01-5798. Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving a Proposed Rule Change Relating to Processing Certain Securities Undergoing Reorganization

March 2, 2001.

On October 10, 2000, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-NSCC-00-10) 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 December 18, 2000.^[2] No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

I. Description

The proposed rule change modifies NSCC's Rules and Procedures to permit securities that are subject to certain voluntary corporate action which previously would have caused them to be exited from NSCC's continuous net settlement (“CNS”) system to continue to be processed in CNS.^[3] NSCC has enhanced the CNS system to enable it to process securities with reorganization events that have a wider and more varied range of features. The proposed rule change provides that when NSCC determines that it has the operational capability to continue to process such an issue, the issue will continue to be CNS eligible, and NSCC will establish procedures necessary for NSCC to accommodate the issue in CNS. NSCC will issue an Important Notice to its members detailing how the security will be processed.

NSCC's Rules and Procedures permit NSCC to continue to process certain securities undergoing corporate reorganizations and specify how NSCC shall handle those issues. For example, currently NSCC's Procedure VII provides for the processing in CNS of securities subject to tender offers with protect periods of three or more days. Securities subject to tender offers with protect periods of less than tree days cannot currently be processed in CNS, and NSCC would normally exit such securities from the CNS system. In that case, NSCC would issue receive/deliver instructions to participants with long or short positions in the subject security. The proposed rule change allows securities subject to tender offers with no protect periods or protect periods of less than three days to be processed in CNS.

Another example, would be issues subject to multiple tender offers. Currently, NSCC's Rules and Procedures provide for the establishment of up to two CNS reorganization subaccounts for issues subject to two tender offers. Under NSCC's proposed rule change, it could, provided it has the operation capability to do so, establish multiple CNS subaccount for issues subject to multiple tender offers.

In addition, in order to eliminate the possibility of error which arises from manual processing, NSCC has determined not to continue providing certain features which were processed on a manual basis. For example, the rule no longer permits new input on the list day of the protect period.

II. Discussion

The Commission finds that the proposed rule change is consistent with the requirement of the Act and the rules and regulations thereunder and particularly with the requirements of section 17A(b)(3)(F).^[4] Section 17A(b)(3)(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 proposed rule change allows additional corporate actions to be processed in and receive the benefits of NSCC's CNS system. Thus, the proposed rule change facilitates the prompt and accurate clearance and settlement of such securities transactions.

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 section 17A(b)(3)(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-00-10) be and hereby is approved.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.^[5]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  Securities Exchange Act Release No. 43699 (December 11, 2000), 65 FR 79144.

3.  The proposed rule change also modified NSCC's Rules and Procedures to refer to reorganization events as voluntary and mandatory instead of as voluntary and involuntary.

4.  15 U.S.C. 78q-1(b)(3)(F).

5.  17 CFR 200.30-3(a)(12).