From:	Lori Livingston [lori@transferonline.com]
Sent:	Thursday, March 06, 2003 4:44 PM
To:	rule-comments@sec.gov
Subject:	FIle No. SR-DTC-2003-03

I am writing these comments to the Depository Trust Company’s (“DTC’s”) 
proposed rule change that appeared in the February 21st issue of the Federal 
Register. My comments represent several viewpoints but primarily I respond 
in the following capacities: 

I am the President of Transfer Online, Inc, and act as the transfer agent for 
(Nutek, Inc.) one of the Issuers who expressed their desire to withdraw from 
the DTC system but were denied. Transfer Online also serves as the transfer 
agent to several other companies who have inquired about the possibility of 
withdrawing from the DTC system and finally, I am an experienced member of the 
financial services industry for the past 20 years where I have specialized in 
transfer agent and back office services.

As a transfer agent involved in this process I have direct experience of the 
situation(s) leading to DTC’ s request. While acting on the behalf of Nutek, 
Inc. to notify DTC of their intent to withdraw, Transfer Online was initially 
told that the request was received and in process. No indication was given 
that this request to withdraw was a problem until approximately 6 weeks later 
when we were made aware that DTC’s position had changed. Transfer Online was 
told that if Nutek, Inc. shares were not transferred into their nominee name, 
"Cede & Co", Transfer Online would be in violation of the operational agreement 
between our two companies and that we would be held accountable. 

This put Transfer Online between the Issuer’s request (on whose behalf we act) 
and DTC’s demand and so we inquired to the S.E.C as to what, or if, any legal 
or statutory obligations existed to either party which superceded our agreement 
to act as agent for the Issuer. The S.E.C was unable to issue guidance in this 
matter so having no idea what “being held accountable” would mean to Transfer 
Online, and having received several phone calls from DTC requesting to know my
position and what my intentions were, I suggested to the Issuer that until such 
time they were prepared to handle any potential legal issues with an entity as 
large as The Depository Trust Company that they let the shares be processed as 
usual. 

Many Issuers have come forward with their opinions and interest in joining the 
exodus from DTC. They are frustrated by dramatic unexplained price movements, 
confounded when in a single day, in companies with a high percentage of shares 
held by insiders, more than the number of shares outstanding for their company 
are traded, and they are frustrated by their inability to access the information 
they need to determine the cause. The company is essentially cutoff from the 
majority of stock transactions that take place behind the closed doors of DTC 
in book entry movements of shares. Should the Issuer request information it is 
only available to them at the prices that are determined by DTC.

Transfer agents, while able to provide transaction history which happens when 
stock certificates are involved, cannot provide the information from DTC 
because we do not have access to the majority of the shareholder records as 
they sit on our books as one large position in the name of Cede & Co. that 
seldom changes. This leaves an Issuer powerless to research the trading of 
their own stock, communicate with the shareholders or take action against those 
who might be harming their company with questionable even perhaps illegal trading 
practices.

In regard to DTC's proposed rule change that states, "DTC will only honor the 
requests of the participants", I feel compelled to point out that the participants 
of DTC are ultimately only holding shares for the benefit of their customers who 
are in fact the shareholders of the company. Almost daily, particularly when an 
Issuer is attempting to have their shareholders pull their shares from street 
name and obtain certificates, Transfer Online receives phone calls from shareholders 
who tell us that their broker told them they cannot have a stock certificate, or 
that the transfer agent will charge you $75 - $100 dollars for a certificate, or 
the transfer agent won't issue the shares. How can a shareholder get a stock 
certificate if their broker (or the participant) is the obstacle? If, as DTC 
states only the participant's request will be honored, and the participant will 
not honor the request of the beneficial owner, then ultimately the shareholder
has no right to their own property nor the ability to do what the Issuer has 
determined is in the companies best interest.

My experience over the years suggests that shareholders are seldom fully advised 
of the different types of ownership they can have, or of the full implications of 
holding shares in street name. Requesting certificates is always riddled with 
obstacles to deter this form of ownership.

Like many of the Issuers seeking withdrawal from DTC, I have often been suspicious 
of oversold stock. When tabulating shares for a Proxy Vote oftentimes there will 
be more shares voted by the brokers than there are shares outstanding in the 
company. When the question is raised with ADP (another representative of 
participants) their response is that they simply report what the brokers tell them 
they have. Why are brokers reporting more shares than they could possibly hold and 
why is it the obligation of the company or its agent to research why the numbers 
are wrong at their expense? 

DTC’s solution has been the development of the Direct Registration System (DRS). 
This allows a shareholder to hold their shares in their own name on the books of 
the corporation while still in the DTC system attached to a particular participant 
or brokerage account. This allows for direct ownership on the books of the company, 
while allowing the broker to retain control of the account by remaining attached 
to the account in case of sale.

There is a problem with this system as there are many Issuers, and some transfer 
agents, that cannot meet the requirements that are set by DTC nor can they afford 
to participate in the DTC FAST system because once an Issuer enters into the FAST 
system, DTC will no longer pay fees for any activity they request and the Issuer 
then becomes responsible for those fees. Since those very same fees were paid for 
services by DTC when stock is in physical form, it is difficult to comprehend why 
this is the case when there are no certificates.  Ultimately, the result is that 
the Issuer is excluded from FAST and DRS, as are their investors.  As in any case 
where a company holds a monopoly you have to play by their rules or you don’t 
play at all. 

The financial burden on a small company is tremendous and very few small companies 
are able to participate. Those who do not are excluded from DRS and thus have no 
access to their shareholder records unless the shareholder holds the shares on the 
books of the company. The entire system has been designed for larger companies who 
do not think twice about spending great deals of money on their transfer agent fees, 
but smaller corporations who don't have the resources and consequently cannot 
afford to participate use withdrawing from DTC as their only method of having 
some control over their shareholder records. 

What will happen as the industry moves toward immobilization and same day 
settlement? What will happen to those companies that cannot participate and have 
no access to their stock activity? DTC stated in their proposal that they have 
“discussed the substance for this proposed rule change with various DTC 
participants and industry groups and received favorable reaction.” I suggest that 
many were excluded from this conversation that have a great deal at stake. There 
is more than one way for the prompt and accurate settlement of securities 
transactions to occur and also preserve the integrity of the Issuers shareholders 
records. Presently, all solutions are based on a system where DTC is basically 
taking on the role of transfer agent as well as being an organization for and 
by the brokers. Over the years I have watched most companies move from majority 
of ownership held on their records toward a situation where over half the shares 
are held as registered to Cede & Co. and these shares usually represents 3-4 
times the number of shareholders that appear on the records of the company.

I think the rule change should not be approved until a sufficient amount of time 
is put into investigating the complaints of the Issuers and time is spent looking 
at the existing system in general.
----------------------------------------------
Lori Livingston
President/CEO
Transfer Online, Inc.
P 503.227.2950 F 503.227.6874