[Federal Register Volume 60, Number 47 (Friday, March 10, 1995)]
[Notices]
[Pages 13197-13199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5863]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35442; File No. SR-NSCC-95-02]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change To Provide a One Day Settling Capability
March 3, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'')\1\ notice is hereby given that on January 24, 1995, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-NSCC-95-02) as described in Items I and II below,
which items have been prepared primarily by NSCC. On January 31, 1995,
and March 1, 1995, NSCC filed amendments to the proposed rule
change.\2\ The Commission is publishing this notice and order to
solicit comments from interested persons and to grant accelerated
approval of the proposed rule change.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\Letters from Karen Saperstein, General Counsel, NSCC, to
Jerry Carpenter, Assistant Director, Office of Securities
Processing, Division of Market Regulation, Commission (January 31,
1995 and March 1, 1995).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of the proposed rule change is to modify NSCC's rules
and procedures in order to provide a one day settling capability for
trades that are compared or recorded one day prior to normal settlement
date and thereafter. The proposed rule also will revise NSCC's trade
guarantee to provide that NSCC will guarantee one day settling items at
the time that NSCC completes the trade comparison process for trades
which NSCC compares or the trade recording process for trades which
NSCC receives in a lock-in capacity.
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 that it received on the proposed rule change.
The test of these statement 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
(a) In the current environment where trades are settled five
business days after the trade (``T+5''), trades that are compared or
recorded at NSCC after the third business day after the trade date
(``T+3'') do not settle until two days later. Thus, a trade which is
compared or is recorded on T+4 is not included in the normal settlement
cycle for settlement on T+5. NSCC's system assigns a new settlement
date to these items which is two business days after the trade is
compared or recorded, which in this case would be T+6. Under this
processing system, when the T+3 settlement cycle is implemented, trades
which are compared or recorded on T+2 would not settle until T+4.\3\
Without a change in this process it is estimated that a substantial
number of transactions could miss timely settlement.
\3\On October 6, 1993, the Commission adopted Rule 15c6-1 which
became effective June 7, 1995, establishes T+3 as the standard
settlement cycle. Securities Exchange Act Release Nos. 33023
(October 6, 1993), 58 FR 52891 (order approving Rule 15c6-1); 34952
(November 9, 1994), 59 FR 59137 (order changing the effective date
of Rule 15c6-1).
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In order to allow as many compared trades as possible to settle in
a normal cycle, NSCC proposes to provide a processing capability that
will permit items processed one day prior to the normal settlement day
or later to settle the next business day instead of settling two
business days after processing. This enhancement will be implemented
first in the processing of trades settling in the five day settlement
cycle and will include trades processed on T+4 prior to the cut off
time, which initially will be 9:00 p.m.\4\ T+4, trades processed prior
to the daily cut off time also will be subject to next day settlement.
Trades processed after the daily cut off time will continue to settle
two business days following comparison or recordation. Transactions in
securities which are not eligible for NSCC's Continuous Net Settlement
(``CNS'') system received prior to the cut off time on T+4 (in a T+5
settlement cycle) or on T+2 (in a T+3 settlement cycle) will be
processed on a trade for trade basis for settlement the next business
day.
\4\In a T+3 settlement environment, one day settlement will be
provided for any transaction processed on T+2 prior to the cut off
time.
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One day settling items will be reported back to members on the
morning of the settlement day in a separate section of the Consolidated
Trade Summary (``CTS''). Unlike other trades listed on the CTS, these
trades [[Page 13198]] will be shown as individual items instead of as
net positions.\5\ No contract output will be provided for one day
settling items. Currently, a member's obligation to receive and pay for
CNS securities is fixed at the time the CTS is made available to the
member. With respect to obligations due to settle that day, the
obligation of a member to receive and pay for CNS securities and the
obligation of a member to deliver CNS securities will be fixed at the
time NSCC completes CNS processing.
\5\The CTS will continue to indicate a net position of CNS and
non-CNS trades scheduled to settle the next business day and also
will show individual positions in all one day settling items
scheduled to settle that day. The member's actual settlement
position of that day will be a combination of the net positions
reported the day before and the one day settling items reported that
day on the CTS. Settlement of the one day settling items may occur
prior to the issuance of the CTS reporting such trades.
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CNS transactions received or compared on T+4 prior to cut off time
in a T+5 cycle or on T+2 in a T+3 cycle will be included in either the
night time allocation cycle or the day time allocation cycle depending
on when the data is received from the marketplace or member. Positions
which remain open after the evening cycle may be changed as a result of
one day settling trades. To avoid creating a customer segregation
problem for members with respect to short positions first appearing as
compared on settlement day, all one day settling CNS items will
automatically be exempted from CNS delivery to the extent they create
or increase an existing short position. Members will have the ability
through daily instructions to override this exemption for specific
issues or through standing instructions to override this exemption for
all issues. The proposal also will prohibit members with a long
position to which an exercise privilege attaches from submitting an
exercise notice with respect to one day settling items.
Currently, NSCC guarantees the settlement of CNS trades as of
midnight of the day they are reported to members as compared and the
settlement of non-CNS trades from the morning of T+4 through and
including T+5. Since one day settling items will appear on the CTS
initially on T+5 settlement day, they could settle before midnight of
the day they are first reported as compared (i.e., CNS trades could
settle before the guarantee becomes effective). NSCC believes that one
day settling transactions should receive the same guarantee of
completion as other trades settling the same day. Accordingly, a
secondary purpose of the rule proposal is to revise NSCC's trade
guarantee rules to provide that for CNS one day settling items, the
guarantee will be effective at the time NSCC completes the trade
comparison process for trades which NSCC compared or at the time NSCC
completes the trade recording process for trades which NSCC receives in
a locked-in capacity.\6\ With respect to non-CNS one day settling
items, NSCC will guarantee such trades from completion of comparison or
recording through T+5. If a party to a one day settling trade is a
member of an interfacing clearing corporation, such guarantee will not
be applicable unless an agreement to guarantee such trade exists
between NSCC and the interfacing clearing corporation.
\6\This guarantee applies to all trades that settle on the next
business day. For example, trades processed on T+5 prior to the cut
off time will be guaranteed at that time. A trade processed on T+5
after cut off time, however, will still be guaranteed as of midnight
of the day it is reported.
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Additionally, the proposal provides that transactions in securities
which are subject to a voluntary corporate reorganization, have a trade
date on or before the expiration of the voluntary corporate
reorganization, and are compared or received after T+3 and at least one
day prior to the end of the protect period\7\ will be processed on a
trade-for-trade basis. The proposal also includes certain technical
corrections to NSCC's rules and procedures by deleting any reference to
the National Institutional Settlement System (``NISS'') or TAD\8\ and
by reclassifying Miscellaneous Delivery Order (``MDO'') as simply a
Delivery Order (``DO'').
\7\The protect period is a period during which NSCC provides
protection to members' positions in securities that are subject to a
voluntary reorganization. The protect period begins two business
days before the expiration date of a tender offer through such time
as NSCC determines, which generally is five business days after the
date of the tender offer.
\8\These references are no longer needed because they represent
defunct organizations.
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The primary purpose of the rule change is to modify NSCC's rules
and procedures in order to provide a one day settling capability. NSCC
believes that members should have the opportunity to become familiar
with this new settlement feature before T+3 is implemented. Accordingly
NSCC plans to implement this enhancement while still in the T+5 cycle.
(b) NSCC believes the proposed rule change is consistent with the
requirements of the Act, specifically section 17A of the Act, and the
rules and regulations thereunder because the rule proposal will
facilitates the prompt and accurate clearance and settlement of
securities transactions.
B. Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change will have an
impact on 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
No written comments have been solicited or received. NSCC will
notify the Commission of any written comments received by NSCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F)\9\ of the Act requires the rules of a clearing
agency be designed to promote the prompt and accurate clearance and
settlement of securities transactions. The Commission believes that
NSCC's one day settling capability should help promote prompt and
accurate clearing and settlement because it will increase the number of
trades that are included in the normal settlement cycle. Thus, the
number of failed trades and the time required for settlement should be
reduced.
\9\15 U.S.C. 78q-1(b)(3)(F) (1988).
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As discussed above, as of June 7, 1995, a new settlement cycle of
T+3 will be mandated by Commission Rule 15c6-1. The Commission believes
that settlement of trades in a shorter time frame will reduce risk to
the securities market, including risk to clearing corporations as a
result of member failure. Without a one day settling feature, it is
possible that many trades may fail to settle according to this
settlement time frame. Thus, the proposal is consistent with Section
17A(b)(3)(F)\10\ of the Act in that it should enhance NSCC's ability to
safeguard securities and funds under its control.
\10\15 U.S.C. 78q-1(b)(3)(F) (1988).
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NSCC 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 notice of the filing. The Commission finds good
cause for so approving the proposed rule change because participants
should have the opportunity to become familiar with the one day
settling capability prior to the implementation of T+3 settlement.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
[[Page 13199]] 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 the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, 450 Fifth 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 the file number SR-NSCC-95-02 and should be
submitted by March 31, 1995.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NSCC-95-02) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
\11\17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-5863 Filed 3-9-95; 8:45 am]
BILLING CODE 8010-01-M