[Federal Register: December 22, 2008 (Volume 73, Number 246)]
[Notices]
[Page 78411-78412]
[DOCID:fr22de08-141]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59102; File No. SR-DTC-2008-11]

Self-Regulatory Organizations; The Depository Trust Company;
Order Approving a Proposed Rule Change To Implement a New Service To
Allow Issuers To Track and Limit the Number of Beneficial Owners for an
Individual CUSIP

 December 15, 2008.

I. Introduction

    On August 6, 2008, The Depository Trust Company (``DTC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'').\1\ On September 5, 2008, the Commission published
notice of the proposed rule change in the Federal Register to solicit
comments from interested persons.\2\ The Commission received one
comment letter in response to the proposed rule change.\3\ For the
reasons discussed below, the Commission is approving the proposed rule
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 58436 (Aug. 27, 2008),
73 FR 51870.
    \3\ Letter from Brent Welke, CEO, Agnova Corporation (Sept. 8,
2008).
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II. Description

    The rule change provides for the implementation of a new service
that will allow issuers, either themselves or through an issuer-
designated administrator, to track and limit the number of beneficial
owners of their privately transacted and closely held securities. This
service will be called the Security Holder Tracking Service (``SH
Tracking Service'').
    The SH Tracking Service will facilitate the book-entry settlement
and asset servicing for securities that are privately transacted and
closely held by providing a tool for issuers and their agents to
monitor and limit the number and character (e.g., qualified
institutional buyers or ``QIBs'') of beneficial owners of its
securities (``Tracked Securities'').\4\ Although the SH Tracking
Service was developed to address the specific concerns of Rule 144A
securities,\5\ in practice DTC envisions that it could be utilized for
other types of securities for which the number or character of the
beneficial owners requires some level of control.
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    \4\ Issuers must control the number of beneficial owners
pursuant to certain registration and reporting requirements. In
order for issuers to be able to avoid the periodic reporting
requirements required by the Act, they must not have more than 500
beneficial owners. 15 U.S.C. 78l(g), 15 U.S.C. 78m(a), 15 U.S.C.
78o(d).
    \5\ 17 CFR 230.144A.
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    The eligibility process for a Tracked Security to be made and
remain DTC-eligible will not change from DTC's current process.
However, under the new system, DTC will be requested in writing to set
up a specific CUSIP for tracking such securities \6\ and will be
notified who will perform the function of the issuer's administrator
for the CUSIP in the SH Tracking Service.\7\ Upon receipt of all of
such documentation, DTC will make the CUSIP DTC-eligible and will
activate the tracking indicator on its security master file.
Additionally, once it is made eligible, DTC will perform asset
servicing for the issue.
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    \6\ DTC anticipates that this instruction will come from the
underwriter at the time of the initial distribution at DTC.
    \7\ DTC anticipates that the issuer's transfer agent will serve
as its administrator.
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    The issuer's administrator will control movements of the particular
CUSIP for which it had been appointed. Once the tracking indicator has
been activated on the master file and the Administrator has been
appointed, no transfer of the securities will take place in the Tracked
Security without the approval of the administrator through DTC's
Inventory Management System (``IMS''). The administrator, based on
requirements of the issuer, will be solely responsible for determining
whether a transaction should be effected in DTC. Once approved by the
administrator, DTC will perform centralized book-entry settlement. IMS
will only allow an administrator access to view and approve
transactions for CUSIPs for which it had been appointed administrator
as reflected in DTC's records.
    Because DTC is relying solely on the instructions of the
administrator in order to effect settlement in Tracked Securities and
will have no knowledge of the number or character of the underlying
beneficial owners, use of the SH Tracking Service by any party will
constitute an agreement that DTC shall not be liable for any loss or
damages related to the use of the SH Tracking System. Each user of the
SH Tracking Service must agree to indemnify and hold harmless DTC and
its affiliates from and against any and all losses, damages,
liabilities, costs, judgments, charges, and expenses arising out of or
relating to the use of the SH Tracking Service.
    The Tracked Securities will not be held as part of a participant's
general free account and will not be considered eligible collateral in
DTC's settlement system.
    To recover the costs of building the SH Tracking Service, DTC will
add the following fees to its Fee Schedule:
     $25,000 per CUSIP for SH Tracking Services;
     $5 per delivery and receive for Tracked Securities;
     $5 per receive and delivery for reclaims of Tracked
Securities.

III. Comment Letter

    Brent Welke, CEO of Agnova Corporation, wrote that, in the context
of the settlement cycle, ``DTCC (sic) [should be] strictly liable for
double ownership repercussions'' and that ``DTCC (sic) stockholders
[should] jointly and severally guarantee DTCC obligations.'' Finally,
Mr. Welke expressed concern about ``brokers who are facilitating share
counterfeiting.''

IV. Discussion

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to DTC. In particular, the Commission believes
the proposal is consistent with Section 17A(b)(3)(F) of the Act,\8\
which requires that the rules of a registered clearing agency are
designed to, among other things, promote the prompt and accurate
clearance and settlement of securities transactions. DTC's creation of
a service to assist issuers and their agents fulfill their regulatory
obligations to monitor and limit the number of beneficial shareholders
of their closely held securities should provide a meaningful incentive
for issuers and participants to utilize DTC's depository services,
which should provide more efficient processing of such transactions by
reducing the incidence of physical processing outside of DTC.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission duly notes the importance of the issue of short
selling that the commenter appeared to be expressing and will continue
to monitor developments in this area and assert its oversight
responsibilities of industry participants with the view to ensure that
appropriate safeguards are in place to facilitate the prompt and
accurate clearance and settlement of securities transactions and to
protect investors. However, that issue is outside the scope and purpose
of this proposed rule change, which is to implement a service to allow
issuers of closely held securities to enhance their compliance with
federal securities laws.

V. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 17A of the Act \9\ and the rules and regulations
thereunder.
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    \9\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (File No. SR-DTC-2008-11) be and
hereby is approved.\11\
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    \10\ 15 U.S.C. 78s(b)(2).
    \11\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition and
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-30322 Filed 12-19-08; 8:45 am]

BILLING CODE 8011-01-P


[2000 0680 and 2001 0304 / PLG] ~ PROTECTED ~ Acute Pulmonary Infectivity and Toxicity / 1 [Pseudozyma flocculosa / STF] DACO M4. 2. 3 / USEPA OPPTS 885.3150 Reviewer: Esther Seto , Date January 17, 2002 Peer Review: Ibrahim Barsoum, PhD Microbial Pesticides Branch Biopesticides and Pollution Prevention Division U. S. Environmental Protection Agency _______________

STUDY TYPE: Acute Pulmonary  Range Finding Study PMRA DATA CODE M4. 2. 3 USEPA OPPTS 885.3150 TEST MATERIAL (PURITY): Sporothrix flocculosa [STF], pure culture (MPCA) in sterile water SYNONYMS: Pseudozyma flocculosa, STF, Stephanoascus flocculosa CITATION: Harrington, Kelly, A. (July, 1997). "Acute Pulmonary Range Finding Toxicity Test of Sporothrix flocculosa, a Fungal Pesticide, in Rats." IIT Research Institute, Chicago, Illinois, USA. IITRI Project No. L08641, Study No. 5 In Life Study Dates: March 21, 1997  April 4, 1997. Unpublished.

SPONSOR: Université Laval Québec, Canada G1K 7P4 EXECUTIVE SUMMARY: A large number of spontaneous deaths were observed in both treatment and control groups in a prior acute pulmonary toxicity / infectivity assay (see separate review). In order to determine whether the test substance (in both its viable and non viable forms), Sporothrix flocculosa, was the cause of the deaths, a subsequent acute pulmonary range finding toxicity study was conducted. In this range finding study, groups of young adult CD rats (5/ sex/ dose level) were exposed by the intratracheal route to Sporothrix flocculosa (4.2 x 10 8 cfu/ mL) in ASTM Type 1 water at doses of 4. 2 x 10 7 ,3.4 x 10 7 , 6.8 x 10 6 and3.4 x 10 6 cfu/ animal. Animals were then observed for 14 days. There were no mortalities and all animals gained weight during the study.

LD50 Males > 4.2 x 10 7 cfu/ animal Females > 4.2 x 10 7 cfu/ animal Combined > 4. 2 x 10 7 cfu/ animal No mortalities occurred.

Sporothrix flocuclosa is classified as being of SLIGHT Toxicity (EPA Toxicity Category IV) based on adverse effects observed in some test animals. Rough hair coat occurred in a dose dependent manner with all 5 animals/ sex exhibiting this symptom at the highest dose of 4. 2 x 10 7 CFU/ animal. One female dosed with4.2 x 10 7 CFU experienced tremors, closed eyes and rough hair coat. [2000 0680 and 2001 0304 / PLG] ~ PROTECTED ~ Acute Pulmonary Infectivity and Toxicity / 2 [Pseudozyma flocculosa / STF] DACO M4. 2. 3 / USEPA OPPTS 885.3150 This acute pulmonary study is considered supplemental. This study does not satisfy the guideline requirement for an acute pulmonary study (OPPTS 885.3150) in the rat (see section II F).

COMPLIANCE: Signed and dated GLP compliance and Quality Assurance statements were provided. An unsigned Data Confidentiality statement was included.

I. MATERIALS AND METHODS A. MATERIALS:

1. Test Material: Sporothrix flocculosa (produced by test facility) Description: MPCA Lot/ Batch #: UK34 35 Purity: 6.2 x 10 8 cells/ mL as determined by hemacytometer count 4.2 x 10 8 cfi/ mL as determined by plate count CAS #: n/ a Verification of stability and homogeneity conducted as part of toxicity and pathogenicity studies.

2. Sample Preparation: Sporothrix flocculosa (batch number UK34 45) was provided to the test facility in the form of two petri dishes (P1 and P2) of yeast malt agar with white mould. IITRI then inoculated two malt agar plates (P3 and P4) with a colony from P1. The test substance was subcultured approximately every three months on malt agar to maintain viability. One week before the start of the in life phase, 300 mL of yeast malt broth was inoculated with a subculture of the test substance and incubated at room temperature for seven days. On the day of dosing, the broth culture was centrifuged and resuspended in 4 mL of ASTM type 1 water. The titre of the resuspended solution was determined to be 6.2 x 10 8 cells/ mL by hemacytometer count (corresponding to 4. 2 x 10 8 colony forming units (cfu)/ mL as determined by plate count). The solution was diluted to 5 x 10 8 ,1 x 10 8 and5 x 10 7 cells/ mL (corresponding to 3. 4 x 10 8 ,6.8 x 10 7 and 3. 4 x 10 7 cfu/ mL, respectively).

3. Test animals: Species / Strain: CD Rat Age/ weight at dosing: approximately 6 weeks of age males: 195.11  224.48 g females: 155.88  188.64 g Source: Charles River Laboratories Portage, MI Housing: During quarantine, the rats were housed up to two per cage in polypropylene cages with hardwood chip bedding. Upon assignment to test groups , and for the remainder of the study, the rats were singly housed. Diet: Certified Purina Rodent Chow 5002 (PMI Feeds Inc., St. Louis, MO) ad libitum Water: City of Chicago water ad libitum Environmental conditions: Temperature: Humidity: Air changes: Photoperiod: 20  24  C 8  35 % Not reported 12 hrs dark / 12 hrs light Acclimation period: one week [2000 0680 and 2001 0304 / PLG] ~ PROTECTED ~ Acute Pulmonary Infectivity and Toxicity / 3 [Pseudozyma flocculosa / STF] DACO M4. 2. 3 / USEPA OPPTS 885.3150 B. STUDY DESIGN and METHODS:

1. In life dates  Start: March 21, 1997 End: April 4, 1997 3. Animal assignment and treatment  Animals were assigned to the test groups noted in Table 1. Rats were anesthetized with ether and administered a dose of 0. 1 ml test substance intratracheally. They were observed twice daily (only once daily on weekends) and weighed weekly for 14 days after dosing. Survivors were sacrificed and necropsies were not performed.

TABLE 1. Concentrations, exposure conditions, mortality/ animals treated Group Dose (cfu) Mortality (# dead/ total)

Males Females Combined 1 4.2 x 10 7 0/ 5 0/ 5 0/ 10 2 3.4 x 10 7 0/ 5 0/ 5 0/ 10 3 6.8 x 10 6 0/ 5 0/ 5 0/ 10 4 3.4 x 10 6 0/ 5 0/ 5 0/ 10 5. Statistics TheLD50 was set at greater than 4. 2 x 10 7 cfu/ animal. No calculations were necessary.

II. RESULTS AND DISCUSSION:

A. Mortality is given in Table 1.

The LD50 (C. I.) for males is > 4. 2 x 10 7 cfu/ animal. for females is > 4. 2 x 10 7 cfu/ animal combined is > 4. 2 x 10 7 cfu/ animal.

B. Clinical observations  A summary of the incidence of clinical observations is presented in Table 2.

TABLE 2. Clinical Observations Observations Dose (CFU/ animal)

4.2 x 10 7 3.4 x 10 7 6.8 x 10 6 3.4 x 10 6 males females males females males females males females rough hair coat 555211 0 0 tremors 010000 0 0 closed eye( s) 010000 0 0 no signs observed 000344 5 5 [2000 0680 and 2001 0304 / PLG] ~ PROTECTED ~ Acute Pulmonary Infectivity and Toxicity / 4 [Pseudozyma flocculosa / STF] DACO M4. 2. 3 / USEPA OPPTS 885.3150 Rough hair coat occurred in a dose dependent manner beginning, in some animals, on day 3 with sporadic re occurrence until day 11. One female, dosed at 4. 2 x 10 7 CFU, presented with tremors, closed eyesand rough hair coat. The tremors were noted only on day 3 and the closed eyes were noted on days 3 and 5.

C. Body Weight  All animals gained weight during the study. One female, dosed at 4. 2 x 10 7 CFU, lost weight between days 0 and 7 but gained weight thereafter. Statistical analysis was not conducted to compare body weight data between groups.

E. Reviewer's Conclusions  The recommended test substance for an acute pulmonary study is the technical grade active ingredient (TGAI). Instead, the test substance used in this study was the MPCA and was prepared by the test facility using a method different from the proposed manufacturing methods. The applicant has agreed to upgraded label statements requiring respirators for all users.

According to USEPA OPPTS 885.3150, Acute Pulmonary Toxicity/ Pathogenicity, the minimum dose is 10 8 units of the MPCA per test animal. The maximum dose level used in this study, however, was only 4. 2 x 10 7 CFU/ animal. Furthermore the purpose of this study was to determine the toxicity range of S. flocculosa in order to aid in the interpretation of the large number of spontaneous deaths from the acute pulmonary toxicity / infectivity study conducted previously. Infectivity, as required by USEPA OPPTS 885.3150, was not addressed by this study. This study does not comply with guideline requirements and is, therefore, considered supplemental.

The range finding study suggests that the LD50 of S. flocculosa is greater than 4. 2 x 10 7 CFU/ animal in male and female rats. Sporothrix flocculosa is classified as slightly toxic based on rough hair coat (observed in 55% of treated male rats and 40% of treated female rats) which occurred in a dose dependent manner.

F. Deficiencies  In addition to the deficiencies already noted above, the number of air changes was not reported and the relative humidity of the room in which the animals were housed fell below the target of 3070 These additional deficiencies are not considered to have any impact on the interpretation of this study.