[Federal Register Volume 63, Number 221 (Tuesday, November 17, 1998)]
[Notices]
[Pages 63952-63954]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30716]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40657; File No. SR-NSCC-98-06]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving a Proposed Rule Change Modifying the
Automated Customer Account Transfer Service
November 10, 1998.
On June 5, 1998, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-NSCC-98-06)
pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') and on June 17, 1998, amended the proposed rule change.\1\
Notice of the proposal was published in the Federal Register on October
5, 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. 40487 (September 28,
1998), 63 FR 53479.
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I. Description
NSCC's automated customer account transfer service (``ACATS'')
enables members of NSCC to effect automated transfers of customer
accounts among NSCC members.\3\ The proposed rule change expands the
types of eligible ACATS participants and the kinds of accounts that may
be transferred. Additionally, it permits NSCC to transmit date to
clearing agencies in order to expand the automated settlement
capabilities of ACATS.\4\
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\3\ ACATS complements New York Stock Exchange (``NYSE'') and
National Association of Securities Dealers (``NASD'') rules that
require NYSE and NASD members to use automated clearing agency
customer account transfer services and to effect customer account
transfers within specified time frames. For a description of ACATS
as it was before the revisions approved by this order, refer to
Securities Exchange Act Release No. 22481 (September 30, 1985), 50
FR 41274 (SR-NSCC-85-07); Securities Exchange Act Release No. 34879
(October 21, 1994), 59 FR 54229 (SR-NSCC-94-13); and NSCC Rule 50.
\4\ NSCC stated that another reason for the redesign is to make
the ACATS system Year 2000 compliant.
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A. Users
Currently, only NSCC members, primarily broker-dealers, may
participate in ACATS. The proposed rule change permits a qualified
securities depository (``QSD'') to also effect customer account
transfers through ACATS on behalf of its participants.\5\ Thus the
proposed rule change permits ACATS transfers between two participants
of a QSD and between a QSD participant and an NSCC member.
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\5\ QSD is a defined term in NSCC's Rule 1 as a registered
clearing agency, pursuant to section 3(a)(23) of the Act, that has
entered into an agreement with NSCC pursuant to which it will act as
a securities depository for NSCC and will effect book-entry
transfers of securities for NSCC with respect to NSCC's continuous
net settlement system. The Depository Trust Company is the only
registered clearing agency that has entered into such an agreement
with NSCC.
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B. Transfers
The proposed rule change sets forth three categories of ACATS
transfers: (1) Receiving members \6\ initiated full account transfers;
(2) delivering member \7\ initiated partial account transfers; and (3)
receiving member initiated partial account transfers. Categories one
and two, while previously available are modified by the proposal.
Category three is a new addition to ACATS.
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\6\ The proposed rule change defines the receiving member as a
NSCC member or QSD to who a customer's full account is to be
transferred.
\7\ The proposed rule change defines the delivering member as
the NSCC member or QSD which currently has the account.
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1. Receiving Member Initiated Full Account Transfers
Under the revised ACATS, a receiving member is required to submit
transfer information to NSCC in automated format. The ``transfer
initiation request'' paper form is no longer accepted by NSCC.\8\
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\8\ A receiving member will be able to continue to utilize the
facilities of NSCC to submit physical documentation that a
delivering member may need in order to act upon the receiving
member's request.
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Currently, once a delivering member rejects a receiving member's
transfer request, the receiving member is required to reinitiate the
ACATS process. The rule filing provides that in response to certain
enumerated categories of delivering member rejections, the receiving
member may make corrections to its customer account transfer request.
This allows a receiving member to adjust its customer account transfer
request by submitting corrections to NSCC within one business day after
notification of a delivering member's rejection. A delivering member
must then either reject the adjusted transfer request by submitting a
new rejection to NSCC or submit to NSCC detailed customer account asset
data. If the delivering member fails to respond to the adjusted
transfer request within the time frame established by NSCC, NSCC will
delete the request from ACATS and will notify the receiving and
delivering members.
To the extent that a receiving member determines that any
information as reported on the tranfer initiation request is
inaccurate, the rule filing provides that the receiving member may
cause an adjustment to be made by submitting corrected data to NSCC.
Similarly, if a delivering member determines that the account number of
its customer as reported on the transfer initiation request is
inaccurate, it may cause that adjustment to be made by submitting
corrected data to NSCC.
Under the revisions, upon submission of customer account asset
data, the delivering member is required to specify the quantity of
mutual fund services eligible book share mutual fund assets (``mutual
fund assets'') to be processed, if any, and to indicate whether the
transfer is a full or a partial transfer. A full transfer will cause
all mutual fund assets, whether greater or lesser than the quantity
specified, to be transferred. A partial transfer will cause only the
quantity specified or, if the account has less than such amount, such
lesser amount to be transferred. Since the actual quantity registered
on the records of the mutual fund may be adjusted between the time of
the transfer request submission and settlement of the ACATS transfer
(due for example to reinvested dividends or capital gains), this
modification provides ACATS participants with a means to transfer the
quantity of assets available on settlement date (i.e., a full
transfer). In addition, the rule filing states that if the transfer is
not confirmed or rejected by the mutual fund processor or fund member
within the time frame established by NSCC, it will be deleted from the
Fund/Serv system \9\ by NSCC. As a result, such transfer requests will
no longer pend in NSCC's systems for an indefinite period of time.
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\9\ For a complete description of NSCC's Fund/SERV system refer
to Securities Exchange Act Release No. 31937 (March 1, 1993), 58 FR
12609 (File No. SR-NSCC-92-14) (order approving proposed rule change
regarding Fund/SERV system).
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The proposed rule change permits a receiving member to accelerate
the transfer of a customer account by
[[Page 63953]]
accepting the report detailing the customer account asset data on the
business day it receives the report from NSCC. However, under these new
circumstances, if a delivering member submits a timely adjustment to an
account for which an accelerated acceptance has been received by NSCC,
it will cause such accelerated acceptance to be void.
To the extent an ACATS transfer is between two NSCC members, the
proposed rule change differentiates between the processing of
continuous net settlement (``CNS'') eligible and non-CNS eligible items
that are otherwise eligible at The Depository Trust Company (``DTC'').
The rule filing does not change the processing of CNS eligible items.
The proposed rule change provides that NSCC will produce ACATS
instruction files for all non-CNS eligible items that are otherwise
eligible at DTC. The instruction files will be similar to DTC deliver
orders (i.e., naming the receiving and delivering participants, the
quantity of the securities to be delivered, and the value for such
delivery). Any such deliveries are subject to the rules of DTC. If a
delivering member does not want instruction files to be submitted to
DTC, it may request at the time the account asset details are submitted
or pursuant to a standing instruction filed with NSCC that separate
receive and deliver instructions be produced. In such instance, it is
up to the delivering member to initiate the delivery of the asset.
Under the proposed rule change, foreign currency assets may be
transferred from a delivering member to a receiving member. ACATS will
produce receive and deliver instructions but will not specify a value
for such assets.
To the extent that either a receiving member or a delivering member
(or both) is a participant of a QSD, such transfer will be processed as
ACATS transfers with NSCC members as both the receiving member and the
delivering member with the exceptions specified below:
i. For all DTC eligible assets, other than United States dollar
cash balances (``cash''), assets covered by a standing instruction
filed by a delivering member with NSCC, and assets for which a receive/
deliver instruction request was received from a delivering member at
the time asset details were submitted, NSCC will issue an instruction
file to DTC specifying the quantity of each asset to be delivered with
a deliver value of zero.
ii. For all non-DTC eligible assets (other than assets available at
other registered clearing agencies and cash), assets covered by
standing instruction filed by a delivering member with NSCC and asset
for which a receive/deliver instruction request was received from a
delivering member at the time asset details were submitted, NSCC will
produce receive and deliver instructions naming the receiving member
and the delivering member. All such receive and deliver instructions
will specify no value. Unlike a transfer between NSCC members, NSCC
will not debit and credit the value of assets being transferred between
participants of a QSD or between a participant of a QSD and a member of
NSCC.\10\
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\10\ Under the current ACATS rule, the delivering firm is
debited the current market value of the assets and the member
receiving firm is credited the current market value of the assets.
The member delivering firm recovers its money by making delivery of
the assets. Under the proposed rule change, whenever a QSD
participates in the ACATS process, the assets will be delivered on a
no value basis.
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iii. If the account has a cash balance, NSCC will issue an
instruction to DTC indicating the participants to be debited and
credited and the corresponding amount.
2. Delivering Member Initiated Partial Account Transfers
The proposed rule change permits a delivering member to initiate
some types of partial account transfers. In addition to the transfer of
residual credit positions, delivering members are able to: Deliver a
partial account (in the form of cash or securities); initiate the
delivery of a position which was purchased by the delivering member for
the benefit of a customer's account and which the customer wants
custodied at the receiving member; obtain the return of cash previously
paid with respect to fail positions for which delivery is unable to be
completed;\11\ and obtain the return of cash or securities mistakenly
delivered through ACATS other than mutual fund assets and positions
eligible for processing at The Options Clearing Corporation (``OCC''),
the Government Securities Clearing Corporation (``GSCC''), or the
Participants Trust Company (``PTC'').\12\
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\11\ This service may only be initiated to the extent that the
fail is between two NSCC members.
\12\ This service may only be initiated to the extent that the
delivery is between two NSCC members.
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A delivering member may initiate a transfer by submitting to NSCC
those transfer details that are required by NSCC. NSCC will reject the
transfer if the details contain an edit or format error. NSCC will
notify the delivering member if a transfer is rejected in which case
the delivering member must reinitiate the transfer as if it had never
been previously submitted.
A receiving member may reject the transfer by submitting
information on the same day as the transfer request is received. No
action will be required by the receiving member if it determines to
accept the transfer. A receiving member may not submit corrections, and
a delivering member may not make adjustments to such transfer request.
Settlement date is one business day following the day NSCC receives
the transfer request unless the request includes option assets which
are eligible for processing at OCC in which case the settlement date
for all assets shall be two business days following the day NSCC
receives the transfer request.
3. Receiving Member Initiated Partial Account Transfers
Under the proposed rule change, a receiving member may submit a
request to initiate the transfer of a partial customer account. The
request will be delivered by NSCC to the delivering member on the same
day that it is received by NSCC. Each day NSCC will produce a report
that indicates all of the requests received by NSCC that day. A
delivering member may respond to a receiving member's request for a
partial account transfer at any time by the delivering member
initiating a partial account transfer as described in the delivering
member initiated transfer section above. No action is required by the
delivering member if it determines not to respond to a request, and no
transfer will occur.
C. Agreement With DTC
NSCC is entering into an agreement with DTC to permit DTC to obtain
access to ACATS on behalf of its participants.\13\ NSCC's agreement
with DTC will permit ACATS to be used for the transfer of accounts
between two DTC participants or between a DTC participant and an NSCC
member.
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\13\ This agreement will be similar to the current agreement
between NSCC and DTC regarding DTC's access to NSCC's mutual funds
services.
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D. Linkage Agreements
NSCC currently has an agreement in place with OCC regarding the
transfer of options positions within customer accounts being
transferred pursuant to ACATS. The agreement provides that NSCC may
send instructions to OCC for the delivery and receipt of options
positions on behalf of ACATS participants that are members of NSCC as
well as of OCC.
In order to broaden the types of assets which can be transferred
through
[[Page 63954]]
ACATS based on instructions from NSCC, the proposed rule change permits
NSCC to establish links with other registered clearing agencies
(``RCA''), such as DTC, PTC, and GSCC. Once an agreement has been
reached with the applicable RCA, to the extent a transfer involves an
asset position eligible for delivery at such RCA and both the receiving
member and delivering member have an account there, NSCC will issue
instructions to the applicable RCA indicating the delivering or
receiving participant and the quantity of assets to be delivered and
received. The instructions will not specify a value unless the transfer
is between two members of NSCC and the assets to be transferred are
government securities (where a nominal value shall be specified) \14\
or mortgage-backed securities. If the assets are mortgage-backed
securities, on settlement date NSCC will debit the deliverer the value
and credit the receiver the value of the assets.
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\14\ On June 17, 1998, NSCC amended the proposed rule change
(File No. NSCC-98-06) to include the transfer of government
securities where a nominal value is specified.
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E. Indemnification Provision
The proposed rule change includes indemnification provisions
similar to those currently in use by users of ACATS. While the revised
rule includes such provisions, it does not preclude participants from
entering into separate indemnification arrangements which are broader
than those contained in the rule.
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).\15\ Section 17A(b)(3)(A)(F) 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 NSCC's rule change meets this standard because the
changes to ACATS such as the ability to electronically transfer
accounts not only to and from broker-dealers but not to and from banks
and other financial institutions, the ability to do partial transfers,
the ability to make certain corrections to instructions, and the
ability to electronically transfer U.S. government and mortgage-backed
securities, should provide a more efficient method for the transfer of
customer assets and should encourage use by more financial
institutions.
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\15\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of sections 17A(b)(3) (A) and (F) 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-98-06) be and hereby is
approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-30716 Filed 11-16-98; 8:45 am]
BILLING CODE 8010-01-M
