[Federal Register Volume 60, Number 83 (Monday, May 1, 1995)]
[Notices]
[Pages 21226-21227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10607]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35642; File No. SR-NASD-95-11]
Self-Regulatory Organizations; National Association of Securities
Dealers Inc.; Notice of Filing of Proposed Rule Change Relating to
Requiring Use of the Facilities of a Registered Clearing Agency for the
Clearance of Transactions in Corporate Debt Securities
April 24, 1995.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 10, 1995, the
National Association of Securities Dealers, Inc. (``NASD'') 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 the NASD. 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 NASD is proposing to amend its Uniform Practice Code (``UPC'')
to add a new section 72 to require members that are participants in a
registered clearing agency to use the facilities of a registered
clearing agency for the clearance of securities transactions between
members in corporate debt securities.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD 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. Summaries of the most significant aspects of such
statements are set forth in sections (A), (B), and (C) below.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The NASD has observed that approximately thirty percent of all
transactions in corporate bonds are being compared, cleared, and
settled broker-to-broker or ex-clearing (i.e., without the use of the
facilities of a registered clearing agency). Clearing such transactions
broker-to-broker is labor intensive, requires more time to complete,
and results in more fails than transactions processed through a
clearing agency. The labor intensive nature of broker-to-broker
processing introduces errors into the process from keystroke errors,
manual document handling errors, delivery errors, and payment errors.
Because such broker-to-broker clearance is labor intensive, it also
generally requires more time to complete. Finally, both of these
factors increase the systemic clearance risk by
[[Page 21227]] increasing the number of trade fails and the potential
financial exposure to members.
The NASD is concerned that the problems associated with broker-to-
broker clearance of corporate bond trades is creating avoidable risks
and inefficiencies, as described above, in the clearance and settlement
system. The NASD also is concerned that the implementation of T+3
settlement of securities transactions scheduled to occur on June 7,
1995, will exacerbate the risks and inefficiencies inherent in clearing
corporate bond transactions broker-to-broker. Accordingly, in order to
reduce or eliminate these risks and inefficiencies, the NASD is
proposing to amend the UPC to adopt a new section 72 to require a
member of its agent that participates in a registered clearing agency
to use the facilities of a clearing agency to clear eligible
transactions in corporate debt securities.\2\
\2\The NASD also has been advised that enhancements to the
National Securities Clearing Corporation's Fixed Income Transaction
System to facilitate the corporate bond comparison process became
effective October 21, 1994. This facility enhancement accelerates
the comparison cycle to trade date which allows members to view
their compared corporate bond trades on T+1. This acceleration of
the comparison cycle will aid the industry's transition to T+3
settlement.
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Finally, the proposed rule change provides that the NASD may exempt
any transaction or class of transactions in corporate debt securities
from the provisions of the rule as may be necessary to accommodate
special circumstances related to the clearance of such transactions or
class of transactions. The NASD anticipates that this provision will be
used only in the event special pricing and processing problems related
to particular corporate debt securities make using the facilities of a
registered clearing agency difficult or impossible and outweighed the
benefits of using the facilities of a registered clearing agency.\3\
\3\For example, the NASD considered mandating the use of the
facilities of a registered clearing agency for other types of
securities such as unit investment trusts, private label
collateralized mortgage obligations, synthetic stripped coupons, and
government securities but concluded that it would be inadvisable to
adopt such a mandate until the special pricing and processing
requirements for these securities is fully understood and resolved.
Similarly, if the NASD is asked to exempt certain issues or
transactions in certain issues of corporate debt because of problems
associated with clearing transactions in such issues through the
facilities of a registered clearing agency, the exemptive power
provided in the proposed rule change will permit the NASD to resolve
such problems.
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Because the proposed rule change may facilitate the implementation
of the industry's transaction to a T+3 settlement scheduled to occur on
June 7, 1995, the NASD will make the proposed rule change effective as
soon after the Commission approval as it is possible to publish a
Notice to Members announcing approval. The proposed rule change will be
effective two weeks following publication of the Notice to Members
announcing Commission approval.
The NASD believes that the proposed rule change is consistent with
the provisions of section 15A(b)(6) of the Act\4\ in that requiring
such transactions to be cleared through the facilities of a registered
clearing agency will reduce the number of trade fails and reduce or
eliminate risks and inefficiencies caused by broker-to-broker clearance
of such transactions, thereby enhancing the functioning of the
clearance and settlement system for the benefit of all securities
market participants.
\4\15 U.S.C. 78o-3(b)(6).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor 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 the NASD 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, NW., Washington, DC 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. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD.
All submissions should refer to the file No. SR-NASD-95-11 and
should be submitted by May 22, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
\5\17 CFR 200.30-(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-10607 Filed 4-28-95; 8:45 am]
BILLING CODE 8010-01-M
