[Federal Register Volume 60, Number 94 (Tuesday, May 16, 1995)]
[Notices]
[Pages 26059-26060]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11947]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35696; File No. SR-NSCC-94-19]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change to Settle Certain 
Mutual Fund Services Transactions in Same Day Funds

May 9, 1995.
    On November 8, 1994, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-NSCC-94-19) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on January 3, 1994.\2\ One comment letter [[Page 26060]] was 
received in favor of the proposed rule change.\3\ For the reasons 
discussed below, the Commission is approving the proposed rule change.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 35148 (December 23, 
1994), 60 FR 155.
    \3\ Letter from Kevin Farragher, Director of Operations, 
Distribution & Service, Investment Company Institute, to Jonathan G. 
Katz, Secretary, Commission (January 5, 1995).
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I. Description

    NSCC's rule change enables NSCC to offer same-day funds money 
settlement capabilities as part of its Fund/Serv service for certain 
mutual fund products. Currently, NSCC's Fund/Serv service processes 
mutual fund transactions in which money settlement with many settling 
members occurs in next-day funds.\4\

    \4\ NSCC presently receives same-day funds payments from fund 
members and mutual fund processors for dividend amounts owed and 
processed through NSCC's Networking service and for commission 
amounts owed and processed through NSCC's Commission Settlement 
service.
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    Money settlement for money market and no-load mutual fund 
transactions outside NSCC's facilities typically occurs in same-day 
funds. Accordingly, NSCC is proposing to make and receive same-day 
funds payments in connection with the settlement of money market and 
no-load mutual fund transactions.
    NSCC will not net a member's same-day funds debit or credit with 
the member's next-day funds debit or credit. Accordingly, NSCC Rule 12 
is being modified to clarify that there will be more than one mutual 
funds settling trades summary which will reflect amounts payable to or 
payable by NSCC for the settlement of Mutual Fund Services 
transactions. NSCC will produce a mutual funds settling trades summary 
that will evidence the member's same-day funds mutual funds settlement 
obligation and a separate mutual funds settling trades summary that 
will evidence the member's mutual funds obligation settling in next-day 
funds. Technical changes also are being made to Sections B and C of 
NSCC's Rule 52 to conform the language regarding money settlement and 
the cross-references to NSCC's settlement rule.
    Generally, NSCC intends to credit Fund/Serv members' accounts with 
mutual fund transaction credits settling in same-day funds only after 
it has received same-day funds payments from members in a debit 
position.\5\ However, to maintain flexibility NSCC will have the 
ability to credit members' accounts in same-day funds before receiving 
same-day funds payments from members unless NSCC has concerns regarding 
the financial stability of the members and if the aggregate of same day 
funds payments for which NSCC has not received payment but is crediting 
members' accounts does not exceed $100 million per day.\6\ To protect 
against any possible losses incurred by NSCC if a member in a debit 
balance fails to pay NSCC, NSCC has the ability on the day following 
settlement date to reverse the credits paid to members.

    \5\ Members in a debit position with NSCC will be required to 
make payment to NSCC by 3:00 p.m. on the day of settlement while 
those members in a credit position will receive payment from NSCC 
beginning at 5:00 p.m. on the day of settlement.
    \6\ Letter from Robert A. Schultz, NSCC, to Jerry Carpenter, 
Assistant Director, Division of Market Regulation, Commission (May 
5, 1995).
    If needed to fund same-day fund payments to members, NSCC has a 
liquidity resource comprised of a $300 million line of credit. This 
liquidity resource is not exclusively dedicated to Fund/Serv 
settlement but also is available to NSCC to protect against losses 
in all of NSCC's systems and services.
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II. Comments

    The Commission received one comment regarding the filing.\7\ The 
commenter strongly supported and recommended adoption of the proposed 
rule change. The commenter based its support on the efficiency, 
economy, and standardization of services produced by fund/Serv. The 
commenter noted the importance of same day funds settlement in the 
three business day settlement cycle that will be implemented on June 7, 
1995,\8\ and noted the ease in which this transition will take place 
with same day funds settlement available for some mutual funds.

    \7\ Supra note 3.
    \8\ On October 6, 1993, the Commission adopted Rule 15c6-1 under 
the Act, which establishes three business days after the trade date 
instead of five business days as the standard settlement timeframe 
for most broker-dealer transactions. The rule becomes effective June 
7, 1995. Securities Exchange Act Release Nos. 33023 (October 6, 
1993), 58 FR 52891 (release adopting Rule 15c6-1); 34952 (November 
9, 1994), 59 FR 59137 (release changing the effective date of the 
three day settlement cycle). Exchange Act Release Nos. 33023 
(October 6, 1993), 58 FR 52891 (release adopting Rule 15c6-1); 34952 
(November 9, 1994), 59 FR 59137 (release changing the effective date 
of the three day settlement cycle).
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III. Discussion

    The Commission believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of Section 
17A(b)(3)(F).\9\ Section 17A(b)(3)(F) requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions. NSCC's proposed 
rule change to add same-day funds settlement capabilities to NSCC's 
Fund/Serv should help achieve the prompt and accurate clearance and 
settlement of mutual fund transactions by making money market and no-
load funds eligible for settlement through Fund/Serv. Moreover, the 
proposal will centralize the settlement of these types of mutual funds 
in a registered clearing agency and will allow mutual fund processors 
and brokers to take advantage of the efficiencies inherent in Fund/
Serv.

    \9\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with Section 17A(b)(3)(F) of the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-94-19) be, and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-11947 Filed 5-15-95; 8:45 am]
BILLING CODE 8010-01-M