[Federal Register Volume 61, Number 204 (Monday, October 21, 1996)]
[Notices]
[Pages 54695-54697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26929]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37818; File No. SR-NSCC-96-15]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change to Process
Corporate Reorganizations Involving Elections Through NSCC's Continuous
Net Settlement System
October 11, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ notice is hereby given that on August 7, 1996, the
National Securities Clearing Corporation (``NSCC'') filed
[[Page 54696]]
with the Securities and Exchange Commission (``Commission'') the
proposed rule change (File No. SR-NSCC-96-15) as described in Items I,
II, and III below, which items have been prepared primarily by NSCC. On
August 9, 1996, and October 1, 1995, NSCC amended the proposed rule
change.\2\ 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. Sec. 78s(b)(1) (1988)
\2\ Letters from Julie Beyers, Associate Counsel, NSCC, to Jerry
Carpenter, Assistant Director, Division of Market Regulation,
Commission (August 8, 1996, and September 27, 1996, as revised
October 1, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change.
NSCC has filed a proposed rule change that will enable members with
long positions in securities subject to a tender offer with an election
as to consideration to receive protection for receipt of the tender
offer consideration.
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 that 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.\3\
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\3\ The Commission has modified the text of the statements NSCC
submitted.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change.
NSCC currently provides a service for participants with long
positions in some securities subject to a tender offer. Pursuant to
this service, NSCC guarantees to such participants the delivery of
funds or securities pursuant to the terms of the tender offer. NSCC
proposes to extend this protection to tender offers for which there are
elections as to the form of consideration to be received.
Generally, a person who wishes to participate in a tender offer
must notify the tenderer of its decision prior to the expiration of the
tender offer. All shares to be exchanged in the tender offer must be
delivered to the tenderer's agent prior to the end of the protect
period, typically three days after the end of the expiration of the
offer.\4\ However, participants with long positions at NSCC (``long
participants'') are dependent upon the delivery of the securities by
participants with short positions at NSCC (``short participants'')
prior to the end of the protect period. If short participants do not
deliver in time, the long participants will not be able to participate
in the offer. If a long participant has elected to have NSCC guarantee
the delivery pursuant to the terms of the tender offer, certain short
participants will be liable for delivery to the long participant of the
consideration it would have received pursuant to the terms of the
tender offer. The proposed rule change will extend this protection to
tender offers that have an election as to the form of consideration.
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\4\ The purpose of the protect period is to accommodate persons
who purchase securities on the expiration date with the intention of
participating in the tender offer. Such persons generally will not
receive the securities to forward to the tenderer until the
settlement date three business days later.
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Once NSCC receives timely notification of a tender offer and
starting two business days prior to the expiration of an offer, long
participants and short participants with positions in the subject
security will receive information regarding the offer each business day
on the CNS reorganization information report. On the day prior to the
expiration of the protect period in a tender offer with an option as to
the consideration to be received, long participants will be permitted
to elect their preferences (e.g., cash or securities) by submitting
electronic instructions to NSCC through DTC's PTS Terminal system. Such
participants will receive a preliminary protection report. On the same
day, NSCC will issue a report to short participants advising them of
their potential liability in the security if delivery is not made by
the next business day.
If short participants deliver securities prior to the close of
business on the expiration of the protect period, NSCC will redeliver
these securities to long participants. Such participants can then
participate in the tender offer outside the facilities of NSCC. If not
all delivery obligations to the long participants are met, NSCC will
issue to the remaining long participants a final protection report and
will issue to the remaining short participants a final liability
report, both of which reflect open positions remaining as of the close
of business of that day.
At the expiration of the protect period, NSCC will establish two
CNS subaccounts representing the alternative forms of consideration for
each security subject to a tender offer. All open positions for which a
long participant has made an election will be moved into the
appropriate CNS reorganization subaccount. Positions in a CNS
subaccount are frozen until the payable date for the tender offer
(i.e., short participants may not deliver in the securities). The short
participants will immediately be charged a mark based on the difference
between the market value of the subject securities and the
consideration, and NSCC will retain such funds.\5\ In addition, the
long positions and short positions will continue to be marked to the
market daily.
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\5\ In the case of a long participant selecting cash as
consideration, the corresponding short participant will be charged
the difference between the cash offered in the tender offer and the
market price of the securities. In the case of a long participant
selecting securities as consideration, the corresponding short
participant will be charged the difference between the market value
of the subject securities and the market value of the consideration
securities.
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On payable date, the subaccounts will be closed. NSCC will credit
the general CNS account of long participants with either the securities
or cash that they have elected to receive. NSCC will debit the general
account of short participants with either the cash or securities they
have been assigned to deliver (i.e., consideration securities). NSCC
also will credit the account of short participants with the marks to
the offer price being retained by NSCC. Some offers have limits on how
many of the subject securities the offeror will accept or what
percentage of consideration will be paid in cash or securities. At the
end of the protect period, the offeror will reject on a pro rata basis
excess securities. NSCC will similarly only hold short participants
liable for the consideration for subject securities to the extent such
securities would have been accepted by the tenderer.
NSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because it should facilitate the prompt and accurate
clearance and settlement of securities transactions by expanding the
types of reorganization that can be processed through CNS.\6\
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\6\ 15 U.S.C. Sec. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC perceives no impact on competition by reason of the proposed
rule change.
[[Page 54697]]
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
NSCC has not solicited nor received comment on the proposed rule
change.
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 reasons 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 N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 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 number (File No. SR-NSCC-96-15)
and should be submitted by November 12, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26929 Filed 10-18-96; 8:45 am]
BILLING CODE 8010-01-M
