[Federal Register Volume 62, Number 200 (Thursday, October 16, 1997)]
[Notices]
[Pages 53848-53850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27320]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39220; File No. SR-NSCC-97-08]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Relating to a
Decision by the Philadelphia Stock Exchange, Incorporated To Withdraw
From the Clearance and Settlement and Securities Depository Businesses
October 8, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the
[[Page 53849]]
``Act''),\1\ notice is hereby given that on August 6, 1997, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') and on August 28,
1997, amended the proposed rule change (File No. SR-NSCC-97-08) as
described in Items I, II, and III below, which items have been prepared
primarily by NSCC. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change involves proposed arrangements relating to
a decision by the Philadelphia Stock Exchange, Incorporated (``PHLX'')
to withdraw from the securities clearance and settlement and securities
depository businesses. Parties to the proposed arrangements are The
Depository Trust Company (``DTC'') PHLX, Philadep Depository Trust
Company (``PHILADEP''), NSCC, and Stock Clearing Corporation of
Philadelphia (``SCCP'').\2\
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\2\ These parties have entered into an agreement dated as of
June 18, 1997.
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The proposed arrangements as they relate to NSCC will provide for
the following:
(1) NSCC will offer sole SCCP participants an opportunity to become
NSCC participants if they meet NSCC's qualifications;
(2) NSCC and SCCP will cooperate to assure the orderly transfer of
continuous net settlement securities positions of sole SCCP
participants and dual NSCC/SCCP participants which authorize such
transfer;
(3) NSCC will make certain payments to PHLX and SCCP;
(4) In general, for a period of five years PHLX, SCCP, and PHILADEP
will not engage in the securities clearance and securities depository
businesses. However, this prohibition will not apply to PHLX's equity
ownership interest in The Options Clearing Corporation; and
(5) SCCP will become a participant of NSCC and will provide limited
clearing and margin services to PHLX equity specialists and certain
other PHLX members.\3\
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\3\ A more detailed description of these proposed arrangements
is contained in Exhibit 2 to the filing. A copy of the filing and
all exhibits are available for copying and inspection in the
Commission's Public Reference Room.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in Sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\4\
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\4\ The Commission has modified the text of the summaries
prepared by NSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
PHLX has announced that it is withdrawing from the clearance and
settlement and securities depository businesses in order to focus its
resources on the operations of the exchange. The proposed arrangements
will assist in achieving these objectives while affording qualified
sole SCCP participants an opportunity to become NSCC participants and
to transfer their continuous net settlement positions to NSCC. NSCC
believes that the proposed arrangements will result in substantial risk
reduction and increased savings for NSCC participants and the
securities industry as a whole.
Where there are interfaces among the securities clearing agencies,
same-day funds settlement \5\ exposes each clearing agency to certain
risks, such as the failure of another clearing agency to settle its net
payment obligation because of a failure by one of the participants of
such other clearing agency to settle with it or because such other
clearing agency is experiencing a major systems problem. These risks
cannot be entirely avoided with existing and available risk management
controls. PHLX's withdrawal from the securities clearing business will
eliminate the exposure of NSCC and its participants to the payment
system risks associated with the NSCC-SCCP interface.
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\5\ The term ``same-day funds'' refers to payment in funds that
are immediately available and generally are transferred by
electronic means.
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In addition, the proposed arrangements should result in substantial
savings for NSCC participants and the securities industry. In
connection with this proposal, former sole SCCP participants may become
NSCC participants if they qualify under NSCC's participant standards.
An increase in the number of NSCC participants will result in higher
NSCC transaction volumes thereby reducing the per unit service costs
that must be recovered through participant service fees. Moreover,
interclearing corporation interfaces involve the maintenance of
substantial facilities, communications networks, and account and
inventory reconciliation mechanisms. As a result of the proposal, the
substantial costs incurred by both NSCC and SCCP in operating an
interface will be eliminated.
NSCC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
promulgated thereunder because the rule proposal will facilitate the
industry's conversion to same-day funds settlement for virtually all
securities transactions and thereby facilitate the prompt and accurate
clearance and settlement of such transactions. In addition, the
proposal will provide qualified sole SCCP participants with access to
NSCC's facilities and will be implemented consistently with the
safeguarding of securities and funds in NSCC's custody and control.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed arrangements will have an
impact on or impose a burden on competition. Securities clearing
agencies registered under Section 17A of the Act are utilities created
to serve members of the securities industry for the purpose of
providing certain services that are ancillary to the businesses in
which industry members compete with one another. Operating a securities
clearing agency requires a substantial and continuing investment in
infrastructure, including telecommunications links with users, data
centers, and disaster recovery facilities, in order to meet the
increasing needs of participants and to respond to regulatory
requirements.
After consummation of the proposed arrangements, securities
industry members will continue to have access to high quality, low cost
clearance services provided under the mandate of the Act. The overall
cost to the industry of having such services available should be
reduced thereby permitting a more efficient and productive allocation
of industry resources. Furthermore, because most interface costs must
be mutualized, thereby requiring some participants to subsidize costs
incurred by others, PHLX's withdrawal from maintaining clearing
services should reduce costs to NSCC participants and thereby remove
impediments to
[[Page 53850]]
competition. Finally, PHLX's ability to focus its resources on the
operations of its exchange should help enhance competition among
securities markets.
(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. NSCC will
notify the Commission of any written comments received. However, the
proposed arrangements are consistent with recommendations made to the
boards of DTC and NSCC by the Vision 2000 Committee (``Committee''), a
committee on industry representatives of the two boards. The
Committee's Report dated September 1994 states:
The industry currently owns a number of utilities that provide
services related to the comparison, clearing, settlement and
safekeeping of U.S. (and to a lesser degree, international)
securities. These utilities overlap in two ways * * *. We believe
that the industry's and, as important, the investors', overall costs
can be reduced and safety and soundness can be enhanced by
eliminating these overlaps where there is no clear advantage to
having specialization or competing development.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period: (i) As the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reason for so
finding, or (ii) as to which NSCC consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
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 NW., Washington, DC 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of NSCC. All submissions
should refer to the File No. SR-NSCC-97-08 and should be submitted by
November 6, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27320 Filed 10-15-97; 8:45 am]
BILLING CODE 8010-01-M
