[Federal Register Volume 59, Number 207 (Thursday, October 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-26579]
[[Page Unknown]]
[Federal Register: October 27, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34867; File No. SR-NSCC-94-16]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Granting Accelerated Approval of a Proposed Rule
Change Modifying Comparison Procedures for Corporate Bond and Unit
Investment Trust Transactions and Modifying the Fee Structure for
Correction Fees
October 20, 1994.
On August 9, 1994, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-NSCC-94-16)
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'').\1\ Notice of the proposal was published in the Federal
Register on October 4, 1994.\2\ No comment letters were received. For
the reasons discussed below, the Commission is approving the proposed
rule change on an accelerated basis.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\Securities Exchange Act Release No. 34729 (September 27,
1994), 59 FR 50634.
\3\NSCC refers to this system as the Fixed Income Transaction
System (``FITS'').
\4\For a detailed description of the municipal securities phase
of the bond comparison system, refer to Securities Exchange Act
Release No. 32747 (August 13, 1993), 58 FR 44530 [File No. SR-NSCC-
93-2] (order approving a proposed rule change establishing a program
relating to comparison procedures for municipal securities
transactions).
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I. Description
Since 1993, NSCC has been redesigning its bond comparison system to
accelerate the processing (i.e., submission and comparison) of bond
transactions to achieve higher rates of trade comparison at earlier
points in the comparison process.\3\ NSCC believes accelerated
processing will help to increase certainty and reduce risk in the
clearance and settlement of debt transactions. The first phase of the
redesign process enhanced the processing of transactions in municipal
securities and was implemented by NSCC on August 13, 1993.\4\
The primary purpose of the current proposed rule change is to
expand the accelerated comparison system to include the processing of
transactions in corporate bonds and unit investment trusts (``UITs'').
The proposed rule change also permits NSCC to provide comparison
services for baby bonds (i.e., corporate bonds having a par value of
less than $1,000) and new issue trading. The proposed rule change also
modifies the fee structure for correction fees.
Under the proposed rule change, the cutoff time for submission of
original trade input for all corporate bond and UIT transactions is
moved from 1:00 p.m. on the day following trade date (``T+1'') to 2:00
a.m. on T+1. These trades will be reported back to members by 8:00 a.m.
on T+1. Adjustments to original trade input will have to be made prior
to the time specified by NSCC on T+1, which will be 6:00 p.m.
In addition, NSCC will accept trade input for trade-for-trade
processing of corporate baby bonds. If transactions are submitted as a
mixed lot (i.e., submissions including baby bonds and round lots), the
baby bond and the round lot portions of the transaction will be
separated by NSCC upon input.
At the option of members, corporate bond and UIT transactions will
be compared when the net buy side and sell side aggregate principal
amounts can be matched for a particular security, even if the relevant
principal amounts are specified in more than one buy side and/or more
than one sell side submission, if the transactions would have been
compared had such buy side and sell side principal amounts each been
specified on a single submission.
Because correction processing occurs at the New York and American
Stock Exchanges and at the National Association of Securities Dealers
before the trade input is transmitted to NSCC, Add-by-Seller, Delete-
by-Seller, Delete Add-by-Seller, and Delete-by-Buyer instructions will
no longer be accepted under the proposed rule.\5\ This change is being
made in order to standardize correction processing.
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\5\For a complete description of the New York Stock Exchange,
American Stock Exchange, and National Association of Securities
Dealers correction processing systems, refer to Securities Exchange
Act Release Nos. 26773 (May 1, 1989), 54 FR 20227 [File No. SR-NYSE-
89-03] (order approving the New York Stock Exchange's system for the
resolution of uncompared transactions); 28069 (May 29, 1990), 55 FR
23324 [File No. SR-AMEX-90-01] (order approving the Intra-Day
Comparison System for resolving uncompared transactions); and 28583
(November 1, 1990), 55 FR 46120 [File No. SR-NASD-89-25] (order
granting accelerated approval of amendment to proposed rule change
relating to the Automated Confirmation Transaction Service).
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NSCC will provide comparison services for corporate bond new issue
transactions on the same basic terms and conditions as it currently
provided for municipal securities transactions with the exception of
syndicate takedown processing.\6\ Original trade input for new issue
corporate bond transactions will be accepted until the third day prior
to the initial settlement date for the issue. Original input may set
forth either (1) a final settlement price and a settlement date that is
either the initial settlement date or a specified number of days after
the initial settlement date or (2) a dollar price. Original trade input
that is submitted between three and five days prior to the initial
settlement date but does not set forth a final settlement price and
settlement date or does not set forth a dollar price will be treated as
regular way input. Any corporate bond new issue transactions that
remain uncompared at the opening of business on the day prior to the
initial settlement date will be deleted from NSCC's system.\7\
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\6\NSCC defines ``new issue'' transactions in this context to
mean transactions which are to settle on the initial settlement date
for an issue or which are to settle a specified number of days after
the initial settlement date.
\7\This means that it may not be possible to process some new
issue transactions through the entire range of available trade
resolution procedures prior to being dropped. In the extreme case,
new issue submissions made on the second day prior to the initial
settlement date that do not compare will be dropped without any
opportunity for resolution. These unresolved trades will be reported
on a separate unresolved trade report, and any trade dropped without
the opportunity for resolution may be resubmitted after the initial
settlement date.
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In addition, NSCC's fee structure relating to correction fees is
being amended to reflect that correction capabilities are being
accelerated in conformity with comparison capabilities. These fee
changes conform all bond correction fees to the fees implemented in
connection with municipal securities transaction processing in that
participants will be charged for supplemental input on or after T+1.\8\
Currently, NSCC charges participants for supplemental input relating to
corporate bond and UIT transactions on or after T+2. In addition, the
bond system correction fees for ``don't know'' and ``questioned trade''
input is being deleted because NSCC no longer processes such
transactions. The proposed rule change also makes certain conforming
changes and deletions to NSCC's Procedures in order to reflect greater
uniformity in NSCC's bond comparison system and to eliminate certain
language which has become obsolete.
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\8\For a detailed description of NSCC's correction fees for
municipal securities transactions, refer to Securities Exchange Act
Release No. 34193 (June 10, 1994), 59 FR 31284 [File No. SR-NSCC-94-
08] (notice of filing and immediate effectiveness of a proposed rule
change modifying NSCC's fee schedule for correction fees).
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II. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder and particularly with the requirements of Section
17A(b)(3)(F).\9\ Section 17A(b)(3)(A) requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes that the proposed changes to NSCC's comparison procedures
should help achieve higher rates of trade comparison at earlier points
in the comparison process and thus help increase certainty and reduce
risk in the clearance and settlement of corporate bond and UIT
transactions. Use of NSCC's bond comparison system should significantly
improve the comparison rate for corporate bonds, baby bonds, and unit
investment trusts and should facilitate moving from a five business day
settlement cycle to a three business day settlement cycle.\10\
Moreover, the Commission believes that by expanding the bond comparison
system to include corporate bond, baby bond, and new issue transaction
processing, NSCC is aiding in the prompt and accurate clearance and
settlement of securities transactions.
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\9\15 U.S.C. 78q-1(b)(3)(F) (1988).
\10\On October 6, 1993, the Commission adopted Rule 15c6-1 under
the Act, which establishes three business days after the trade date
instead of five business days as the standard settlement timeframe
for most broker-dealer transactions. The rule becomes effective June
1, 1995. Securities Exchange Act Release No. 33023 (October 6,
1993), 58 FR 52891 (release adopting Rule 15c6-1).
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NSCC's fee structure will be amended with regard to correction fees
to reflect that correction capabilities will be accelerated in
conformity with comparison capabilities. The Commission believes that
these changes to NSCC's fee structure are appropriate and in conformity
with Section 17A(b)(3)(D) of the Act which requires the rules of a
clearing agency to provide for equitable allocation of reasonable fees
among its participants.\11\
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\11\15 U.S.C. 78q-1(b)(3)(D) (1988).
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NSCC has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after the
date of publication of notice of the filing so that NSCC can begin
utilizing the new comparison procedures for trades executed on October
21, 1994. The Commission finds good cause for so approving the proposed
rule change because accelerated approval will allow NSCC to implement
the new procedures as scheduled. Additionally, the Commission does not
anticipate that it will receive any significant negative comment on the
proposed rule change in view of the fact that no comments have been
received to date by the Commission or NSCC.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act, particularly
with Sections 17A(b)(3)(F) and 17A(b)(3)(D) of the Act, and the rules
and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NSCC-94-16) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-26579 Filed 10-26-94; 8:45 am]
BILLING CODE 8010-01-M
