96-11537. Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving a Proposed Rule Change Establishing Standard Prices for Transfers of Non-Continuous Net Settlement Assets through the Automated Customer Account ...  

  • [Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
    [Notices]
    [Pages 21217-21218]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-11537]
    
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-37162; File No. SR-NSCC-96-01]
    
    
    Self-Regulatory Organizations; National Securities Clearing 
    Corporation; Order Approving a Proposed Rule Change Establishing 
    Standard Prices for Transfers of Non-Continuous Net Settlement Assets 
    through the Automated Customer Account Transfer Service
    
    May 2, 1996.
        On January 5, 1996, the National Securities Clearing Corporation 
    (``NSCC'') filed with the Securities and Exchange Commission 
    (``Commission'') a proposed rule change (File No. SR-NSCC-96-01) 
    pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
    (``Act'') \1\ to establish standard prices for certain assets 
    transferred through NSCC's Automated Customer Account Transfer 
    (``ACAT'') service. On February 8 and 20, 1996, NSCC filed amendments 
    to the proposed rule change.\2\ Notice of the proposal was published on 
    March 6, 1996, in the Federal Register to solicit comments on the 
    proposed rule change.\3\ No comment letters were received. For the 
    reasons discussed below, the Commission is approving the proposed rule 
    change.
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        \1\ 15 U.S.C. 78s(b)(1) (1988).
        \2\ Letters from Julie Beyers, Associate Counsel, NSCC, to 
    Christine Sibille, Division of Market Regulation, Commission 
    (February 7 and 15, 1996).
        \3\ Securities Exchange Act Release No. 36907 (February 29, 
    1996), 61 FR 8997.
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    I. Description
    
        NSCC's proposed rule change modifies NSCC's rules to coincide with 
    its practice of establishing systemized, standard default prices based 
    on asset type for assets which are not eligible for NSCC's Continuous 
    Net Settlement (``CNS'') \4\ system and which are
    
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    submitted by members for transfer through NSCC's ACAT service.\5\ 
    Through its ACAT service, NSCC provides an automated and standardized 
    service for the transfer of assets in a customer account from one 
    brokerage firm to another.
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        \4\ A CNS security is a cleared security eligible for transfer 
    on the books of each qualified securities depository (e.g., The 
    Depository Trust Company, or the Philadelphia Depository Trust 
    Company), and identified as such on a list of such securities at 
    NSCC.
        \5\ For a complete description of the ACAT service, refer to 
    NSCC Rule 50 and to Securities Exchange Act Release No. 34879 
    (October 21, 1994), 59 FR 54229 [File No. SR-NSCC-94-13] (order 
    approving a proposed rule change modifying the ACAT service).
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        When a customer wants to transfer her account to a new broker-
    dealer (``receiving broker-dealer''), the receiving broker-dealer 
    submits through NSCC a transfer initiation request form to the broker-
    dealer holding the customer's assets (``delivering broker-dealer''). 
    Within three business days, the delivering broker-dealer must submit to 
    NSCC a list of the customer's assets it holds. The list must include 
    prices assigned to the assets not eligible for CNS. Unless there are 
    discrepancies between the receiving broker-dealer's list of the 
    customer's assets and the delivering broker-dealer's list, transfer of 
    the account generally takes place four business days later.
        On settlement date, NSCC automatically debits the delivering 
    broker's settlement account at NSCC with the market value of the assets 
    being transferred through the ACAT service and credits the receiving 
    broker's settlement account with the same amount. The resulting 
    settlement obligations appear on the members' initial settlement 
    statements issued in the afternoon. When the assets which are not CNS 
    eligible assets are delivered through NSCC's envelope delivery service, 
    NSCC credits the delivering broker's settlement account with the value 
    of those assets and debits a corresponding amount from the receiving 
    broker's settlement account. Because assets delivered through NSCC's 
    envelope delivery service must be submitted by 11:30 a.m., the 
    delivering broker's initial settlement statement will reflect both the 
    debit from the initial ACAT request and the corresponding credit from 
    the delivery of assets resulting in no change to such member's overall 
    settlement obligations. If the assets are not delivered, the delivering 
    broker's settlement bank would be debited the assigned value of the 
    assets at the end-of-day settlement. These funds will be credited to 
    the delivering broker when it delivers the customer's assets.
        CNS assets submitted for transfer through the ACAT system are 
    systematically priced. Because assets not eligible for CNS (e.g., 
    limited partnerships, mortgaged backed securities, zero coupon bonds, 
    foreign securities, U.S. government and U.S. agency securities, and 
    thinly traded municipal bonds) typically do not have a system price, 
    NSCC must assign an asset value to any such assets submitted for 
    transfer through the ACAT service. NSCC ascribes assets not eligible 
    for CNS a value by using a pricing service.\6\ If there is no price 
    available from a pricing service, NSCC assigns a value based on the 
    higher of (i) the price submitted by the delivering broker or (ii) the 
    price indicated by an industry defined default price matrix.\7\ The 
    default price matrix employs security category indicators and specifies 
    a default price for each identified security category. For example, 
    domestic stocks are valued at $1.00 per share and domestic corporate 
    bonds and municipal bonds are valued at $85 per $100 principle amount. 
    Once the default value is established, changes by participants are not 
    permitted.
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        \6\ NSCC will use the following pricing services (listed in 
    order of preference). Equities: The New York Stock Exchange, the 
    American Stock Exchange, NASDAQ, Vancouver Stock Exchange, average 
    OTC comparison system price, Interactive Data Financial Times 
    information, previous day's system price, or last available price in 
    system. Bonds: Average Price in the Bond Comparison System for 
    trades compared on T or T+1, average price in the Bond Comparison 
    System for trades compared on T+2, average price in the Bond 
    Comparison System for trades compared on T+3 or older, Interactive 
    Data Financial Times information, previous day's system price, last 
    available price in system, or for municipal bonds only the price 
    obtained from J.J. Kenny S&P if the last available system price is 
    five days old or older.
        \7\ The default matrix was developed in conjunction with the New 
    York Stock Exchange, the Securities Industry Association Account 
    Transfer Division, and the National Association of Securities 
    Dealers.
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    II. Discussion
    
        The Commission finds that the proposed rule change is consistent 
    with the requirements of the Act and the rules and regulations 
    thereunder and particularly with the requirements of Sections 17A(b)(3) 
    (A) and (F).\8\ Sections 17A(b)(3) (A) and (F) require that the rules 
    of a clearing agency be designed to promote the prompt and accurate 
    clearance and settlement of securities transactions and to foster 
    cooperation and coordination with person engaged in the clearance and 
    settlement of securities transactions. The Commission believes that 
    NSCC's rule change meets these standards because establishment of 
    systemized standard default prices for assets not eligible for CNS 
    which are transferred through the ACAT service provides an incentive 
    for broker-dealers holding customer assets to promptly deliver such 
    securities. The proposed rule change also should foster cooperation and 
    coordination between brokerage firms and NSCC by establishing a 
    standard method by which such assets are priced in the ACAT service. 
    This method of pricing should decrease discrepancies with respect to 
    asset valuation and should reduce the delivering broker's exposure from 
    overvaluation of assets and the receiving broker's exposure from 
    undervaluation of assets.
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        \8\ 15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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    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 Sections 17A(b)(3) (A) and (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-96-01) be and hereby is 
    approved.
    
    
        For the Commission by the Division of Market Regulation, 
    pursuant to delegated authority.\9\
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        \9\ 17 CFR 200.30-3(a)(12) (1995).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 96-11537 Filed 5-8-96; 8:45 am]
    BILLING CODE 8010-01-M
    
    

Document Information

Published:
05/09/1996
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
96-11537
Pages:
21217-21218 (2 pages)
Docket Numbers:
Release No. 34-37162, File No. SR-NSCC-96-01
PDF File:
96-11537.pdf