96-17146. Self-Regulatory Organizations; National Securities Clearing Corporation; Stock Clearing Corporation of Philadelphia; Notice of Filing and Order Granting Permanent Approval on an Accelerated Basis of Proposed Rule Changes Relating to the ...  

  • [Federal Register Volume 61, Number 130 (Friday, July 5, 1996)]
    [Notices]
    [Pages 35289-35291]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-17146]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-37381; File Nos. SR-NSCC-96-09; SR-SCCP-96-02]
    
    
    Self-Regulatory Organizations; National Securities Clearing 
    Corporation; Stock Clearing Corporation of Philadelphia; Notice of 
    Filing and Order Granting Permanent Approval on an Accelerated Basis of 
    Proposed Rule Changes Relating to the Guarantee of Trades in Continuous 
    Net Settlement Systems
    
    June 28, 1996.
        Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
    (``Act''),\1\ notice is hereby given that the National Securities 
    Clearing Corporation (``NSCC'') and Stock Clearing Corporation of 
    Philadelphia (``SCCP'') (collectively referred to as ``Clearing 
    Corporations'') filed with the Securities and Exchange Commission 
    (``Commission'') on April 3, 1996, and May 8, 1996, respectively, the 
    proposed rule changes as described in Items I and II below, which items 
    have been prepared primarily by the Clearing Corporations. On May 8, 
    1996, SCCP filed an amendment to the proposed rule change to remove 
    from consideration certain proposed amendments to its clearing fund 
    calculations.\2\ The proposals seek permanent approval of rule changes 
    relating to the guarantee of trades in the Clearing Corporations' 
    continuous net settlement (``CNS'') systems. The Commission is 
    publishing this notice and order to solicit comments on the proposed 
    rule changes from interested persons and to grant accelerated permanent 
    approval of the proposed rule changes.
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        \1\ 15 U.S.C. 78s(b)(1) (1988).
        \2\ Letter from J. Keith Kessel, Compliance Officer, SCCP, to 
    Peter R. Geraghty, Senior Counsel, Commission (May 8, 1996). The 
    amendment also requested permanent approval of SCCP's CNS guarantee 
    procedures.
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    I. Self-Regulatory Organizations' Statement of the Terms of Substance 
    of the Proposed Rule Changes
    
        The proposals seek permanent approval of proposed rule changes to 
    which the Commission has granted temporary approval.\3\ The proposals 
    authorize the Clearing Corporations to guarantee at an earlier time the 
    settlement of participant trades in their CNS systems. In addition, 
    NSCC's
    
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    proposal seeks approval of its revised clearing fund calculations 
    designed to protect against any increased risk caused by such earlier 
    guarantees.\4\
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        \3\ The proposals, along with a similar proposal submitted by 
    the Midwest Clearing Corporation (``MCC''), were originally approved 
    on a temporary basis in 1989. For a complete discussion of these 
    proposals, refer to Securities Exchange Act Release Nos. 27192 
    (August 29, 1989), 54 FR 37010 (approving File Nos. SR-NSCC-87-04, 
    SR-MCC-87-03, and SR-SCCP-87-03 until December 31, 1990). In 
    addition, the Commission has temporarily extended the respective 
    proposals on six previous occasions in Securities Exchange Act 
    Release Nos. 28728 (December 31, 1990), 56 FR 717 (approving File 
    Nos. SR-NSCC-90-25, SR-MCC-90-08, and SR-SCCP-90-03 until June 30, 
    1991); 29388 (June 28, 1992), 56 FR 30951 (approving File Nos. SR-
    NSCC-91-06, SR-MCC-91-03, and SR-SCCP-91-03 through June 30, 1992); 
    30879 (July 1, 1992), 57 FR 30279 (approving File Nos. SR-NSCC-92-
    04, SR-MCC-92-07, and SR-SCCP-92-02 through June 30, 1993); 32547 
    (June 29, 1993), 58 FR 36491 (approving File Nos. SR-NSCC-93-04, SR-
    MCC-93-02, and SR-SCCP-93-02 through June 30, 1994); and 33996 (June 
    27, 1994), 59 FR 33996 (approving File Nos. SR-NSCC-94-09, SR-MCC-
    94-06, and SR-SCCP-94-02 through June 30, 1995); and 35916 (June 28, 
    1995), 60 FR 35575 (July 10, 1995) (approving File Nos. SR-NSCC-95-
    04, SR-MCC-95-02, and SR-SCCP-95-03). On January 5, 1996, MCC 
    withdrew from the securities clearance business. Securities Exchange 
    Act Release No. 36684 (January 5, 1996), 61 FR 1195 (order approving 
    File No. SR-MCC-95-04).
        \4\ In its original filing with the Commission, SCCP proposed 
    revisions to its program governing the guarantee of CNS trades and 
    its clearing fund calculations. Supra note 2. Because the Commission 
    has recently granted temporary approval to the proposed revisions to 
    SCCP's clearing fund calculations in connection with a different 
    filing in a separate order, SCCP, as noted above, amended its 
    proposal to eliminate the proposed amendments to its clearing fund 
    calculations. For a complete description of SCCP's formula, refer to 
    Securities Exchange Act Release No. 36875 (February 22, 1996), 61 FR 
    7846 [SR-SCCP-95-06] (order approving proposed rule change).
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    II. Self-Regulatory Organizations' Statement of the Purpose of, and 
    Statutory Basis for, the Proposed Rule Changes
    
        In their filings with the Commission, the Clearing Corporations 
    included statements concerning the purpose of and basis for the 
    proposed rule changes and discussed any comments they received on the 
    proposed rule changes. The text of these statements may be examined at 
    the places specified in Item IV below. The Clearing Corporations have 
    prepared summaries, set forth in sections (A), (B), and (C) below, of 
    the most significant aspects of such statements.\5\
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        \5\ The Commission has modified the language in these sections.
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    (A) Self-Regulatory Organizations' Statement of the Purpose of, and 
    Statutory Basis for, the Proposed Rule Changes
    
        The proposed rule changes seek permanent approval of the Clearing 
    Corporations' procedures whereby they guarantee the settlement of all 
    pending CNS trades as of midnight on the day after the trade date for 
    locked-in or automatically compared trades and as of midnight on the 
    day trades are reported to members as compared for all other trades.\6\ 
    NSCC's proposal also seeks approval of revisions to the CNS portion of 
    its clearing fund formula.\7\ This revision is designed to protect 
    against increased risk associated with earlier guarantees.\8\
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        \6\ Until the Clearing Corporations guarantee settlement of a 
    trade, each side to the trade bears the risk of the contraside 
    defaulting if the Clearing Corporations cease to act for a 
    defaulting member. Once the Clearing Corporations guarantee 
    settlement, the original contractual obligations between the two 
    parties are discharged and replaced by contracts between the 
    Clearing Corporations and each of the original parties.
        \7\ NSCC's revised CNS clearing fund formula includes the 
    following components (a) 2% of the member's projected total long CNS 
    positions plus (b) the net of each day's difference between the 
    contract price of pending, compared CNS trades, exclusive of trades 
    reported by The Options Clearing Corporation (``OCC'') which are the 
    result of options exercises and assignments, and the current market 
    price for all guaranteed pending CNS trades, exclusive of trades 
    reported by OCC which are the result of options exercises and 
    assignments which have not yet reached settlement plus (c) .25% of 
    the net of all guaranteed pending CNS trades and open CNS positions. 
    The specific changes being made to NSCC's clearing fund formulas and 
    other procedures are set forth in Exhibit A to NSCC's proposed rule 
    change. A copy of the proposal with Exhibit A is available through 
    the Commission's Public Reference Room or through NSCC.
        \8\ For a more detailed discussion of the proposal, refer to 
    Securities Exchange Act Release Nos. 34261, 32547, 30879, 29388, 
    28728, and 27192 and the accompanying rule filings, supra note 4.
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        The Clearing Corporations believe that the proposed rule changes 
    are consistent with the Act and particularly with Section 17A of the 
    Act because the proposed changes will help the Clearing Corporations to 
    assure the safeguarding of securities and funds which are in their 
    custody or control or for which they are responsible.\9\
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        \9\ 15 U.S.C. 78q-1 (1988).
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    (B) Self-Regulatory Organizations' Statement on Burden on Competition
    
        The Clearing Corporations believe that the proposed rule change 
    will not impose a burden on competition.
    
    (C) Self-Regulatory Organizations' Statement on Comments on the 
    Proposed Rule Changes Received from Members, Participants or Others
    
        The Clearing Corporations have neither solicited nor received any 
    comments on the proposed rule changes.
    
    III. Date of Effectiveness of the Proposed Rule Change and Timing for 
    Commission Action
    
        Section 17A(b)(3)(F) of the Act \10\ 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 or 
    for which it is responsible and be designed to remove impediments to 
    and perfect the national system for the clearance and settlement of 
    securities transactions. The Commission believes that the Clearing 
    Corporations' procedures for earlier guarantees and NSCC's revised 
    formula for calculating CNS clearing fund contributions are consistent 
    with the Clearing Corporations' obligations under Section 17A(b)(3)(F) 
    because the proposals should help the Clearing Corporations increase 
    certainty as to settlement of securities transactions by reducing the 
    time that clearing members are exposed to the risk of counterparty 
    default. The Commission further believes that the proposals achieve 
    that goal without compromising the safeguarding of securities and funds 
    in the Clearing Corporations' custody or control or for which they are 
    responsible.
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        \10\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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        The Commission also believes that NSCC's revised CNS formula,\11\ 
    as well as its additional existing safeguards such as monitoring member 
    financial condition, reviewing member settlement activity in relation 
    to prior activity, monitoring securities settled in its system for 
    volatility, and the ability to collect additional fund deposits, should 
    reduce the risk that a member purchasing securities will be unable to 
    pay for the securities upon delivery and protects NSCC if the market 
    price of compared trades moves away from their contract price before 
    settlement. Thus, the Commission believes the NSCC proposal is also 
    consistent with Section 17A(b)(3)(F) \12\ of the Act because it should 
    help NSCC reduce its risk of loss and thereby should enhance its 
    ability to safeguard securities and funds under its control.
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        \11\ Supra notes 7 and 8.
        \12\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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        Because the Commission was concerned about the ability of the 
    proposed CNS clearing fund formulas to guard against increased risk 
    posed by an earlier CNS guarantee,\13\ the Commission originally 
    approved the proposed rule changes on a temporary basis in order that 
    the procedures and formulas could be carefully monitored before they 
    were approved permanently. The Commission is now permanently approving 
    the Clearing Corporations' earlier guarantee procedures and NSCC's 
    revised CNS formula because during the temporary approval period, the 
    Commission has not received any reports of problems caused by NSCC's 
    CNS clearing fund formula or the earlier CNS guarantees.
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        \13\ In addition, the Commission was concerned that daily 
    clearing fund calculations based on mark-to-market average exposure 
    for a rolling twenty-day period would not reflect actual mark-to-
    the-market exposure as well as, for example, daily collection of 
    marks-to-the-market.
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        The Clearing Corporations have requested that the Commission find 
    good cause for approving the proposed rule changes prior to the 
    thirtieth day after the date of publication of notice of filing. The 
    Commission finds good cause for so approving the proposed rule changes 
    because the Commission has noticed the proposals on seven separate 
    occasions without receiving any comment letters and does not expect to 
    receive any with regard to the current proposals. Furthermore, 
    accelerated approval will allow the Clearing Corporations to continue 
    to
    
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    utilize the procedures without any disruption when the current 
    temporary approval expires on June 28, 1996.
    
    IV. Solicitation of Comments
    
        Interested persons are invited to submit written data, views, and 
    arguments concerning the foregoing. Persons making written submission 
    should file six copies thereof with the Secretary, Securities and 
    Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
    Copies of the submissions, all subsequent amendments, all written 
    statements with respect to the proposed rule changes that are filed 
    with the Commission, and all written communications relating to the 
    proposed rule changes 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. Copies of such filings will also be 
    available for inspection and copying at the principal offices of NSCC 
    and SCCP. All submissions should refer to file numbers SR-NSCC-96-09 
    and SR-SCCP-96-02 and should be submitted by July 26, 1996.
        It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
    that the proposed rule changes, as amended (File Nos. SR-NSCC-96-09 and 
    SR-SCCP-96-02), be, and hereby are, permanently approved on an 
    accelerated basis.
    
        For the Commission, by the Division of Market Regulation, 
    pursuant to delegated authority.\14\
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        \14\ 17 CFR 200.30-3(a)(12) (1995).
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    Jonathan G. Katz,
    Secretary.
    [FR Doc. 96-17146 Filed 7-3-96; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
07/05/1996
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
96-17146
Pages:
35289-35291 (3 pages)
Docket Numbers:
Release No. 34-37381, File Nos. SR-NSCC-96-09, SR-SCCP-96-02
PDF File:
96-17146.pdf