[Federal Register Volume 59, Number 174 (Friday, September 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22209]
[[Page Unknown]]
[Federal Register: September 9, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34629; File No. SR-NSCC-94-12]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Granting Permanent Approval of the New York Window
Service
September 1, 1994.
On July 15, 1994, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-NSCC-94-12) under
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')\1\
seeking permanent approval of the New York Window Service. Notice of
the proposal was published in the Federal Register on August 1,
1994.\2\ No comments were received. This order permanently approves the
New York Window Service.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\Securities Exchange Act Release No. 34470 (August 1, 1994),
59 FR 40396.
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I. Description
On April 26, 1993, the Commission approved on a temporary basis a
proposed rule change filed by NSCC to establish a pilot program
relating to the receipt, delivery, and handling of physical securities
for participants located in New York City (``New York Window Service''
or ``New York Window'').\3\ On January 31, 1994, the Commission
approved a proposed rule change filed by NSCC expanding the New York
Window Service to offer limited money settlement services to two New
York Window Service participants and to extend the temporary approval
of the New York Window Service until January 31, 1995.\4\ On August 1,
1994, the Commission approved on a temporary basis a proposed rule
change filed by NSCC expanding the limited money settlement service to
an additional New York Window participant.\5\ This order grants
permanent approval of the New York Window Service including the limited
money settlement service and supersedes the orders granting approval
until January 31, 1995.
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\3\Securities Exchange Act Release No. 32221 (April 26, 1993),
58 FR 26570 [File No. SR-NSCC-93-03] (order approving pilot program
until April 30, 1994).
\4\Securities Exchange Act Release No. 33558 (January 31, 1994)
59 FR 5807 [File No. SR-NSCC-93-14] (order approving proposed rule
change until January 31, 1995).
\5\Securities Exchange Act Release No. 34476 (August 1, 1994) 59
FR 40634 [File No. SR-NSCC-94-14] (notice of proposed rule change
and order granting accelerated approval until January 31, 1995).
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The New York Window Service provides for the processing and
deliveries of physical securities. The New York Window Service also
provides facilities for the custody of custodial related services for
physical securities. NSCC designed this service at the request of
several participants located in New York City. These participants have
been experiencing a continual decline in their activity associated with
the processing of physical securities primarily due to the increase in
book-entry eligibility of securities that previously were not book-
entry eligible and had to be settled physically. These participants no
longer find it desirable to maintain their own window operations.
The services offered through the New York Window include: (i) Over-
the-Window Service;\6\ (ii) interfacing with NSCC's Envelope Settlement
Service;\7\ (iii) Funds Only Settlement Service;\8\ (iv) Dividend
Settlement Service;\9\ (v) processing transfers of physical
securities;\10\ (vi) processing deposits to and withdrawals from The
Depository Trust Company (``DTC'');\11\ and (vii) processing deliveries
to designated agents in connection with reorganizations and other
corporate actions.\12\
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\6\The Over-the-Window service receives securities, verifies
negotiability, and makes appropriate turnaround deliveries.
Deliveries are made according to participants' turnaround
instructions or from inventory.
\7\The participants' Envelope Settlement service includes
retrieving envelopes, verifying securities for negotiability,
processing receive and deliver entries, packaging securities,
preparing credit lists, and processing reclamations for New York
Window participants and their correspondents.
\8\The Funds Only Settlement Service related activities
including retrieving and delivering envelopes, preparing credit
lists, verifying charges, and processing reclamations.
\9\The Dividend Settlement Service receives dividend settlement
envelopes, accepts notices of intent, and verifies daily Dividend
Settlement Service charges against participant instructions.
\10\Physical transfer processing includes accepting prepackaged
items from participants or preparing inventory items for delivery to
transfer agents. Also included in retrieval of securities or
proceeds from transfer agents and effecting participant's
instruction for completed transfers.
\11\Participants can have securities held in custody or received
through the Over-the-Window or Envelope Settlement Services packaged
and delivered to DTC for deposit. Participants also can deliver
prepackaged securities for deposit at DTC. At the request of a
participant, NSCC also will retrieve withdrawals and rejected
securities deposits from DTC.
\12\Physical reorganization processing includes receiving
corporate action instructions from participants, delivering
securities from inventory to agents, retrieving securities or
proceeds, and effecting participant instructions for completed
reorganizations.
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The limited money settlement service also will be offered as part
of the permanent New York Window Service.\13\ Under the limited money
settlement service, to the extent that the New York Window processes a
participant's New York Window ``receives'' that result in next-day
funds debits for that participant, NSCC will issue a check in payment
of such debits. NSCC will not issue a check until it has verified the
receipt of same-day funds from the participant in an amount equal to
the gross amount of the participant's payment obligation for that day.
When the New York Window processes a participant's ``deliveries'' that
result in next-day funds credits, NSCC will pay the participant the
aggregate amount of all checks received and deposited by NSCC for the
participant each day. If checks received for a participant are less
than the next-day funds credits resulting from the processing of the
participant's deliveries, NSCC will pay only the received amount.
NSCC's payments to participants will be made in same-day funds on the
day following receipt and deposit of checks by NSCC. To the extent that
receives or deliveries processed by the New York Window result in same-
day funds debits or credits, wire transfers payments will continue to
be made directly between the New York Window participants and the other
parties to the transactions. Same-day funds credits and debit result
from the processing of instruments such as same-day funds payments will
not be made using the limited money settlement service.
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\13\For a complete description of the limited money settlement
service, refer to Securities Exchange Act Release No. 33558 (January
31, 1994) 59 FR 5807 [File No. SR-NSCC-93-14], supra Note 4.
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NSCC will offer the permanent New York Window Service under the
same conditions as the pilot program was offered. First, NSCC acts as
agent for the participants using the New York Window Service and not as
principal for its own account. Third, each New York Window participant
agrees that it will not be entitled to reimbursement from NSCC for any
losses suffered or liabilities incurred as a result of New York Window
services.\14\ Second, all actions taken by NSCC in connection with the
New York Window Service will be based on instruments from participants.
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\14\In compliance with New York law, there is an exception for
losses resulting from NSCC's gross negligence or willful misconduct.
As with any NSCC operations, a participant's lack of entitlement to
reimbursement for losses does not prevent NSCC from determining in
its sole and absolute discretion to provide reimbursement in
particular instances.
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Under the pilot program, each New York Window participant provided
NSCC with its individual system for processing and settling
transactions in physical securities. NSCC personnel directly accessed
the participants' systems to process instruments and to update the
participants' individual systems.
NSCC's permanent New York Window Service is a NSCC proprietary
system which replaces the New York Window participants' individual
systems.\15\ Under the permanent New York Window Service, participants
transmit processing instructions to NSCC's proprietary system in either
a batch mode or in an on-line real-time mode. Each participant sets up
individualized instrument profiles which inform the New York Window how
various transactions should be processed for that participant and
automatically prompt the next step in the processing procedure. NSCC's
personnel act upon the instructions and update NSCC's New York Window
system. New York Window participants will be able to change instruments
or add instruments throughout the day. NSCC will be able to
interactively communicate with participants with respect to instruments
being processed and each day will report to participants the results of
that day's processing. NSCC also will provide each participant with an
updated stock record indicating the items being held in custody for the
participant under the New York Window Service.
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\15\On September 1, 1994, NSCC will begin to phase-in its
proprietary system for current New York Window participants. NSCC
will preplace one at a time each of the participant's systems with
NSCC's proprietary system. However, the limited money settlement
service will be available to all participants on September 1, 1994.
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II. Discussion
Section 17A(a)(1)(B) of the Act sets forth Congress' findings that
inefficient procedures for clearance and settlement of securities
transactions impose unnecessary costs on investors and persons
facilitating transactions by and acting on behalf of investors.\16\
Section 17A(a)(1)(D) states Congress's findings that linking of all
clearance and settlement facilities and the development of uniform
standards and procedures for clearance and settlement will reduce
unnecessary costs and increase the protection of investors and persons
facilitating transactions by and acting on behalf of investors.\17\
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\16\15 U.S.C. 78q-1(a)(1)(B) (1988).
\17\15 U.S.C. 78q-1(a)(1)(D) (1988).
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The Commission believes that NSCC's permanent New York Window
Service should help to minimize inefficient procedures employed by
individual New York City participants by concentrating these operations
in one centralized facility. As a result, the individual participants
will be able to eliminate there own operations and the high fixed costs
associated with them and will be able to rely upon NSCC's experience in
providing these services.
Implementation of NSCC's proprietary New York Window Services
system also should help minimize personnel errors because NSCC's
personnel will have to operate only one system as compared to the pilot
program where NSCC personnel had to be able to operate each individual
participant's system. In addition, the participant instruction profile
component of the New York Window system automatically prompts the next
step in the processing procedure thereby eliminating certain clerical
intervention which also should help reduce personnel errors.
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds in its custody or control or for which it is responsible.\18\
NSCC will continue to employ in the permanent New York Window Service
the safeguards established in the New York Window pilot program to
comply with this statutory mandate. NSCC will act only as agent for the
New York Window participants and will act only upon the instructions of
the participants. NSCC will limit its liability for losses resulting
from NSCC's gross negligence or willful misconduct. NSCC will not make
any payment on behalf of or to a limited money settlement service
participant unit NSCC has received funds sufficient to cover the amount
of NSCC's payment.
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\18\15 U.S.C. 78q-1(b)(3)(F) (1988).
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NSCC also will continue to take precautionary measures to help
ensure the safety of the securities for which it has custody under the
New York Window program. NSCC will continue to maintain separate vault
space at DTC to hold only securities processed through the New York
Window Service and access to that vault space will be restricted to
NSCC personnel. NSCC will continue to be responsible for keeping the
books and records for securities held under the New York Window
program. Securities belonging to different participants will not be
commingled, and NSCC will follow participants' instructions regarding
the segregation of customer accounts. Securities in NSCC's custody will
not be held in NSCC's nominee name. The Commission believes the
measures taken by NSCC enable NSCC to meet its statutory responsibility
regarding safeguarding the securities in its custody or control or for
which it is responsible under the New York Window.
III. Conclusion
For the reasons stated above, the Commission finds that NSCC's
proposal is consistent with Section 17A of the Act.\19\
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\19\15 U.S.C. 78q-1 (1988).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (File No. SR-NSCC-94-12) be, and
hereby is, approved.
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\20\15 U.S.C. 78s(b)(2) (1988).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\21\
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\21\17 CFR 200.30-3(a)(12) (1992).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22209 Filed 9-8-94; 8:45 am]
BILLING CODE 8010-01-M