[Federal Register Volume 59, Number 13 (Thursday, January 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1279]


[[Page Unknown]]

[Federal Register: January 20, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33463; File No. SR-NSCC-93-13]

 

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving a Proposed Rule Change Relating to Buy-Ins

January 12, 1994.
    On September 1, 1993, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') under Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'')\1\ a proposed rule change (File No. SR-NSCC-93-13) 
relating to buy-ins. The Commission published notice of this proposed 
rule change in the Federal Register on December 2, 1993.\2\ No public 
comments were received. For the reasons discussed below, the Commission 
is approving the proposed rule change.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Securities Exchange Act Release No. 33248 (November 24, 
1993), 58 FR 63602.
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I. Description

    The proposed rule change modifies the timing under which a buy-in 
of a security settling in NSCC's Continuous Net Settlement (``CNS'') 
system may be executed under NSCC's rules. This change conforms buy-in 
execution practices for exchange-listed CNS trades and buy-in execution 
practices for over-the-counter (``OTC'') CNS trades.
    An NSCC member that has a long position (i.e., the member is 
entitled to receive a number of units of a CNS security) at the end of 
any day may submit a buy-in notice to NSCC. The day the buy-in notice 
is submitted is ``N.'' If a position subject to a buy-in remains 
unfilled after the evening allocation\3\ on N+1 (i.e., the day after 
the buy-in notice is submitted to NSCC), NSCC will issue retransmittal 
notices during the morning of N+1 to a number of members that have 
short positions (i.e., members obligated to deliver a number of units 
of CNS securities). The quantity of securities specified as owing on a 
retransmittal notice is the short member's buy-in liability.\4\ NSCC's 
rules currently provide that if a short member has not satisfied its 
buy-in liability by the end of the evening allocation on the day after 
it receives a retransmittal notice from NSCC (i.e., on N+2), it is 
subject to a buy-in.\5\
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    \3\NSCC's daily processing cycle commences in the evening and 
includes an evening cycle which runs from 6 p.m. until 8 a.m. the 
following morning and a day cycle which runs from 8:30 a.m. until 2 
p.m. Telephone conversation between Karen L. Saperstein, Vice 
President/Director of Legal and Associate General Counsel, NSCC, and 
Jerry W. Carpenter, Branch Chief, and Richard C. Strasser, Attorney, 
Division of Market Regulation, Commission (August 4, 1993).
    \4\The buy-in liability of a member will not exceed the buy-in 
position or the total short position of the member. NSCC Procedures, 
Section VII, J.
    \5\A member's buy-in liability may be satisfied by the actual 
settlement of the short position, which may require a deposit of 
securities. NSCC Procedures, Section VIII, J.
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    While buy-ins executed as floor trades may be executed at any time 
on N+2, under the rules of the National Association of Securities 
Dealers (``NASD''), buy-ins executed as OTC trades cannot be executed 
until 2:30 p.m. on N+2. The proposed rule change amends NSCC's rules so 
that a short member's buy-in liability may be satisfied up to the 
completion of the day cycle on N+2 (i.e., 2 p.m.) instead of up to the 
completion of the evening cycle on N+2 (i.e., 8 a.m.). Extending the 
time during which a member may satisfy its buy-in liability from the 
end of the evening cycle to the end of the day cycle will have the 
practical effect of conforming the timing for the execution of buy-ins 
involving exchange-listed securities and OTC securities.

II. Discussion

    The Commission believes that NSCC's proposal is consistent with the 
Act and in particular with Section 17A(b)(3)(F) thereunder.\6\ That 
section requires, among other things, that the rules of a clearing 
agency be designed to remove impediments to and perfect the mechanism 
of a national system for the prompt and accurate clearance and 
settlement of securities transactions. In adopting Section 17A of the 
Act, Congress found that the development of uniform standards and 
procedures for clearance and settlement will reduce unnecessary costs 
and will increase the protection of investors and persons facilitating 
transactions by and acting on behalf of investors.\7\ In this regard, 
Congress directed the Commission to use its authority under the Act to 
facilitate the establishment of a national system for the prompt and 
accurate clearance and settlement of securities transactions.\8\
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    \6\15 U.S.C. 78q-1(b)(3)(F) (1988).
    \7\15 U.S.C. 78q-1(a)(1)(D) (1988).
    \8\15 U.S.C. 78q-1(a)(2)(A)(i) (1988).
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    By conforming the buy-in execution practices for trades of 
exchange-listed securities with those for trades of OTC securities, 
NSCC's proposal appears to be consistent with NSCC's requirements under 
the Act to remove impediments to and perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions. Moreover, the move toward uniform buy-in 
procedures for exchange-listed and OTC securities is consistent with 
the Commission's Congressional directive to facilitate the 
establishment of a national system for the prompt and accurate 
clearance and settlement of securities transactions through the 
development of uniform standards and procedures.
    The amended rule will give members with short positions the 
opportunity to meet their delivery obligations by delivering shares 
during the day cycle on N+2 without being subject to buy-in liability. 
Currently, such deliveries cannot be used to mitigate a member's buy-in 
liability. This limitation was instituted because in the past members 
with long positions had no way of knowing whether deliveries were made 
during the day cycle in fulfillment of buy-in liabilities and 
therefore, to allow day cycle deliveries to mitigate buy-in liabilities 
would have placed long members at risk if those members executed buy-
ins. This limitation now may be removed because all NSCC members 
currently have access to The Depository Trust Company's Participant 
Terminal System which allows them to monitor deliveries made to NSCC 
during the day cycle.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the Act and in particular with 
Section 17A thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-NSCC-93-13) be, and 
hereby is, approved.
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    \9\15 U.S.C. 78s(b)(2) (1988).

    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. 94-1279 Filed 1-19-94; 8:45 am]
BILLING CODE 8010-01-M