Self-Regulatory Organizations; Philadelphia Depository Trust Company; Notice of Filing and 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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36782; International Series Release No. 923; File No.

SR-Philadep-96-01]

Self-Regulatory Organizations; Philadelphia Depository Trust

Company; Notice of Filing and 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

January 26, 1996

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

(``Act''), \1\ notice is hereby given that on January 25, 1996, the

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

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

change (File No. SR-Philadep-96-01) as described in Items I and II

below, which items have been prepared primarily by Philadep. On January

25, 1996, and on January 26, 1996, Philadep filed amendments to the

proposed rule change.\2\ The Commission is publishing this notice and

order to solicit comments on the proposed rule change from interested

persons and to grant accelerated approval of the proposed rule change

on a temporary basis through June 30, 1996.

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

\2\ Letters from William W. Uchimoto, General Counsel, Philadep,

to Jerry W. Carpenter, Assistant Director, Division of Market

Regulation, Commission (January 25, 1996 and January 26, 1996).

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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 allow Philadep to

appoint the West Canada Depository Trust Company (``WCDTC'') as

Philadep's nonexclusive agent and custodian in receiving Philadep.

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 allow Philadep to

authorize 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. These participant and custodial

arrangements will be effectuated by contracts executed between Philadep

and WCDTC and as to the Philadep participant arrangement by the rules

and procedures of Philadep.

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

[[Page 3957]]

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. Philadep will credit WCDT's account(s) for incoming

deposits of U.S. issues (received by WCDTC and designated for physical

delivery and deposit to its Philadep account(s)) at the time of

physical receipt of the securities by Philadep. Philadep has created a

new screen and functionality to reduce the processing time required on

the part of WCDTC for U.S. issues. Therefore, this credit upon receipt

approach provides a faster and more efficient credit procedure than the

former Midwest Securities Trust Company (``MSTC'')/WCDTC arrangement

approved by the Commission.

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 will make a participants fund

contribution of $750,000, which is in excess of the minimum amount

required under the applicable formulae, and WCDTC's parent

organization, the Vancouver Stock Exchange, has committed to and is in

the process of executing an irrevocable standby letter of credit in the

amount of $2 million (Canadian Dollars) to be issued to Philadep

securing its guaranty obligations.\3\

\3\ During the temporary approval of the proposed rule change,

the current value of WCDTC's participants fund contribution or

letter of credit should not be reduced.

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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. Philadep will

notify the Commission of any written comments received by Philadep.

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.\4\ 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.

\4\ 15 U.S.C. Sec. 78q-1(b)(3)(F)(1988).

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Philadep has requested that the Commission find good cause for

approving 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 immediately enter into a custodial

arrangement with WCDTC thus allowing WCDTC to continue to settle

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

dealers and Canadian broker-dealers. Currently, WCDTC acts as a

corresponding depository for and conducts clearance and settlement with

the Midwest Securities Trust Company (``MSTC'') and the Midwest

Clearing Corporation (``MCC''). The arrangement among WCDTC, MSTC, and

MCC, including WCDTC's correspondent depository arrangement, will cease

on January 26, 1996, as a result of MSTC's and MCC's decision to

withdraw from the depository and clearance and settlement business.

The Commission is granting temporary approval of the proposed rule

change through June 30, 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 monitor the correspondent depository

arrangement between Philadep and WCDTC to ensure that proper risk

management procedures are in place. In this regard, the Commission

requests that Philadep submit prior to filing for continued approval a

report concerning specific surveillance measures that Philadep has

implemented with regard

[[Page 3958]]

to the WCDTC account. Such a report should include but should not be

limited to a detailed report outlining the risk management procedures

implemented specifically to monitor the WCDTC account, including any

staff or systems additions, and an analysis of any impact on Philadep's

business, including effects on liquidity needs from the acceptance of

WCDTC as a participant. Furthermore, Philadep will be required to file

monthly reports analyzing activity in WCDTC's omnibus account and

subaccounts. In addition, while the Commission believes that approval

of the proposed rule change at this time is necessary to prevent the

disruption of services for the clearance and settlement of certain

transactions between U.S. and Canadian broker-dealers, the Commission

recognizes that the period for public comment was brief. Because the

Commission is encouraging public comment on these proposals, the

Commission believes that it is appropriate to permit additional

opportunities for public comment in the future.\5\ For these reasons,

the Commission is temporarily approving the proposed rule change

through June 30, 1996. The staff of the Board of Governors of the

Federal Reserve System have concurred with the Commission's granting of

accelerated approval.\6\

\5\ Prior to June 30, 1996, Philadep will be required to file a

proposed rule change pursuant to Section 19(b) (2) of the Act to

seek continued approval of the proposed rule change.

\6\ Telephone conversation between Don Vinnedge, Manager, Trust

Activities Program, Board of Governors of the Federal Reserve Board,

and Jonathan Kallman, Associate Director, and Jerry Carpenter,

Assistant Director, Division of Market Regulation, Commission

(January 26, 1996).

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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. Sec. 552, will be available for inspection and copying in

the Commission's Public Reference Section, 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-96-01 and

should be submitted by February 23, 1996.

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

that the proposed rule change (File No. SR-Philadep-96-01) be, and

hereby is, approved through June 30, 1996.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\7\

\7\ 17 CFR 200.30(a) (12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-2173 Filed 2-1-96; 8:45 am]

BILLING CODE 8010-01-M