking Permanent Approval of the Designation of the West Canada Depository Trust Company as a Correspondent Depository

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37383; International Series Release No. 998; File No.

SR-Philadep-96-09]

Self-Regulatory Organizations; Philadelphia Depository Trust

Company; Notice of Filing and Order Granting Accelerated Approval on a

Temporary Basis of a Proposed Rule Change Seeking Permanent Approval of

the Designation of the West Canada Depository Trust Company as a

Correspondent Depository

June 28, 1996.

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

(``Act''),\1\ notice is hereby given that on May 30, 1996, the

Philadelphia Depository Trust Company (``Philadep'') filed with the

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

change (File No. SR-Philadep-96-09) as described in Items I and II

below, which items have been prepared primarily by Philadep. The

Commission is publishing this notice to solicit comments from

interested persons and to grant accelerated approval of the proposed

rule change on a temporary basis through December 31, 1996.

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

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

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

I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The purpose of the proposed rule change is to seek permanent

approval of the designation of the West Canada Depository Trust Company

(``WCDTC'') as Philadep's nonexclusive agent and

[[Page 35293]]

custodian in receiving securities deposited by WCDTC participants for

delivery to Philadep. This custodial arrangement was temporarily

approved through June 30, 1996.\2\

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

\2\ Securities Exchange Act Release No. 36782; International

Series Release No. 923 (January 26, 1996), 61 FR 3956 [File No. SR-

Philadep-96-01] (order granting accelerated approval on a temporary

basis of a proposed rule change to appoint the West Canada

Depository Trust Company as a Correspondent Depository).

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

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

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, Philadep included statements

concerning the purpose of and basis for the proposed rule change and

discussed any comments that it received on the proposed rule change.

The text of these statements may be examined at the places specified in

Item IV below. Philadep has prepared summaries, set forth in sections

(A), (B), and (C) below, of the most significant aspects of such

statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to seek permanent

approval of the designation of WCDTC to act as a nonexclusive agent and

custodian for Philadep in receiving securities deposited by certain

WCDTC sponsored participants for credit to their respective subaccounts

in WCDTC's omnibus account at Philadep. The custodial arrangement was

effectuated by a contract executed between Philadep and WCDTC. WCDTC's

rights and obligations as a participant will be governed by Philadep's

rules and procedures.

At or before 12:45 p.m. (Philadelphia time) on any business day

Philadep is open, WCDTC will notify Philadep via facsimile transmission

or through Philadep's Automated Deposit System of initiated and pending

instructions to Canadian transfer agents to transfer various Canadian

securities held by WCDTC into Philadep's nominee name. Philadep will

credit WCDTC's account(s) for Canadian issues at the time of this

notification. At the time of physical receipt of the securities by

Philadep, Philadep will credit WCDTC's account for incoming deposits of

U.S. issues which were received by WCDTC and designated for physical

delivery and deposit to its Philadep account.

With regard to Canadian issues, WCDTC will cause the Canadian

transfer agent to reregister the shares in Philadep's nominee name and

to deliver them to WCDTC as agent and custodian of Philadep. With

respect to acting as Philadep's agent for interfacing with Canadian

transfer agents, WCDTC has more direct knowledge of and familiarity

with Canadian transfer agents. WCDTC has a Canadian address and is

expected to obtain receipt of certificates faster than Philadep would

obtain receipt through the international postal system. Earlier receipt

of certificates means earlier certainty with respect to the value and

validity of deposited certificates. This is a benefit to Philadep

because the earlier Philadep receives notice of defects in a

certificate the sooner it can reverse the credit to the WCDTC's account

and the better it can limit the risk that the securities will have been

transferred out of the account before the reversal of the credit can

take place.

For Canadian issues returning to WCDTC from the Canadian transfer

agent, WCDTC will safeguard the deposited securities and will hold them

with deposit tickets attached and segregated from other securities held

by WCDTC until forwarded to Philadep via licensed air courier or other

carrier agreed upon by the parties. Securities held overnight will be

deposited in WCDTC's vault. If WCDTC fails to deliver these securities

to Philadep, Philadep will apply a short charge to WCDTC's account for

the full value of the fails. For fails to deliver resulting from

settled CNS transactions, Philadep will short the participant's CNS

account with the Stock Clearing Corporation of Philadelphia (``SCCP''),

Philadep's affiliated clearing corporation. SCCP will mark to market

all short positions and collect marks daily.

If the deposited securities are U.S. securities, WCDTC will forward

the securities directly to Philadep on the day the securities are

reported to Philadep. Securities will be shipped to Philadep via

licensed air courier or other carrier agreed upon by the parties.

WCDTC and Philadep have agreed that securities placed within the

custody and control of WCDTC on behalf of Philadep will not be subject

to any right, charge, security interest, lien or claim of any kind in

favor of WCDTC or any person claiming through WCDTC. WCDTC and Philadep

have further agreed that WCDTC will have no legal or equitable right,

title, or interest in or to such securities including but not limited

to any right, title, or interest in or to any principal or interest

coupons, redemption proceeds, payments or payable amounts relating to

any securities. In addition, WCDTC will maintain adequate insurance

coverage with respect to any securities which are in its custody on

behalf of Philadep. Furthermore, WCDTC has made a participants fund

contribution of $1,000,000, which is in excess of the minimum amount

required under the applicable formula, and WCDTC's parent organization,

the Vancouver Stock Exchange, has executed an irrevocable standby

letter of credit in the amount of $5 million (Canadian Dollars) to be

issued to Philadep securing its obligations.

Philadep believes the proposed rule change is consistent with

Section 17A of the Act and the rules and regulations thereunder because

the rule proposal fosters cooperation and coordination with persons

engaged in the clearance and settlement of securities transactions and

further assures the safeguarding of securities and funds in its custody

or control or for which Philadep is responsible.

(B) Self-Regulatory Organization's Statement on Burden on Competition

Philadep does not believe that the proposed rule change will impact

or impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the

Proposed Rule Change Received From Members, Participants, or Others

No written comments have been solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) of the Act requires that the rules of a

clearing agency be designed to foster cooperation and coordination with

persons engaged in the clearance and settlement of securities

transactions.\3\ The Commission believes that Philadep's designation of

WCDTC as a correspondent depository is consistent with Philadep's

obligations under Section 17A(b)(3)(F) because the proposed rule change

should help foster cooperation and coordination between the U.S. and

Canadian clearance and settlement systems by facilitating a link

between Philadep and WCDTC.

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

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

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

Philadep has requested that the Commission find good cause for

proving the proposed rule change prior to the thirtieth day after the

date of publication of notice of the filing. The Commission finds good

cause for so approving the proposed rule change because accelerated

approval will allow Philadep to continue its custodial

[[Page 35294]]

arrangement with WCDTC thus allowing WCDTC to continue to settle

without any disruption securities transactions between U.S. broker-

dealers and Canadian broker-dealers.

The Commission is granting temporary approval of the proposed rule

change through December 31, 1996, so that Philadep and the Commission

can continue to monitor and analyze the development of WCDTC as a

correspondent depository before granting permanent approval. During

this period, the Commission will continue to monitor and correspondent

depository arrangement between Philadep and WCDTC to ensure that proper

risk management procedures are in place. Furthermore, Philadep will

continue to be required to file monthly reports analyzing activity in

WCDTC's omnibus account and subaccounts. For these reasons, the

Commission is temporarily approving the proposed rule change through

December 31, 1996. The staff of the Board of Governors of the Federal

Reserve System have concurred with the Commission's granting of

accelerated approval.\4\

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

\4\ Telephone conversation between John Rudolph, Board of

Governors of the Federal Reserve Board, and Chris Concannon,

Division of Market Regulation, Commission (June 28, 1996).

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

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, 450 Fifth Street, N.W., Washington,

D.C. 20549. Copies of such filing will also be available for inspection

and copying at the principal office of Philadep. All submissions should

refer to the file number SR-Philadep-96-09 and should be submitted by

July 26, 1996.

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

that the proposed rule change (File No. SR-Philadep-96-09) be, and

hereby is, approved through December 31, 1996.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\5\

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

\5\ 17 CFR 200.30 3(a)(12) (1995).

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

Jonathan G. Katz,

Secretary.

[FR Doc. 96-17148 Filed 7-3-96; 8:45 am]

BILLING CODE 8010-01-M