[Federal Register Volume 59, Number 140 (Friday, July 22, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17863]
[[Page Unknown]]
[Federal Register: July 22, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34389; File No. SR-NSCC-94-06]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change Modifying Clearing
Fund Requirements
July 15, 1994.
On April 4, 1994, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-NSCC-94-06) under
Section 19(b) of the Securities Exchange Act of 1934 (``Act'').\1\
Notice of the proposed rule change was published in the Federal
Register on May 25, 1994, to solicit comments from interested
persons.\2\ No comments were received by the Commission. This order
approves the proposal.
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\1\15 U.S.C. 78s(b) (1988).
\2\Securities Exchange Act Release No. 34084 (May 18, 1994), 59
FR 27092.
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I. Description of the Proposal
The proposed rule change modifies NSCC's clearing fund requirements
for those NSCC members for which NSCC sponsors an account at The
Depository Trust Company (``DTC''). The modified requirements are
designed to more accurately reflect NSCC's risks associated with such
sponsoring. The modified requirements also will be more consistent with
the way in which NSCC and DTC address similar risks associated with
dual NSCC/DTC members.
Currently under certain situations, NSCC applies a factor in
calculating its clearing fund requirements for members' non-continuous
net settlement (``non-CNS'') activity (e.g., envelope settlement system
activity'').\3\ The DTC settlement activity of members which NSCC
sponsors into DTC (``sponsored members'') is included in the non-CNS
calculation. The factor is applicable when a member's average daily
envelope settlement system debits exceed the member's excess net
capital. For the reasons set forth below, NSCC desires to eliminate
application of the factor in the clearing fund calculation related to
sponsored members' DTC settlement activity. In lieu thereof, NSCC has
determined to add an additional advisory surveillance criteria to its
guidelines for placing a member on surveillance status in order to
cover circumstances where a sponsored member's average daily envelope
settlement system debits plus its average daily DTC settlement debits
exceed the sponsored member's excess net capital.\4\
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\3\The factor is a number, calculated and adjusted in order to
provide a minimum of one and a maximum of three, by which the
member's non-CNS clearing fund requirement is multiplied in order to
increase the requirement.
\4\Advisory surveillance status permits NSCC, among other
things, to increase a member's clearing fund requirement 2.5% (or in
the discretion of NSCC up to 5%) of the member's average daily non-
CNS and non-mutual fund services debits plus 2.5% of the member's
average daily non-CNS and non-mutual fund services credits.
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In File No. SR-NSCC-82-10, NSCC amended its clearing fund formula
to permit the collection of additional clearing fund deposits from
members using NSCC's envelope settlement system.\5\ Calculation of the
additional clearing fund deposits involved use of a factor. The primary
purpose of the additional clearing fund deposits and the use of a
factor was to better protect NSCC against the risks presented by the
envelope settlement systems (i.e., that securities delivered through
the envelope settlement systems would not be available for return to
the deliverer in the event the receiver were to become insolvent and be
unable to pay for the delivery). However, NSCC did not limit the
application of the factor to only the calculation of clearing fund
requirements for physical envelope deliveries but also applied it in
the calculation of clearing fund requirements associated with the DTC
settlement activity of sponsored members.
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\5\Securities Exchange Act Release No. 18852 (June 18, 1982), 47
FR 29426 [File No. SR-NSCC-82-10] (order approving proposed rule
change).
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NSCC believes that its current clearing fund formula, as applied to
sponsored members, can result in excessive clearing fund requirements.
NSCC believes that the risk associated with sponsored members' DTC
settlement activities will be adequately addressed without the
application of a factor. The proposed rule change, while eliminating
the use of a factor in determining a sponsored member's clearing fund
requirement with respect to DTC settlement activity, gives NSCC the
ability to place a sponsored member on advisory surveillance status
with an increased clearing fund requirement under the circumstances
where previously the factor would have been applied. Furthermore, NSCC
will continue to collect from each sponsored member a clearing fund
deposit based not only on the member's NSCC settlement activities but
also based on its DTC settlement activities. The portion of NSCC's
clearing fund deposit based on DTC settlement activities generally will
be the same amount the sponsored member would be required to deposit
with DTC for that DTC settlement activity if the sponsored member had a
regular account at DTC.
II. Discussion
For the reasons discussed below, the Commission believes the
proposal is consistent with the Act and particularly Section
17A(b)(3)(F) of the Act.\6\ Section 17A(b)(3)(F) requires that the
rules of clearing agencies be designed to assure the safeguarding of
funds in the custody or control of clearing agencies or for which they
are responsible.
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\6\15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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The Commission agrees with NSCC that the elimination of the factor
in determining a sponsored member's clearing fund requirement with
respect to DTC settlement activity will more appropriately reflect the
relevant risks and that it will be consistent with the way in which DTC
addresses settlement risks for its members. At the same time, the
Commission believes that the modified NSCC clearing fund formula
provides for the collection of deposits adequate to protect NSCC from
the risks associated with the DTC settlement activities of sponsored
members. Accordingly, the modified clearing fund formula should result
in a more equal distribution of the financial burdens placed on NSCC
sponsored members while allowing NSCC to fulfill its statutory
safekeeping obligation.
III. Conclusion
For the reasons discussed above, the Commission finds that the
proposed rule change is consistent with the Act, particularly with
Section 17A(b)(3)(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 above-mentioned proposed rule change (File No. SR-NSCC-94-06)
be, and hereby is, approved.
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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17863 Filed 7-21-94; 8:45 am]
BILLING CODE 8010-01-M
