[Federal Register Volume 64, Number 112 (Friday, June 11, 1999)]
[Notices]
[Pages 31664-31666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14867]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41478; File No. SR-NSCC-99-06]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change That Establishes Additional Procedures for
Class A Surveillance of Certain Settling Members and Permits the
Collection of Clearing Fund and Other Collateral Deposits From These
Settling Members
June 4, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 10, 1999, the National
Securities Clearing Corporation (``NSCC'') filed with the Securities
and Exchange Commission (``Commission'') and amended on June 2, 1999,
the proposed rule change as described in Items I and II below, which
items have been prepared primarily by NSCC.\2\ The Commission is
publishing this notice and order to solicit comments from interested
persons and to grant accelerated approval of the proposed rule change
through May 31, 2000.
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\1\ 15 U.S.C. 78(b)(1).
\2\ Letter from Julie Beyers, Vice President and Associate
Counsel, NSCC, to Jerry Carpenter, Assistant Director, Division of
Market Regulation, Commission (June 2, 1999).
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[[Page 31665]]
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change extends the temporary approval of
additional procedures which govern the placement of NSCC members on
Class A surveillance and the clearing fund deposit and other collateral
requirements for such members.
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.\3\
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\3\ The Commission has modified the text of the summaries
prepared by NSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
NSCC seeks to extend the temporary approval of a rule change
governing the application of Class A surveillance procedures and the
additional collateralization requirements to settling members that
engage in certain over-the-counter (``OTC'') market making
activities.\4\ To decrease the risk associated with OTC market makers,
NSCC has added Addendum O to its rules and procedures. Addendum O
permits NSCC to place setting members on Class A surveillance under
certain conditions.
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\4\ For a complete discussion of NSCC's Class A surveillance
procedures and collateralization requirements, refer to Securities
Exchange Act Release Nos. 37202 (May 10, 1996), 61 FR 24993 [File
No. SR-NSCC-95-17]; 38622 (May 19, 1997), 62 FR 27285 [File No. SR-
NSCC-97-04]; and 40034 (May 27, 1998), 63 FR 30277 [File No. SR-
NSCC-98-03].
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NSCC has also adopted an interim collateralization policy which
permits NSCC in its discretion to require settling members that clear
for or are themselves OTC market makers and that are placed on Class A
surveillance to deposit special collateral in amounts based upon the
settling member's OTC activities relative to its amount of excess net
capital.
NSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \5\ and the rules and
regulations thereunder because the surveillance procedures and
additional collateralization will facilitate the prompt and accurate
clearance and settlement of securities transactions and in general will
protect investors and the public interest.
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\5\ 15 U.S.C. 78q-1
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(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 Change Received From Members, Participants, or Others
No written comments relating to the proposed rule change have been
solicited or received. NSCC will notify the Commission of any written
comments received by NSCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency
and generally to protect investors and the public interest. As the
Commission previously stated, it finds that the proposed rule change is
consistent with NSCC's obligations under the Act because it will help
NSCC protect itself, its members, and investors from members that pose
an increased risk because of their involvement in OTC market making.\6\
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\6\ Supra note 3.
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Under the proposal, NSCC will continue to have the authority with
respect to settling members which participate in OTC market making
activities or clear for correspondents that engage in such activity (1)
to place such members on Class A surveillance, (2) to require such
members to post additional collateral with NSCC, and (3) to calculate
an alternative clearing fund requirement for such members when
additional risk factors are present. Collectively, the higher level of
surveillance, the additional level of collateralization, and the
alternative clearing fund requirements should help ameliorate NSCC's
exposure which in turn should assist NSCC in fulfilling its obligations
under the Act to safeguard securities and funds for which it has
control of or is responsible for and to protect investors and the
public interest.\7\
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\7\ As noted in each of the previous approval orders, prior to
filing a proposed rule change seeking permanent approval of the
procedures set forth in this temporary approval order, NSCC shall
present to the Commission a more detailed report on its findings
regarding the adequacy of the controls and discussing any changes to
be made to the procedures.
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NSCC has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after
publication of the notice of filing. The Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
publication of the notice of filing because accelerated approval will
allow NSCC to continue to utilize its Class A surveillance procedures,
the interim collateralization policy, and the alternative clearing fund
formula without interruption until it makes a filing requesting
permanent approval of the rule change. This will allow NSCC to continue
to protect itself and its participants from the potential risks of OTC
market making activities.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. Copies
of the submissions, 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, 450 Fifth Street, N.W., Washington,
D.C. 20549-0609. Copies of such filings will also be available for
inspection and copying at the principal office of NSCC. All submissions
should refer to the file number SR-NSCC-99-06 and should be submitted
by July 2, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NSCC-99-06) be, and hereby
is, approved on an accelerated basis through June 4, 2000.
[[Page 31666]]
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-14867 Filed 6-10-99; 8:45 am]
BILLING CODE 8010-01-M
