[Federal Register Volume 60, Number 72 (Friday, April 14, 1995)]
[Notices]
[Pages 19104-19107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-9231]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35577; File No. SR-NSCC-95-3]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Relating to
Implementation of a Three-Day Settlement Standard
April 6, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 1, 1995, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') a proposed rule
change as described in Items I, II, and III below, which items have
been prepared primarily by NSCC. On March 27, 1995, NSCC filed an
amendment to the proposed rule change.\2\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
\1\15 U.S.C. Sec. 78s(b)(1) (1988).
\2\Letter from John P. Barry, Associate Counsel, NSCC, to
Christine Sibille, Senior Counsel, Division of Market Regulation,
Commission (March 27, 1995).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NSCC proposes to modify its rules to implement a three business day
settlement standard for securities transactions. [[Page 19105]]
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.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In October 1993 the Commission adopted Rule 15c6-1 under the Act
which will become effective June 7, 1995.\3\ The rule establishes three
business days after the trade date (``T+3''), instead of five business
days (``T+5''), as the standard settlement cycle for most securities
transactions. The primary purpose of the proposed rule change is to
modify NSCC's Rules and Procedures consistent with Rule 15c6-1 under
the Act. Accordingly, many of NSCC's Rules and Procedures that include
time references are being revised to accommodate processing in a T+3
time frame.
\3\Securities Exchange Act Release Nos. 33023 (October 6, 1993),
58 FR 52891 (adopting Rule 15c6-1) and 34952 (November 9, 1994, 59
FR 59137 (changing effective date from June 1, 1995, to June 7,
1995).
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For example, the proposed rule will change references from a five
day settlement to a three day settlement time frame\4\ or will delete
reference to five day settlement.\5\ Trades compared after such time as
established on T+4, will not be included in the normal settlement
cycle.\6\ Under Procedures V.B and VI.B, all transactions entered into
the balance order accounting operation or the foreign security
accounting operation on T+2, rather than T+4, or thereafter will be
processed on a trade-for-trade basis. The proposed rule change also
will amend Rule 11, Section 8(d) to require an ``as of'' trade to be
entered at least two business days, instead of four business days,
prior to the payable date to be provided dividend protection. Under
Procedure V.C, only trade in balance orders executed on the New York
Stock Exchange (``NYSE''), American Stock Exchange (``Amex''), and
Over-the-Counter (``OTC'') compared on T and T+1 will be netted rather
than trades from T through T+4, and the net balance orders will be
issued on T+2 instead of T+4. Continuous Net Settlement (``CNS'')
eligible items will be entered into the CNS accounting operation for
transfers through NSCC's Automated Customer Account Transfer Service
(``ACATS'') on T+1 instead of T+3.\7\ All time frames contained in
Procedure VII.H.4(b) relating to voluntary corporate reorganizations
will be shortened by two days.
\4\Procedures III.D (exercise of options), VII.B, VII.C, XIII,
and Addendum K. In addition the time frame for NSCC's guarantee of
trades contained in addendums K and M will begin on T+2 and instead
of T+4.
\5\Procedures II.I.2 and 3, and III.C.
\6\Procedures II.B.1(c) (Regular Way NYSE/Amex Equity
Securities), II.C.2(f) (Regular Way over the Counter and Other
Exchange Equity Securities), II.D.2(i) (Debt Securities), and III.E
(Correction of NYSE (Odd-Lot Trades).
\7\Rule 50, Section 10.
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Under Section II.B.1(c) of NSCC's Procedures, NSCC is proposing
that the adjustment contract totals represent the combined input for T
through T+2, instead of T+3, that is compared. Trades reported on the
Consolidated Trade Summary will include trades compared through T+1,
instead of T+3.\8\ As-of-trades submitted two, instead of four, days
prior to payable date will be included in the dividend activity
report.\9\ The date a member is informed of its potential liability
from a short position will be changed from T+2.\10\
\8\Procedure VI.A.
\9\Procedure VII.G.2.
\10\Procedure VII.K.
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The proposed rule change also makes certain ancillary modifications
to NSCC's Rules and Procedures in order to delete references to
obsolete services, procedures, forms, and methods of communication. All
references to the SCC Division of the NSCC are being eliminated. The
SCC was one of the predecessors of the NSCC and its rules were
incorporated into the NSCC's rules. At the time of the NSCC's
formation, to ease the transition, NSCC retained the reference to the
SCC by indicating that the rules were for the SCC Division. It is no
longer necessary to include these references.
Cross references to specific rules which contain timing provisions
are being eliminated in order to avoid inconsistencies in the event
such rules are subsequently amended. Instead, references are being
changed to refer to the rules generally.\11\ Furthermore, the clauses
beginning with ``up to and including'' in the definitions of
``Comparison Operation'', ``Foreign Security Accounting Operation'',
and ``Balance Order Accounting Operation'' also are being eliminated in
order to avoid possible inconsistencies caused by future amendments of
the rules.
\11\For example, the language ``Rules 8, 9, and 10'' contained
in Rule 1's definition of Balance Order System will be amended to
read ``these Rules.''
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The definitions of ``Basket Trade'' and ``Mini Basket'' contained
in Rule 1 are being deleted because the NYSE no longer offers these
types of products and therefore NSCC does not clear it. Accordingly,
references to Basket Trades and Mini Baskets contained in Sections II.A
and H of the Procedures and Addendum A, Section 1.E, fees for
processing these trades, are being deleted.
Non-members have not requested to use NSCC's facility to pay New
York State Transfer Taxes in over 10 years. Furthermore, automation of
the tax payment process makes it impractical for non-members to pay the
taxes through NSCC. Accordingly, references to non-members' ability to
use this service are being eliminated from the rules. Rule 3, Section
2, and Rules 14 and 26 are being amended to reflect this change.
Addendum A, Section III.E is being changed to reflect the fact that for
many years NSCC has accepted forms from members, not envelopes, for
filing New York State Transfer Taxes. This change does not affect
members in any way.
Rule 4, Section 1 is being amended because NSCC has limited the
number of banks which can hold securities pledged by members for the
Clearing Fund. These banks are chosen by NSCC and not by the members.
This change was implemented in order to manage the Clearing Fund more
effectively.
There are several places throughout the rules where changes are
being made to reflect the continuing automation of systems and the
elimination of paper intensive processes. These include the elimination
of the use of certain forms, changing references to data received
rather than tickets delivered, and elimination of the requirement of
acknowledging transactions through paper submission. Such changes can
be found in the following sections:
Rule 5 Section 1
Rule 7 Section 3 (Eliminates need of member to confirm to NSCC
contract list)
Rule 12 Section 1
Rule 18 Section 2 and 3 (Eliminates return of tickets when NSCC
ceases to act for a member)
Procedures Section VII.D.2(c)
Procedures Section VII.I
Procedures Sections VIII.A and B (Eliminates clearance/settlement
statement)
Procedures Section X.B
Procedures Section XIV
Addendum A Section IV.S and V.B
Addendum C Section 1
Certain rules are being amended to clarify that NSCC has the right
to deny [[Page 19106]] access to additional services to members who are
not currently using the service if NSCC does not have adequate
capability to perform that service. Rule 2, Section 3 and Section IV.D
of the Procedures are being revised accordingly. Rule 5, Section 2 is
being amended to reflect the current practice that NSCC prepares all
checks being sent to members.
The exchanges and the NASD have rules concerning good delivery of
physical securities.\12\ NSCC needs to be consistent with such rules.
Therefore, Rule 9, Section 1.9 and Rule 44, Section 7 are being amended
to require that deliveries must meet such good delivery requirements.
Rule 44, Sections 8-39, which contain NSCC's rules on good delivery,
are being deleted.
\12\See, e.g., NYSE Rules 175-226.
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Since the dissemination of Addendum F, members who have failed
timely to pay amounts due have been required to settle amounts, if
greater than $100,000, in Federal Funds. Rule 12, Section 1 is now
being amended to reflect this longstanding practice. Addendum F also is
being amended to reflect this change.
Rule 13 permits a member to charge an amount to its account at
NSCC. Rule 13 is being deleted because the Marking to Market Service
was discontinued several years ago. Since that time, members may use
NSCC's Funds Only Settlement Service to achieve the same objective.
Rule 17 is being deleted because the Signature Distribution Service
was never implemented and has been made obsolete with the introduction
of current Medallion Program.
Rule 18, Section 2, requires that all closeouts be completed within
two business days when NSCC ceases to act for a member. This is not
always possible without disrupting the marketplace. This rule
accordingly is being amended to indicate that closeouts will be
completed promptly.
Because of the increase in the number of vice presidents at NSCC,
Rule 22 is being amended to provide that only the board of directors,
the chairman of the board, the president, any executive vice president,
and certain designated officers of NSCC may suspend the Rules when
necessary or expedient. NSCC will inform the Commission of any change
in the officers designated to suspend the Rules.\13\ Similarly, Rule 23
is being amended to provide that except where action of the board of
directors is specifically required, only the chairman, the president,
any executive vice president, the secretary, and certain designated
officers may take action on behalf of NSCC.
\13\Currently, no officers have been designated. Letter from
John P. Barry, Associate Counsel, NSCC, to Jonathan Kallman,
Associate Director, Division of Market Regulation, Commission (March
27, 1995).
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The Procedures are being amended to include references to when-
distributed transactions, which result from stock splits and are
treated in the same manner as when-issued transactions. These
references are in Section II.A and E of NSCC's Procedures. Section
II.E.2 also is being amended to clarify that the settlement date for
corporate debt new issues will be established by the appropriate
regulatory authority.
Currently, Section II.G of the Procedures requires that NSCC's
Reconfirmation and Pricing Service (``RECAPS'') be run quarterly. It is
the intention of NSCC to continue this practice. However, the rule is
being amended to provide for runs from time-to-time to provide
flexibility in the event of operational necessities.
The CNS Accounting Operation no longer uses sub-accounts for the
settlement of option exercises. Section III.D of the Procedures is
being amended to reflect this practice.
As has been the practice for many years, members typically deliver
securities to The Depository Trust Company (``DTC'') to cover short
positions, instead of NSCC. Therefore Procedures VII.C.5, G.3, and H.7
are being amended to eliminate NSCC's Delivery to Clearing Service.
A change is being made to Section VII.F.2 of the Procedures to
conform the rules to the practice that Net CNS Money Settlement Amounts
calculated by members may be verified against the Settlement Activity
Statement but are not required to be verified.
Section IX.A of the Procedures is being amended to eliminate the
ability of members to select an alternate clearing corporation on an
item-by-item basis. Members designate a single location for delivery of
output records, and item-by-item designation would be too inefficient.
Generally, sponsored members deposit their securities directly with
DTC. However, NSCC may require that certain securities be submitted to
NSCC before being deposited with DTC on behalf of such member. Section
IX.B of the Procedures is being changed to reflect this practice.
NSCC has not offered a P&S service for direct clearing for several
years. Section IX.D is therefore being deleted from the Procedures.
Furthermore, conforming amendments are being made to Section IX.E of
the Procedures, Section IV of Addendum A (to eliminate fees for Remote
Trade Comparison Handling and Preparation of T+1 input), and Section
V.B of Addendum A (to eliminate fees for options cage processing and
stock loan rebate payment service).
Section III of Addendum A is being amended to delete references to
the Jersey City office which no longer exists. Section V.B of Addendum
A is being amended to delete fees for hard copy output which are no
longer charged.
Addendum C is being amended in two places to reflect changes in
procedures. First, NSCC no longer borrows physical securities for the
settlement of non-DTC eligible items. Therefore Section 1 is being
modified to eliminate these references. Second, the CNS sub-account
designations have been changed from 9000 and 6000 to ``D'' and ``C'',
respectively. Therefore Section 3 is being updated.
An additional purpose of the filing, although not included as part
of Exhibit A, is to indicate NSCC's intention to alphabetize the
section of definitions contained in NSCC's Rules and Procedures.
The proposed changes will take effect with the implementation of
T+3 on June 7, 1995, consistent with the conversion time frame
established by the Commission.\14\ The schedule is as follows:
\14\Securities Exchange Act Release No. 34952 (November 9,
1994), 59 FR 59137.
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Settlement
Trade date cycle Settlement date
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June 2 Friday......................... 5 day..... June 9 Friday.
June 5 Monday......................... 4 day..... June 9 Friday.
June 6 Tuesday........................ 4 day..... June 12 Monday.
June 7 Wednesday...................... 3 day..... June 12 Monday.
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The proposed rule change is consistent with the requirements of the
Act, and the rules and regulations thereunder, since it will facilitate
the prompt and accurate clearance and settlement of securities
transactions.
(B) Self-Regulatory Organization's Statement on Burden on Competition.
NSCC does not believe that the proposed rule change will have an
impact on or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Chance Received From Members, Participants or Others.
No written comments relating to the proposed rule change have been
solicited or received. NSCC will notify [[Page 19107]] the Commission
of any written comments received by NSCC.
III. Date of Effectiveness of the Proposed Rule Chance 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 the self-regulatory organization 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 Commissin, 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 provisions of 5
U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room in Washington, D.C. Copies of such
filing will also be available for inspection and copying at the
principal office of NSCC. All submissions should refer to File No. SR-
NSCC-95-03 and should be submitted by May 5, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-9231 Filed 4-13-95; 8:45 am]
BILLING CODE 8010-01-M
