[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