[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21232]
[[Page Unknown]]
[Federal Register: August 29, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34573; File No. SR-NSCC-94-17]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Order Granting Temporary Approval on
an Accelerated Basis of a Proposed Rule Change Concerning Book-Entry
Money Settlements With Members
August 22, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 8, 1994, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-NSCC-94-17) as described in Items I and II below,
which items have been prepared primarily by NSCC. 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 August 31, 1995.
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\1\15 U.S.C. Sec. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Changes
NSCC is asking for renewal of its authority to allow book-entry
money settlements with its 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 such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On October 5, 1990, NSCC filed a proposed rule change with the
Commission that was noticed in the Federal Register\2\ and was
subsequently thrice amended.\3\ On September 4, 1992, the proposal as
amended was approved on a temporary basis through August 31, 1993,\4\
and on September 2, 1993, the temporary approval order was extended
through August 31, 1994.\5\ The current filing requests a second
extension of the temporary approval order through August 31, 1995.
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\2\Securities Exchange Act Release No. 28715 (December 12,
1990), 55 FR 715 [File No. SR-NSCC-90-21].
\3\Letters from: (1) Jeffrey F. Ingber, Associate General
Counsel, NSCC, to Jonathan Kallman, Assistant Director, Division of
Market Regulation (``Division''), Commission (August 14, 1991); (2)
Peter J. Axilrod, Associate General Council, NSCC, to Jerry
Carpenter, Branch Chief, Division, Commission (March 23, 1992); and
(3) Peter J. Axilrod, Associate General Counsel, NSCC, to Thomas C.
Etter, Jr., Attorney, Division, Commission (July 22, 1992).
\4\Securities Exchange Act Release No. 31157 (September 4,
1992), 57 FR 42602 [File No. SR-NSCC-90-21].
\5\Securities Exchange Act Release No. 32836 (September 2,
1993), 58 FR 47483 [File No. SR-NSCC-93-08].
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As discussed in detail in the approval order of September 4, 1992,
the rule change permits NSCC members to satisfy their settlement
obligations to NSCC and permits NSCC to satisfy its settlement
obligations to its members by means of electronic intrabank funds
transfers between members' accounts and NSCC's accounts at various
settlement banks. Under the proposal, two types of intrabank funds
transfers are available. These include (1) electronic transfers whereby
on settlement day NSCC pays members by check for next-day value and
members pay NSCC by NSCC's directing the settlement banks to make
irrevocable transfers from the members' accounts to NSCC's accounts for
next-day availability or the converse with members paying NSCC by check
and NSCC effecting payment by electronic transfer (``one-way electronic
transfers'') and (2) electronic transfers whereby on settlement day
both NSCC and members pay by NSCC's directing the settlement banks to
make irrevocable transfers for next-day value without any netting
(``two-way electronic transfers'').
As a prerequisite to either NSCC or any of its members making a
settlement payment by an electronic funds transfer, the proposed rule
change imposes three requirements. First, any such payment must be
effected on a next-day funds availability basis.\6\ Second, any such
payment must be in conformity with an agreement, which must be executed
by NSCC and any bank that acts as a payment intermediary, which
stipulates that any such funds transfer must be effected on an
irrevocable and final basis. Third, any bank that acts as an
intermediary for such funds transfers must meet NSCC's standards for
letter of credit issuers.\7\ NSCC believes that the proposed use of
electronic funds transfers provides advantages to NSCC and to its
members that include, among other things: (1) the elimination of labor
and expenses associated with the physical movement of checks, (2)
improved security due to reduced handling and movement of paper, and
(3) earlier finality of payment. NSCC states in its filing that the
proposal is consistent with Section 17A of the Act in that the proposal
promotes the prompt and accurate clearance of securities
transactions.\8\
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\6\The term ``next-day funds'' refers to funds paid today that
will be available tomorrow. By contrast, ``same-day funds'' refers
to funds that are immediately available.
\7\For a bank or trust company to be approved by NSCC to issue
letters of credit on behalf of members for purposes of clearing fund
requirements, the bank or trust company must meet specific standards
in terms of: (1) minimum levels of stockholders' equity and (2)
certain credit ratings for its short term obligations as determined
by Standard and Poor's Corporation or Moody's Investor Service, Inc.
NSCC Rule 4, Section 1. Securities Exchange Act Release No. 29444
(July 16, 1991), 56 FR 34081 [File No. SR-NSCC-91-03] (order
approving NSCC's revised standards for approved issuers of letters
of credit for clearing fund purposes).
\8\15 U.S.C. Sec. 78q-1 (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NSCC believes that the proposed rule changes will not impose any
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
NSCC has neither solicited nor received any comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Commission believes that the proposal is consistent with the
Act and particularly with Section 17A of the Act.\9\ Section 17A(a)(1)
of the Act\10\ encourages the use of efficient, effective, and safe
procedures for securities clearance and settlement. Moreover, Section
17A(b)(3)(F) of the Act\11\ requires that the rules of clearing
agencies be designed to promote the prompt and accurate clearance and
settlement of securities transactions and to assure the safeguarding of
funds in the custody or control of clearing agencies or for which they
are responsible. As set forth in its original approval order of
September 4, 1992, the Commission agrees with NSCC that substantial
marketplace efficiencies should be achieved by authorizing NSCC and its
members to effect electronic intrabank funds transfers to satisfy their
settlement obligations. The Commission recognizes that the exchange of
checks is labor-intensive and that physical movement of checks can
involve loss or delay. Intrabank funds transfers should, therefore,
enhance the proficiency of the transferring and the safeguarding of
funds. Moreover, earlier finality of settlement provides certainty to
the marketplace and serves to increase investor confidence in the
markets.
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\9\15 U.S.C. Sec. 78q-1 (1988).
\10\15 U.S.C. Sec. 78q-1(a)(1) (1988).
\11\15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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NSCC has 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 the filings in the Federal
Register. Accelerated approval will permit NSCC and its members to
continue using intrabank funds transfers without any disruption to this
program. 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.
The Commission is temporarily approving this proposed rule change
through August 31, 1995, in order that the Commission, NSCC, and other
interested parties will be able to continue to assess prior to
permanent Commission approval the effects intrabank funds transfers
have on money settlement payments at NSCC. Furthermore, the Commission
notes that this order relates only to intrabank transfers of funds
available on a next-day basis. If and when NSCC desires to implement an
interbank funds transfer program whereby same-day funds are
transferred, NSCC will be required to submit for Commission approval a
separate and comprehensive Rule 19b-4 filing.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Section, 450 5th Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of NSCC. All submissions
should refer to File No. SR-NSCC-94-17 and should be submitted by
September 19, 1994.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act\12\ that the above-mentioned proposed rule change (File No. SR-
NSCC-94-17) be, and hereby is, approved through August 31, 1995.
\12\15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission by the Diversion of Market Regulation,
pursuant to delegated authority.\13\
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\13\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21232 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M
