97-4606. Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Approval of a Proposed Rule Change Relating to Reconfirmation and Pricing Services  

  • [Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
    [Notices]
    [Page 8477]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-4606]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-38309; File No. SR-NASD-96-54]
    
    
    Self-Regulatory Organizations; National Association of Securities 
    Dealers, Inc.; Order Granting Approval of a Proposed Rule Change 
    Relating to Reconfirmation and Pricing Services
    
    February 19, 1997.
        On December 20, 1996, the NASD Regulation, Inc. (``NASD 
    Regulation'') filed with the Securities and Exchange Commission 
    (``Commission'') the proposed rule change (File No. SR-NASD-96-54) 
    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 January 9, 1997.\2\ No comment letters were received. For 
    the reasons discussed below, the Commission is granting approval of the 
    proposed rule change.
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        \1\ 15 U.S.C. 78s(b)(1).
        \2\ Securities Exchange Act Release No. 38115 (January 3, 1997), 
    62 FR 1351.
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    I. Description
    
        Several years ago, the National Securities Clearing Corporation 
    (``NSCC'') began operating its Reconfirmation and Pricing Service 
    (``RECAPS'') that permits NSCC participants to submit their fail 
    transactions for reconfirmation and repricing on a quarterly basis. 
    Rule 11190 (formerly Section 69) of the Uniform Practice Code 
    (``Code'') of the National Association of Securities Dealers, Inc. 
    (``NASD'') mandates that a member which is a participant in a 
    registered clearing agency participate in the clearing agency's fail 
    reconfirmation and pricing service.
        Even after a transaction is compared, fails can occur for many 
    reasons (e.g., because the securities fail to be received or delivered 
    or payment is not received or delivered). RECAPS provides a means for 
    parties with open fails on their books to send them to NSCC for 
    matching on a quarterly basis. The RECAPS process allows members to 
    reconfirm outstanding fails by establishing a new settlement date and 
    to reprice such fails by marking the contract to the current market 
    price. It also identifies a submitting member's fails that may have 
    been settled or for which the contraparty has no record.
        Prior to this amendment, when one of the parties did not respond to 
    a RECAPS submission, the submitting party could either leave the fail 
    open for three more months and try again for resolution through RECAPS 
    or could buy in or sell out the transaction pursuant to NASD's Code. 
    The submitting member was required by Rule 11810 of NASD's Code to send 
    another notification to the contraparty and wait another two days prior 
    to effecting a buy in. No prior notice is or was required before 
    effecting a sell out pursuant to Rule 11820 of NASD's Code.
        As amended, Rule 11190(b)(1) permits a contract that has been 
    submitted to a reconfirmation and repricing service and that has been 
    DK'ed by the contraparty or is otherwise deemed a DK under the rules of 
    the service \3\ to be closed out by the submitting party without notice 
    during normal trading hours promptly after the completion of the 
    reconfirmation and pricing cycle for the account and liability of the 
    nonconfirming member.\4\ New paragraph (b)(2) of Rule 11190 requires 
    that the submitting member notify the nonresponding member of any 
    execution to close the contract on the day of execution and the action 
    of the member to buy in or sell out in accordance with the provisions 
    of Rules 11810 and 11820, respectively. However, if the submitting 
    member determines not to close out a DK, the fail continues to remain 
    open on the submitting member's books until the next RECAPS cycle.
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        \3\ Recently, NSCC amended its Procedure II(G) to provide that 
    failure to respond to a RECAPS reconfirmation attempt shall result 
    in the transaction being DK'ed. Treating a failure to respond to a 
    RECAPS reconfirmation attempt as a DK under NSCC's rules 
    extinguishes any rights of the nonresponding member with respect to 
    the transaction.
        \4\ The word ``promptly'' in paragraph (b)(1) is intended to be 
    interpreted in accordance with the nature and liquidity of the 
    securities.
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    II. Discussion
    
        Section 15A(b)(6) provides that the rules of an association must be 
    designed to foster cooperation and coordination with persons engaged in 
    regulating, clearing, settling, processing information with respect to, 
    and facilitating transactions in securities.\5\ The Commission believes 
    that the proposed rule change is consistent with the NASD's obligations 
    under the Act. The proposals provides an expedited mechanism to reduce 
    long outstanding fails that have been submitted to RECAPS. When a 
    selling member DKs a transaction or fails to respond to a RECAPS 
    advisory, Rule 11190(b) of the Code allows the buying member to 
    immediately execute a buy in transaction and notify the nonresponding 
    selling member of its liability for the transaction. The proposal 
    provides an incentive to parties to resolve RECAPS transactions 
    submitted against them in a timely fashion. By encouraging and 
    assisting parties to resolve their trade disputes, the proposal helps 
    foster cooperation and coordination with persons engaged in clearing, 
    settling, and facilitating transactions in securities.
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        \5\ 15 U.S.C. 78o-3(b)(6).
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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 Section 15A 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-NASD-96-54) be and hereby is 
    approved.
    
        For the Commission by the Division of Market Regulation, 
    pursuant to delegated authority.\6\
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        \6\ 17 CFR 200.30-3(a)(12).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 97-4606 Filed 2-24-97; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
02/25/1997
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
97-4606
Pages:
8477-8477 (1 pages)
Docket Numbers:
Release No. 34-38309, File No. SR-NASD-96-54
PDF File:
97-4606.pdf