[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