[Federal Register Volume 60, Number 236 (Friday, December 8, 1995)]
[Notices]
[Pages 63090-63092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29917]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36547; File No. SR-NSCC-95-15]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Regarding
Arrangements Between the National Securities Clearing Corporation and
Chicago Stock Exchange, Incorporated Relating to a Decision by Chicago
Stock Exchange, Incorporated to Withdraw From the Clearance and
Settlement, Securities Depository, and Branch Receive Businesses
December 1, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 24, 1995, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-NSCC-95-15) 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.
\1\ 15 U.S.C. 78s(b)(1) (1988).
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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 Chicago Stock Exchange, Incorporated (``CHX'') to
withdraw from the clearance and settlement, securities depository, and
branch receive businesses. Parties to the proposed arrangements are The
Depository Trust Company (``DTC''), CHX, Midwest Securities Trust
Company (``MSTC''), NSCC, Midwest Clearing Corporation (``MCC'') and
Securities Trust Company of New Jersey (``STC/NJ'').\2\
\2\ STC/NJ is a subsidiary of CHX that currently provides
certain services, including a securities custody service. STC/NJ is
not a clearing agency as defined in the Act and therefore is not
required to register with the Commission.
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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.\3\
\3\ 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
CHX has announced that it is closing its clearance and settlement
and securities depository facilities in order to focus its resources on
the operations of the exchange. CHX has determined to take this step in
response to recommendations by industry users to eliminate redundant
facilities and thereby reduce the costs of processing securities
transactions. The proposed arrangements will assist in achieving these
objectives while affording qualified sole MCC participants an
opportunity to become NSCC participants and transfer their continuous
net settlement positions to NSCC. NSCC's primary purpose for entering
into the proposed arrangements at this time is to facilitate the
industry's planned conversion to same-day funds
[[Page 63091]]
settlement.\4\ Additionally, the proposal will result in substantial
savings for NSCC participants and the securities industry as a whole.
\4\ 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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Currently, transactions in equities, corporate debt, and municipal
debt are settled in next-day funds.\5\ Transactions in commercial paper
and other money market instruments are settled in same-day funds. As
the Commission is aware, DTC and NSCC have been working with the
industry over the last few years to develop a system that will provide
for the settlement of virtually all securities transactions in same-day
funds. DTC's and NSCC's efforts have been encouraged by the Commission,
the Board of Governors of the Federal Reserve System, and the Federal
Reserve Bank of New York, and NSCC's plans have been monitored by the
staffs of these regulatory bodies.\6\ Under the conversion plan, all
issues currently settling in next-day funds will be converted to
settlement in same-day funds settlement on a single day. Several months
ago, a consensus was reached that the conversion date will be February
22, 1996.
\5\ The term ``next-day funds'' refers to payment by means of
certified check that is for value on the following day.
\6\ In approving certain modifications of DTC's existing system
in order to accommodate the overall conversion to same-day funds
settlement, the Commission stated that it believes that the overall
conversion to a same-day funds settlement system will help reduce
systemic risk by eliminating overnight credit risk. The same-day
funds settlement system also will reduce risk by achieving closer
conformity with the payment methods used in the derivatives markets,
government securities markets, and other markets. Securities
Exchange Act Release No. 35720 (May 16, 1995), 60 FR 27360 [File No.
SR-DTC-95-06] (order granting accelerated approval to proposed rule
change modifying the same-day funds settlement system).
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Where there are interfaces among the securities clearing
corporations, same-day funds settlement exposes each clearing
corporations, same-day funds settlement exposes each clearing
corporation to settle its net payment obligation because of a failure
by one of the participants of such other clearing corporation to settle
with it or because such other clearing corporation is experiencing a
major systems problem. These risks cannot be entirely avoided with
existing and available risk management controls. CHX's withdrawal from
the securities clearing corporation business will eliminate the
exposure of NSCC and its participants to the payment system risks
associated with the NSCC-MCC interface. Also, the interests of MCC
participants can be provided for in an orderly manner that will help
assure their successful integration in the process of converting to
same-day funds settlement.
The proposed arrangement should result in substantial savings for
NSCC participants and the securities industry. In connection with this
proposal, former sole MCC participants may become NSCC participants if
they qualify. 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 MCC in operating an
interface would be eliminated.
NSCC believes the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder applicable to NSCC because the proposed arrangements will
facilitate the industry's conversion to sameday funds settlement for
virtually all securities transactions and thereby facilitate the prompt
and accurate clearance and settlement of such transactions. The
proposal will provide qualified sole MCC participants. The proposal
will provide qualified sole MCC 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 believes the proposed arrangements would impose no burden on
competition. Securities clearing corporations 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 business in which industry members compete with one
another. Operating a securities clearing corporation 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 will 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, CHX's withdrawal participants and thereby remove
impediments to competition. Finally, CHX'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.
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 SR-NSCC-95-
[[Page 63092]]
15 and should be submitted by December 29, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
\7\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29917 Filed 12-7-95; 8:45 am]
BILLING CODE 8010-01-M
