Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), notice is hereby given that on September 29, 2000, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which items have been prepared primarily by DTC. The Commission is publishing this notice and order to solicit comments from interested persons and to grant accelerated approval of the proposal.
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 clarify the policy of DTC regarding low volume tender offers. A low volume tender offer is an offer in which the offeror is seeking to purchase for cash up to 5% of the outstanding shares of an equity issue or any amount of a debt issue. Low volume tender offers do not include an exchange offer or an offer by the issuer of the target security. The proposed rule change clarifies that it is DTC's policy (i) not to make an offeror's information about a low volume tender offer available to participants through DTC's Reorganization Inquiry for Participants System (“RIPS”) unless the offeror uses DTC's Automated Tender Offer Program (“ATOP”) to process the offer and (ii) not to make securities available to the offeror at the conclusion of a low volume tender offer processed through ATOP until DTC has received payment for the securities from the offeror.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DTC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. DTC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.
The Commission has modified the text of the summaries prepared by DTC.
(A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
As DTC has gained experience in processing low volume tender offers during recent years, DTC has sought to improve the manner in which it handles such offers. In a small number of cases, the offeror making a low volume tender offer sent DTC information to be entered into RIPS and paid DTC's low volume tender offer fee but did not use ATOP to process acceptances of the offer. In such cases the offeror included in the offering documents an instruction that participants who wished to accept the offer should do so by a free book-entry delivery at DTC to the account of a participant represented to be acting on behalf of the offeror. Participants accepting such an offer did not have all the benefits of ATOP. Those benefits include more detailed information in the RIPS announcement, such as information about the existence of any withdrawal rights in the offer and information about the offeror's payment arrangements, and an indication on their daily participant statements while the offer is open that a tendered position is outstanding. In order to assure that its participants receive the benefits of ATOP, as a matter of policy DTC does not announce a low volume tender offer in RIPS unless the offer is processed through ATOP.
DTC charges a fee of $2,700 in connection with low volume tender offers processed through its facilities. Securities Exchange Act Release No. 41032, (February 9, 1999) 64 FR 7931 (February 17, 1999) [File No. SR-DTC-99-01]. DTC will continue to charge that fee, which is not affected by the proposed rule change.
When a low volume tender offer is not processed through ATOP, payment for any securities purchased in the offer usually, if not always, are made to participants outside of DTC's facilities. It can be difficult for participants to assure themselves that securities delivered to the offeror by a free book-entry delivery at DTC are promptly paid for at the end of the offer. To give its participants the efficiency and safeguards of payment through DTC's facilities, DTC requires the offeror in a low volume tender offer processed through ATOP to send payment to DTC for any securities purchased in the offer before DTC makes the securities available to the offeror.
The proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to DTC since the proposed rule change will facilitate the processing of low volume tender offers at DTC. The proposed rule change will be implemented consistently with the safeguarding of securities and funds in DTC's custody or control or for which it is responsible since low volume tender offers will be processed with the safeguards of the ATOP procedures.
(B) Self-Regulatory Organization's Statement on Burden on Competition
DTC perceives no adverse impact on competition by reason of the proposed rule change.
(C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Written comments from DTC participants or others have not been solicited or received on the proposed rule change. DTC will notify the Commission of any written comments received by DTC.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder and particularly with the requirements of Section 17A(b)(3)(F). Section 17A(b)(3)(A)(F) requires that the rules of a clearing agency be designed, among other things, to protect investors and the public interest. DTC's policy of requiring low volume tender offers to be processed through ATOP and of not making securities available to an offeror until payment for the shares tendered is received should help to ensure that those tendering shares will be paid for their tendered shares. This should help DTC and its participants to protect investors and is in the public interest.
DTC has requested that the Commission approve the proposed rule change prior to the thirtieth day after publication of the notice of the filing. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the publication of notice because such approval will allow DTC to immediately apply the safeguards discussed above to the processing of low volume tender offers.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of DTC. All submissions should refer to the File No. SR-DTC-00-13 and should be submitted by December 26, 2000.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-DTC-00-13) 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. 00-30718 Filed 12-1-00; 8:45 am]
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