[Federal Register Volume 59, Number 13 (Thursday, January 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1279]
[[Page Unknown]]
[Federal Register: January 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33463; File No. SR-NSCC-93-13]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving a Proposed Rule Change Relating to Buy-Ins
January 12, 1994.
On September 1, 1993, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') under Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'')\1\ a proposed rule change (File No. SR-NSCC-93-13)
relating to buy-ins. The Commission published notice of this proposed
rule change in the Federal Register on December 2, 1993.\2\ No public
comments were received. 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) (1988).
\2\Securities Exchange Act Release No. 33248 (November 24,
1993), 58 FR 63602.
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I. Description
The proposed rule change modifies the timing under which a buy-in
of a security settling in NSCC's Continuous Net Settlement (``CNS'')
system may be executed under NSCC's rules. This change conforms buy-in
execution practices for exchange-listed CNS trades and buy-in execution
practices for over-the-counter (``OTC'') CNS trades.
An NSCC member that has a long position (i.e., the member is
entitled to receive a number of units of a CNS security) at the end of
any day may submit a buy-in notice to NSCC. The day the buy-in notice
is submitted is ``N.'' If a position subject to a buy-in remains
unfilled after the evening allocation\3\ on N+1 (i.e., the day after
the buy-in notice is submitted to NSCC), NSCC will issue retransmittal
notices during the morning of N+1 to a number of members that have
short positions (i.e., members obligated to deliver a number of units
of CNS securities). The quantity of securities specified as owing on a
retransmittal notice is the short member's buy-in liability.\4\ NSCC's
rules currently provide that if a short member has not satisfied its
buy-in liability by the end of the evening allocation on the day after
it receives a retransmittal notice from NSCC (i.e., on N+2), it is
subject to a buy-in.\5\
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\3\NSCC's daily processing cycle commences in the evening and
includes an evening cycle which runs from 6 p.m. until 8 a.m. the
following morning and a day cycle which runs from 8:30 a.m. until 2
p.m. Telephone conversation between Karen L. Saperstein, Vice
President/Director of Legal and Associate General Counsel, NSCC, and
Jerry W. Carpenter, Branch Chief, and Richard C. Strasser, Attorney,
Division of Market Regulation, Commission (August 4, 1993).
\4\The buy-in liability of a member will not exceed the buy-in
position or the total short position of the member. NSCC Procedures,
Section VII, J.
\5\A member's buy-in liability may be satisfied by the actual
settlement of the short position, which may require a deposit of
securities. NSCC Procedures, Section VIII, J.
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While buy-ins executed as floor trades may be executed at any time
on N+2, under the rules of the National Association of Securities
Dealers (``NASD''), buy-ins executed as OTC trades cannot be executed
until 2:30 p.m. on N+2. The proposed rule change amends NSCC's rules so
that a short member's buy-in liability may be satisfied up to the
completion of the day cycle on N+2 (i.e., 2 p.m.) instead of up to the
completion of the evening cycle on N+2 (i.e., 8 a.m.). Extending the
time during which a member may satisfy its buy-in liability from the
end of the evening cycle to the end of the day cycle will have the
practical effect of conforming the timing for the execution of buy-ins
involving exchange-listed securities and OTC securities.
II. Discussion
The Commission believes that NSCC's proposal is consistent with the
Act and in particular with Section 17A(b)(3)(F) thereunder.\6\ That
section requires, among other things, that the rules of a clearing
agency be designed to remove impediments to and perfect the mechanism
of a national system for the prompt and accurate clearance and
settlement of securities transactions. In adopting Section 17A of the
Act, Congress found that the development of uniform standards and
procedures for clearance and settlement will reduce unnecessary costs
and will increase the protection of investors and persons facilitating
transactions by and acting on behalf of investors.\7\ In this regard,
Congress directed the Commission to use its authority under the Act to
facilitate the establishment of a national system for the prompt and
accurate clearance and settlement of securities transactions.\8\
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\6\15 U.S.C. 78q-1(b)(3)(F) (1988).
\7\15 U.S.C. 78q-1(a)(1)(D) (1988).
\8\15 U.S.C. 78q-1(a)(2)(A)(i) (1988).
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By conforming the buy-in execution practices for trades of
exchange-listed securities with those for trades of OTC securities,
NSCC's proposal appears to be consistent with NSCC's requirements under
the Act to remove impediments to and perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions. Moreover, the move toward uniform buy-in
procedures for exchange-listed and OTC securities is consistent with
the Commission's Congressional directive to facilitate the
establishment of a national system for the prompt and accurate
clearance and settlement of securities transactions through the
development of uniform standards and procedures.
The amended rule will give members with short positions the
opportunity to meet their delivery obligations by delivering shares
during the day cycle on N+2 without being subject to buy-in liability.
Currently, such deliveries cannot be used to mitigate a member's buy-in
liability. This limitation was instituted because in the past members
with long positions had no way of knowing whether deliveries were made
during the day cycle in fulfillment of buy-in liabilities and
therefore, to allow day cycle deliveries to mitigate buy-in liabilities
would have placed long members at risk if those members executed buy-
ins. This limitation now may be removed because all NSCC members
currently have access to The Depository Trust Company's Participant
Terminal System which allows them to monitor deliveries made to NSCC
during the day cycle.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the Act and in particular with
Section 17A thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-NSCC-93-13) be, and
hereby is, approved.
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\9\15 U.S.C. 78s(b)(2) (1988).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1279 Filed 1-19-94; 8:45 am]
BILLING CODE 8010-01-M
