[Federal Register Volume 59, Number 100 (Wednesday, May 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12747]


[[Page Unknown]]

[Federal Register: May 25, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34084; File No. SR-NSCC-94-06]

 

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Modifying 
Clearing Fund Requirements

May 18, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on April 4, 1994, the National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule changes as 
described in Items I, II, and III below, which Items have been prepared 
by primarily NSCC. The Commission is publishing this notice to solicit 
comments on the proposed rule changes from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change will modify NSCC's clearing fund 
requirements with respect to Depository Trust Company (``DTC``) 
activity in order to more accurately reflect risk.

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 the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    NSCC currently applies a factor to the clearing fund requirement 
for members' non-CNS activity. The Depository Trust Company (``DTC'') 
settlement activity of members which NSCC sponsors into DTC 
(``sponsored members'') is included in the non-CNS calculation. The 
factor is applicable when certain amounts owed by the member to NSCC 
exceed the member's excess net capital. For the reasons set forth 
below, NSCC desires to eliminate application of the factor to the 
sponsored member's DTC settlement activity. In lieu thereof, NSCC has 
determined to add an additional advisory surveillance criteria to cover 
the circumstance where the debit activity of the sponsored member is 
greater that its excess net capital.\2\
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    \2\``Advisory surveillance status'' permits NSCC, among other 
things, to increase on a discretionary basis the member's clearing 
fund requirement with respect to non-CNS activity up to sum of 5% of 
the member's average daily non-CNS debits plus 2-\1/2\% of the 
member's average daily non--CNS credits.
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    In File No. SR-NSCC-82-10,\3\ NSCC amended its clearing fund 
formula to permit the collection of additional clearing fund deposits 
from members using the envelope settlement systems. Prior to that 
filing, NSCC's clearing fund formula required each member to contribute 
an amount equal to 2\1/2\% of the member's average daily debits and 
credits with NSCC. The amendment set forth in File No. SR-NSCC-82-10 
broke out the debits and credits associated with the envelope 
settlement systems and required clearing fund deposits with respect to 
activity in those systems as follows:

    \3\NSCC's proposed rule change set forth in File No. SR-NSCC-82-
10 was approved in Securities Exchange Act Release No. 18852 (June 
18, 1982), 47 FR 29426.
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    Each Member would have to contribute an amount equal to 2\1/
2\NSCC of its average daily envelope settlement systems debits and 
credits or 5% of its average daily envelope settlement systems 
debits, whichever was greater. In each case, the amount would be 
multiplied by a factor which represented the number of times, if 
any, by which the Member's average daily settlement debits exceeded 
its excess net capital.

The factor was initially capped at twenty but was later limited to 
three in File No. SR-NSCC-82-24.\4\
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    \4\NSCC's proposed rule change set forth in File No. SR-NSCC-82-
24 was approved in Securities Exchange Act Release No. 19147 
(October 18, 1982), 47 FR 47351.
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    As indicated in the File No. SR-NSCC-82-10, the primary purpose of 
the 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). The concern at the 
time of File No. SR-NSCC-82-10 arose from the stock loan business that 
was settled through the envelope settlement system. NSCC did not, 
however, limit the application of the factor to just physical envelope 
deliveries but also applied it to the DTC settlement activity of 
sponsored members.
    NSCC believes that the current clearing fund formula, as applied to 
sponsored members, can result in excessive clearing fund requirements. 
This is because the formula seeks to cover a risk relating to DTC 
activity which NSCC believes can be adequately addressed without the 
application of the factor. The proposed rule change, while eliminating 
the factor in determining a sponsored member's clearing fund 
requirement with respect to DTC activity, gives NSCC the ability to 
place a sponsored member on advisory surveillance status under the 
circumstances where the factor previously would have been applied and 
therefore will allow NSCC to continue to assess the risks associated 
with sponsored members' DTC settlement activity.
    The elimination of the application of a factor in determining a 
sponsored member's clearing fund requirement with respect to DTC 
activity will more appropriately reflect the risks associated with such 
activity and will be consistent with the way DTC addresses such risks 
for dual NSCC/DTC members. Thus, it will result in a more equitable 
distribution of the financial burdens placed on NSCC sponsored members. 
Therefore, NSCC believes that this rule change is consistent with the 
requirements of the Act, particularly section 17A of the Act,\5\ and 
the rules thereunder.
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    \5\15 U.S.C. 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 have any 
impact or impose a 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 written comments

III. Date of Effectiveness of the Proposed Rule Change and Timing For 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:

    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be approved.

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 Submission, 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 provisions of 5 
U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of NSCC. All submissions 
should refer to File No. SR-NSCC-94-06 and should be submitted by June 
15, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\17 CFR 200.30-3(a)(12) (1992).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12747 Filed 5-24-94; 8:45 am]
BILLING CODE 8010-01-M