[Federal Register Volume 59, Number 141 (Monday, July 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18027]
[[Page Unknown]]
[Federal Register: July 25, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34394; File No. SR-NSCC-94-07]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Granting Approval on an Accelerated Basis of a
Proposed Rule Change Modifying NSCC's Trade Comparison Service
July 15, 1994.
On June 3, 1994, the National Securities Clearance Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-NSCC-94-07) 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 June 24, 1994, to solicit comment from interested
persons.\2\ No comments have been received by the Commission. This
order approves the proposal.
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\1\15 U.S.C. Sec. 78s(b) (1988).
\2\Securities Exchange Act Release No. 34221 (June 16, 1994), 59
FR 32724.
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I. Description of the Proposal
The proposed rule change will modify NSCC's Rules and Procedures
relating to trade comparison. The proposed rule change is designed to
support the New York Stock Exchange, Inc. (``NYSE'') and the American
Stock Exchange, Inc. (``Amex'' in their efforts to implement trade-date
comparison systems.\3\ To achieve trade-date comparison, the NYSE and
Amex require their member organizations to submit trade comparison data
to the NYSE and Amex rather than to NSCC for comparison processing.
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\3\For information on NYSE's and Amex's trade date comparison
systems, refer to Securities Exchange Act Release Nos. 34153 (June
3, 1994), 59 FR 30071 [File No. SR-NYSE-94-08] (order approving
proposed rule change) and 34298 (July 1, 1994), 59 FR 35397 [File
No. SR-Amex-94-13] (order approving proposed rule change).
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Prior to the NYSE and Amex implementing their trade-date comparison
systems, NSCC received locked-in trade data from the NYSE and Amex and
initial two-sided, uncompared trade data from its member organizations.
The uncompared trade data from its members were matched by NSCC and
were reported back to the members on contract lists. The locked-in
trade data, which is compared at the point of execution by the
exchanges, bypasses NSCC's comparison process but for record purposes
is reported back to the members organizations on contract lists.
Under the new systems, the NYSE and Amex will process the initial
two-sided, uncompared trade data in their trade-date comparison system.
When these trades do no compare, the NYSE and Amex will report such
unmatched trades (known as ``questioned trades'' or ``QTs'' at the NYSE
and ``don't knows'' or ``DKs'' at the Amex) to NSCC along with the
matched, two-sided trades and the locked-in trades. The compared trades
(including the locked-in trades and the matched, two-sided trades) will
bypass NSCC comparison processing, but the unmatched trades will be
included in NSCC's comparison process and in NSCC's trade correction
process if necessary.
NSCC states that the proposed rule change will permit the NYSE and
Amex to submit on behalf of NSCC members uncompared trade data relating
to trades for regular way, when-issued, cash, next day, and sellers-
option settlement in equity securities executed on such exchanges
directly to NSCC for inclusion in NSCC's comparison process. Even
though the NYSE and Amex require their members to submit their trade
data to the exchanges, the revisions to NSCC's Rules and Procedures
still permit NSCC members to submit such data directly to NSCC in order
to have the data included in that day's processing. This authority is
necessary because a member may miss the exchanges' submission time
frames. NSCC notes that the NYSE and Amex have concurred in this
procedure.
As member organizations become accustomed to the NYSE's and Amex's
trade-date comparison systems, NSCC expects that the NYSE and Amex will
no longer permit members to submit data directly to NSCC. At the time,
NSCC, upon the request of the NYSE and Amex, will file a rule change
under Section 19(b)(2) of the Act eliminating the ability of NSCC
members to submit such data directly to NSCC other than on an exception
basis.
II. Discussion
For the reasons discussed below, the Commission believes the
proposal is consistent with the Act and particularly with Section 17A
of the Act. Section 17A(b)(5) of the Act states that the rules of a
clearing agency should be designed to foster cooperation and
coordination with person engaged in the clearance and settling of
securities transactions, to remove impediments to and perfect the
mechanism of a national system for the clearance and settlement of
securities transactions, and, in general, to protect investors and the
public interest.\4\
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\4\15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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The risks posed by uncompared trades and by the long span of time
between trade execution and trade comparison (i.e., as long as five
business days for equity trades) came under intense scrutiny after the
Market Break of October 1987. The leading studies of the Market Break
of 1987 identified uncompared trades as a major stress point in post-
trade processing which, together with the unprecedented trading volume
and the unprecedented price volatility during the Market Break, posed
an unacceptable threat to the marketplace.\5\ The Commission, in its
recommendations to Congress in February of 1988, proposed that markets
accelerate their efforts to compare all trades on trade date.\6\
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\5\E.g., Division of Market Regulation, The October 1987 Market
Break, at 10-2 to 10-12 (February 1989); see also Division of Market
Regulation, Market Analysis of October 13 and 16, 1989, 117-129
(December 1990).
\6\Testimony on the Securities and Exchange Commission's
Recommendations Regarding the October 1987 Market Break delivered by
David S. Ruder, Chairman, Commission, before the Senate Committee on
Banking, Housing and Urban Affairs at 23-24 (February 3, 1988).
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Since 1988, NSCC, among others, has sought to improve clearing
operations and to reduce exposure to losses associated with market
volatility occurring during the period between execution and
settlement. The NSCC, together with the NYSE and Amex, reduced the
comparison cycle in stocks first from T+5 to T+3 in 1989 and then to
T+1 in 1990.\7\
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\7\Securities Exchange Act Release Nos. 26785 (May 4, 1989), 54
FR 20221 [File No. SR-NSCC-89-02] (order approving proposed rule
change) and 27074 (July 28, 1989), 54 FR 32405 [File No. SR-NSCC-89-
04] (order approving proposed rule change).
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As stated above, the Commission believes that the proposed rule
change, by shortening the NYSE and Amex comparison cycles for equity
trades from T+1 to trade date, will make the comparison process safer
in terms of the risks resulting from market price volatility. The
Commission believes that the proposal will offer additional protection
to NSCC and investors, brokers, and other persons that safeguard
investors' funds and facilitate investors' transactions. The proposal
also should help in the implementation under the Act of Rule 15c-6
which requires settlement of securities transactions on T+3 effective
on June 1, 1995.\8\ In the Commission's view, this proposal should help
provide fundamental and important improvements to the marketplace.
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\8\17 CFR 240.15c-6. Fed. Sec. L. Rep. 23,351 at 20,582 (Oct.
1993); Securities Exchange Act Release No. 33023 (October 6, 1993),
58 FR 52891.
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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 the
date of publication of notice of the filing in the Federal Register.
Accelerated approval will permit NSCC to coordinate with the NYSE and
Amex in the early phases of those exchanges' efforts to move toward
trade-date comparison. Therefore, the Commission believes there is good
cause for approving the proposed rule change prior to the thirtieth day
after the date of publication of notice of the filing.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act\9\
that the above-mentioned proposed rule change (File No. SR-NSCC-94-07)
be, and hereby is, approved.
\9\15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-18027 Filed 7-22-94; 8:45 am]
BILLING CODE 8010-01-M
