[Federal Register Volume 60, Number 113 (Tuesday, June 13, 1995)]
[Notices]
[Pages 31177-31179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14436]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35807; File No. SR-NSCC-95-03]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change Relating to
Implementation of a Three-Day Settlement Standard
June 5, 1995.
On March 1, 1995, National Securities Clearing Corporation
(``NSCC'') filed a proposed rule change (File No. SR-NSCC-95-03) with
the Securities and Exchange Commission (``Commission'') pursuant to
Section 19(b) of the Securities Exchange Act of 1934 (``Act'').\1\ On
March 27, 1995, NSCC filed an amendment to the proposed rule change.\2\
Notice of the proposal was published in the Federal Register on April
14, 1995, to solicit comments from interested persons.\3\ No comments
were received. As discussed below, this order approves the proposed
rule change.
\1\ 15 U.S.C. Sec. 78s(b) (1988).
\2\ Letter from John P. Barry, Associate Counsel, NSCC, to
Christine Sibille, Senior Counsel, Division of Market Regulation,
Commission (March 27, 1995).
\3\ Securities Exchange Act Release No. 35577 (April 6, 1995),
60 FR 19104.
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I. Description
In October 1993, the Commission adopted Rule 15c6-1 under the Act
which will become effective June 7, 1995.\4\ Rule 15c6-1 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 purpose of NSCC's proposed rule change is
to amend NSCC's rules to be consistent with Rule 15c6-1 and with a T+3
settlement standard for most securities transactions.
\4\ 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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In order to accommodate a T+3 settlement cycle, many of the time
frames contained in NSCC's rules are being shortened. These changes
include such things as all references to a five day settlement time
frame being changed to reflect a three day settlement
[[Page 31178]] time frame.\5\ Trades compared after such time as
established on T+2 will not be included in the normal settlement
cycle.\6\ All transactions entered into NSCC's balance order accounting
operation or into the foreign security accounting on T+2 or thereafter
will be processed on a trade-for-trade basis.\7\ The proposed rule
change will amend NSCC Rules to provide dividend protection to an ``as
of'' trade entered at least two business days prior to the payable
date.\8\ Only trades in balance order securities 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, and
the net balance orders will be issued on T+2.\9\ Continuous Net
Settlement (``CNS'') eligible items will be entered into the CNS
accounting operation for transfers through NSCC's Automated Customer
Account Transfer (``ACAT'') Service on T+1.\10\ All time frames
relating to voluntary corporate reorganizations processed through
NSCC's CNS Reorganization Processing System will be shortened by two
days.\11\ NSCC's Procedures will require that the adjustment contract
totals represent the combined input for T through T+2 that is
compared.\12\ Trades reported on the Consolidated Trade Summary will
include trades compared through T+1.\13\ As-of-trades submitted two
days prior to payable date will be included in the dividend activity
report.\14\ A member will be informed of its potential liability from a
short position on T+2.
\5\ Procedures III.D, 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. References to a five day
settlement time frame contained in Procedures II.I.2 and 3 and III.C
will be deleted.
\6\ Procedures II.B.1(c), II.C.2(f), II.D.2(i), and III.E.
\7\ Procedures V.B and VI.B.
\8\ Rule 11, Section 8(d).
\9\ Procedure V.C.
\10\ Rule 50, Section 10.
\11\ Procedure VII.H.4(b).
\12\ Procedure II.B.1(c).
\13\ Procedure VI.A.
\14\ Procedure VII.G.2.
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The proposed rule change also makes a certain ancillary
modifications to NSCC's Rules and Procedures in order to delete
references to obsolete services, procedures, forms, and methods of
communications. All references to the SCC Division of the NSCC are
being eliminated.\15\ Cross-references to specific rules which contain
timing provisions are being changed to refer to the rules generally.
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.\16\
\15\ The SCC was one of the predecessors of NSCC, and its rules
were incorporated into NSCC's rules. To ease the transition at the
time of NSCC's formation, NSCC retained the reference to the SCC by
indicating that the rules were for the SCC Division.
\16\ Rule 1.
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The definitions of ``Basket Trade'' and ``Mini Basket'' contained
in Rule 1 are being deleted because 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 NSCC's
Procedures and fees for processing these trades are being deleted.\17\
\17\ Procedures II.A and H and Addendum A, Section 1.E.
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References to nonmembers' ability to use NSCC's New York State
Transfer Taxes service are being eliminated because no nonmember has
requested the use of NSCC's facility to pay these taxes in over ten
years.\18\ NSCC is limiting the number of banks which can hold
securities pledged by members for the NSCC clearing fund by providing
that these banks will be chosen by NSCC and not by the members.\19\
\18\ Rule 3, Section 2 and Rules 14 and 26.
\19\ Rule 4, Section 1.
There are several places in NSCC's 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 the elimination of the requirement
of acknowledging transactions through paper submission.\20\
\20\ Such changes can be found in the following sections.
Rule 5, Section 1
Rule 7, Sections 3 (eliminates need of member to confirm to NSCC
contract lists)
Rule 12, section 1
Rule 18, Sections 2 and 3 (eliminates return of tickets when
NSCC ceases to act for a member)
Procedure VII.D.2(c)
Procedure VII.I
Procedures VIII.A and B (eliminates clearance/settlement
statement)
Procedure X.B
Procedure XIV
Addendum A, Sections IV.S and V.B
Addendum C, Section 1
NSCC is amending rules to clarify that NSCC has the right to deny
access to additional services to members that are not currently using
the service if NSCC does not have adequate capability to perform that
service.\21\ NSCC is amending its rules to reflect the current practice
of NSCC preparing all checks sent to members.\22\
\21\ Rule 2, Section 3 and Procedure IV.D.
\22\ Rule 5, Section 2.
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The exchanges and the NASD have rules concerning good delivery of
physical securities.\23\ NSCC is amending its rules to require that
deliveries must meet such good delivery requirements.\24\ NSCC's rules
on good delivery are being deleted.\25\
\23\ See, e.g., NYSE Rules 175-226.
\24\ Rule 9, Section 1.9 and Rule 44, Section 7.
\25\ Rule 44, Sections 8-39.
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Pursuant to Addendum F, members who have failed to pay timely
amounts due have been required to settle amounts greater than $100,000
in Federal Funds. NSCC's settlement rule is being amended to reflect
this longstanding practice.\26\
\26\Rule 12, Section 1.
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NSCC is eliminating the ability of members to charge an amount to
their account at NSCC.\27\ Members may use NSCC's Funds Only Settlement
Service to achieve the same objective. NSCC is deleting references to
the Signature Distribution Service because the service was never
implemented and has been made obsolete with the introduction of current
Medallion Program.\28\ NSCC will require that close outs be completed
promptly when NSCC ceases to act for a member.\29\
\27\ Rule 13.
\28\ Rule 17.
\29\ Rule 18, Section 2.
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NSCC is amending its rules to provide that only the board of
directors, the chairman of the board, the president, executive vice
president, and certain designated officers of NSCC may suspend the
rules when necessary or expedient.\30\ NSCC will inform the Commission
of any change in the officers designated to suspend the rules.\31\
Similarly, NSCC rules now will 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.\32\
\30\ Rule 22.
\31\ Letter from John P. Barry, Associate Counsel, NSCC, to
Jonathan Kallman, Associate Director, Division of Market Regulation,
Commission (March 27 1995).
\32\ Rule 23.
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NSCC's Procedures now will include references to when-distributed
transactions, which result from stock splits and are treated in the
same manner as when-issued transactions.\33\ NSCC's Procedures will
state that the settlement date for corporate debt new
[[Page 31179]] issues now will be established by the appropriate
regulatory authority.\34\
\33\ Procedures II.A and E.
\34\ Procedure II.E.2.
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NSCC's Reconfirmation and Pricing Service (``RECAPS'') now will be
run from time to time to provide flexibility in the event of
operational necessities.\35\ The CNS Accounting Operation will no
longer use subaccounts for the settlement of option exercises.\36\ NSCC
is eliminating its Delivery to Clearing Service.\37\
\35\ Procedure II.G. NSCC intends to run RECAPS on a quarterly
basis.
\36\ Procedure II.G.
\37\ Procedures VII.C.5, G.3, and H.7. Members usually deliver
securities to The Depository Trust Company (``DTC'') to cover short
positions instead of NSCC.
NSCC is amending its Procedures to conform 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.\38\ NSCC is eliminating the ability of members to select an
alternate clearing corporation on an item-by-item basis.\39\ NSCC is
amending its procedures to provide that it may require members to
submit certain securities to NSCC before those securities are deposited
with DTC on behalf of such member.\40\
\38\ Procedure VII.F.2.
\39\ Procedure IX.A.
\40\ Procedure IX.B.
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NSCC is eliminating its P&S service for direct clearing.\41\
References to the New Jersey City office will be deleted because that
office no longer exists.\42\ NSCC is amending its rules to delete fees
for hard copy output.\43\ NSCC is amending its Automated Stock Borrow
Procedures to reflect that NSCC will no longer borrow physical
securities for the settlement of non-DTC eligible items.\44\
\41\ Procedure IX.D. Conforming amendments will be reflected in
Procedure IX.E, Addendum A, Section IV (to eliminate fees for Remote
Trade Comparison Handling and Preparation of T+1 input), and
Addendum B, Section V.B. (to eliminate fees for options cage
processing and stock loan rebate payment service).
\42\ Addendum A, Section III.
\43\ Addendum A, Section V.B.
\44\ Addendum C.
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II. Discussion
The Commission believes the proposal is consistent with the
requirements of Section 17A of the Act.\45\ Specifically, Section
17A(b)(3)(F) \46\ states that the rules of a clearing agency must be
designed to promote the prompt and accurate clearance and settlement of
securities transactions, to assure the safeguarding of securities and
funds which are in the clearing agency's custody or control or for
which it is responsible, and to foster cooperation and coordination
with persons engaged in the clearance and settlement of securities
transactions.
\45\ 15 U.S.C. Sec. 78q-1 (1988).
\46\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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Several of NSCC rules are based on the standard time frame for
settlement of securities transactions. On June 7, 1995, as mandated by
the Commission's Rule 15c6-1, the new settlement cycle of T+3 will be
established. As a result, many of NSCC's current rules will be
inconsistent with this rule. This proposal amends NSCC's rules to
harmonize them with a T+3 settlement cycle. By enabling trades to
settle in the shortened settlement cycle, the proposal should promote
the prompt and accurate clearance and settlement of securities
transactions. The Commission believes that the proposal should ensure
safeguarding of securities and funds by eliminating obsolete services
and streamlining NSCC's processes. The proposed rule change also should
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions by conforming
NSCC's rules on settlement time frames with the rules of other self-
regulatory organizations.
III. Conclusion
For the reasons stated above, the Commission finds that NSCC's
proposal is consistent with Section 17A of the Act.\47\
\47\ 15 U.S.C. Sec. 78q-1 (1988).
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NSCC-95-03) be and hereby is
approved for effectiveness on June 7, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-14436 Filed 6-12-95; 8:45 am]
BILLING CODE 8010-01-M
