[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