[Federal Register Volume 63, Number 207 (Tuesday, October 27, 1998)]
[Notices]
[Pages 57346-57347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28638]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40582; File No. SR-NSCC-98-4]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Granting Approval of a Proposed Rule Change Adopting
an Interpretation of the Board of Directors Regarding NSCC's Obligation
To Continuously Review Participants To Determine If Participants Are
Required To Reapply for Membership Due to a Material Change in
Conditions
October 20, 1998.
On April 24, 1998, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change (File No. SR-NSCC-98-4)
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 June 19, 1998.\2\ No comment letters 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).
\2\ Securities Exchange Act Release No. 40086 (June 12, 1998),
63 FR 33750.
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I. Description
New Addendum T to NSCC Rules allow NSCC: (i) to reexamine a
participant who has undergone a material change in circumstances,\3\
(ii)
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to reconsider the participant's continuing status as a participant as
if such entity was initially applying for membership when conditions
originally in existence at the time a participant was accepted for
membership have materially changed; and (iii) to require the
participant to satisfy any concerns NSCC may have as to the
participant's ongoing membership in NSCC as part of such reevaluation.
In addition, new Addendum T explicitly states that participants have
the affirmative obligation to advise NSCC if such material change
occurs.
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\3\ New Addendum T sets forth three categories where changes may
warrant reconsideration: (1) material changes in ownership, control
or management, (2) material changes in business lines, including but
not limited to, new business lines undertaken, or (3) participation
as a defendant in litigation which could reasonably have a direct
negative impact on the participant's business. Addendum T states
that these categories are listed as examples and should not be
viewed as exclusive in the process.
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When a material change occurs with respect to an existing
participant's ownership, control or management, mix of business, use of
third party service providers, or regulatory history, among other
areas, NSCC is faced with a different risk perspective than it faced at
the time it approved such participant's application for membership. The
NSCC board has concluded that it is in the best interests of NSCC and
its membership as a whole that NSCC address these types of changes,
including the ability to require the participant to reapply for
membership, as if the participant was not already a participant. If
NSCC did not have the ability to continually reexamine participants'
status, the purpose behind scrutinizing applications and the comfort
level provided by such process, would be undermined.
II. Discussion
Section 17A(b)(3)(F) of the Act \4\ requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible. The Commission believes that new Addendum
T to NSCC Rules will clarify NSCC's right to continuously review its
participants to make sure that they have not experienced a material
change in circumstances which may result in a material change in a
participant's risk profile. Therefore, the Commission believes that the
proposed rule change is consistent with NSCC's obligation under Section
17A(b)(3)(F) to safeguard securities and funds.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular with Section 17A 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-98-4) be and hereby is
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28638 Filed 10-26-98; 8:45 am]
BILLING CODE 8010-01-M
