[Federal Register Volume 59, Number 125 (Thursday, June 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15848]


[[Page Unknown]]

[Federal Register: June 30, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34251; International Series Release No. 677; File No. 
SR-ISCC-94-2]

 

Self-Regulatory Organizations; International Securities Clearing 
Corporation; Order Granting Accelerated Approval of Proposed Rule 
Change Relating to an Amendment to the Linkage Agreement With Japan 
Securities Clearing Corporation

June 24, 1994.
    On May 26, 1994, International Securities Clearing Corporation 
(``ISCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\1\ The Commission 
published notice of the proposed rule change in the Federal Register on 
June 10, 1994.\2\ No comments have been received on the notice. As 
discussed below, the Commission is approving the proposed rule change 
on an accelerated basis.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Securities Exchange Act Release No. 34163, International 
Series Release No. 670 (June 6, 1994), 59 FR 30068.
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I. Description

    In 1988, ISCC entered into a linkage agreement with the Japan 
Securities Clearing Corporation (``JSCC'')\3\ which permits JSCC to 
obtain access through ISCC to certain services of The Depository Trust 
Company (``DTC'') for U.S. shares listed on stock exchanges in Japan 
and included in JSCC's central depository clearing system for foreign 
shares. In 1994, ISCC and JSCC entered into an amendment to the linkage 
agreement which permits JSCC to obtain access through ISCC to the 
National Securities Clearing Corporation's (``NSCC'') New York Window 
(``NYW'') services for initial public offerings (``IPOs'') of U.S. 
securities listed on exchanges in Japan until such time as such 
securities are eligible for deposit at DTC.\4\
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    \3\JSCC is a wholly owned subsidiary of the Tokyo Stock Exchange 
and provides clearing services for securities listed on stock 
exchanges in Japan. JSCC acts as the central depository for the 
benefit of the beneficial owners of foreign shares, including U.S. 
shares, listed on stock exchanges in Japan. It appoints local 
custodians with respect to non-Japanese securities.
    \4\ISCC is a member and wholly owned subsidiary of NSCC.
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    Under NSCC's NYW service, JSCC gives ISCC instructions to receive 
securities from an underwriter.\5\ ISCC forwards these instructions to 
NSCC, which accepts the securities on behalf of ISCC. Securities 
received are checked for good form and apparent negotiability and then 
are matched with receive instructions. Securities which are not in good 
form (i.e., not negotiable) or do not match receive instructions within 
specified tolerances are returned to ISCC. NSCC holds these securities 
in its custody in vault space leased from DTC. JSCC may then provide 
further instructions to NSCC via ISCC to deliver securities to parties 
designated by JSCC. All other securities will be delivered to DTC at 
such time as these securities become eligible for deposit at DTC.
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    \5\Delivers and receives of these securities will be free of 
payment. The related money settlements for the securities movements 
will take place between the parties outside of ISCC.
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    NSCC provides NYW services to ISCC under the following conditions. 
NSCC acts as agent for ISCC and not as principal or for its own 
account. All actions taken by NSCC are based on instructions from ISCC. 
ISCC is not entitled to reimbursement from NSCC for any losses suffered 
or liabilities incurred as a result of NYW operations. ISCC's liability 
to JSCC is limited to losses resulting from a breach of their agreement 
caused by ISCC's gross negligence, criminal act, or willful misconduct.
    The securities held by NSCC will be used as the basis for the 
bookkeeping entries at JSCC. JSCC will pay to ISCC fees for ISCC 
services and NSCC charges that ISCC incurs as a result of activity in 
the ISCC-sponsored account for JSCC. ISCC will capture information 
about each transaction including, among other things: (1) The daily 
number of securities delivers and receives that take place within the 
ISCC-sponsored account at NSCC for JSCC, (2) the quantity of shares, by 
issue, for each delivery and receipt, (3) the identity of the parties 
delivering to NSCC and the parties to whom NSCC delivers securities, 
(4) the start of day and end of day position in each issue, and (5) the 
identity of the JSCC party to each transaction. In addition, ISCC will 
provide such information to the Commission upon request pursuant to 
Section 17(a)(1) of the Act.

II. Discussion

    The Commission believes the proposed rule change is consistent with 
Section 17A of the ACt and, therefore, is approving the proposal. 
Specifically, the Commission believes the proposal is consistent with 
Section 17A(b)(3)(F)\6\ of the Act in that it promotes the prompt and 
accurate clearance of settlement of securities transactions. NSCC's NYW 
services were developed to provide a more efficient and standardized 
procedure for the clearance and settlement of physical securities. 
Without access to the NYW services, JSCC would be required to develop 
its own window service, which would be a fairly expensive venture.\7\ 
ISCC's provision of this service to JSCC enables it to settle 
securities transactions more efficiently and to expedite the transfer 
of its securities to DTC when the securities become eligible for 
deposit.
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    \6\15 U.S.C. 78q-1(b)(3)(F) (1988).
    \7\The NYW services was initially developed because individual 
participants complained about the high fixed costs associated with 
window activity (i.e., the processing of physical securities).
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    In the initial order granting ISCC temporary registration as a 
clearing agency, the Commission stated that the development of 
efficient and comparable automated national and international 
clearance, settlement, and payment systems is one of the more important 
international goals.\8\ In light of the increase in foreign activity in 
U.S. stocks, the Commission stressed the importance of developing 
clearing linkages between existing clearance and settlement systems. 
The amendment to the linkage agreement will make the U.S. securities 
market more accessible to foreign investors by giving Japanese 
investors a more efficient method of settling U.S. IPO activity.
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    \8\Securities Exchange Act Release 26812 (May 12, 1989), 54 FR 
21691.
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    ISCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of the notice of filing. JSCC is participating in 
an IPO during the month of June for which the securities will not be 
immediately eligible for DTC services. Without the agreement in effect, 
JSCC will need to develop its own window service for the securities 
during the short period prior to the expiration of the customary notice 
period. Due to the burdensome nature of this process, the Commission 
finds sufficient cause to accelerate approval of this proposal.

III. Conclusion

    For the reasons stated above, the Commission finds that the 
proposed rule change is consistent with Section 17A of the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-ISCC-94-02) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15848 Filed 6-29-94; 8:45 am]
BILLING CODE 8010-01-M