[Federal Register Volume 60, Number 106 (Friday, June 2, 1995)]
[Notices]
[Pages 28814-28815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13466]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35769; File No. SR-NASD-95-11]


Self-Regulatory Organizations; the National Association of 
Securities Dealers, Inc.; Order Granting Accelerated Approval of 
Proposed Rule Change Relating to Requiring the Use of the Facilities of 
a Registered Clearing Agency for the Clearance of Transactions in 
Corporate Debt Securities

May 25, 1995.
    On April 10, 1995, the National Association of Securities Dealers, 
Inc. (``NASD'') filed a proposed rule change (File No. SR-NASD-95-11) 
with the Securities and Exchange Commission (``Commission'') pursuant 
to Section 19(b) of the Securities Exchange Act of 1934 (``Act'').\1\ 
Notice of the proposal was published in the Federal Register on May 1, 
1995, to solicit comments from interested persons.\2\ No comments were 
received. As discussed below, the Commission is approving the proposed 
rule change on an accelerated basis.

    \1\15 U.S.C. 78s(b) (1988).
    \2\Securities Exchange Act Release No. 35642 (April 24, 1995), 
60 FR 21226.
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I. Description

    The NASD is amending its Uniform Practice Code (``UPC'') to include 
a new Section 72 that requires each NASD member or its agent that is a 
participant in a registered clearing agency to use the facilities of a 
clearing agency to clear eligible transactions in corporate debt 
securities. Section 72 also provides that the NASD may exempt any 
transaction or class of transactions in corporate debt securities from 
the provisions of the rule as may be necessary to accommodate special 
circumstances related to the clearance of such transactions or class of 
transactions.\3\

    \3\The NASD anticipates that this provision will be used only in 
the event special pricing and processing problems related to 
particular corporate debt securities make using the facilities of a 
registered clearing agency difficult or impossible and when these 
problems outweigh the benefits of using the facilities of a 
registered clearing agency. For example, the NASD considered 
mandating the use of the facilities of a registered clearing agency 
for other types of securities, such as unit investment trusts, 
private label collateralized mortgage obligations, synthetic 
stripped coupons and government securities, but concluded that it 
would be inadvisable to adopt such a mandate until the special 
pricing and processing requirements for these securities is fully 
understood and resolved.
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    According to the NASD, approximately thirty percent of all 
transactions in corporate bonds are being compared, cleared, and 
settled without using the facilities of a registered clearing agency 
(i.e., settled broker-to-broker or ex-clearing). Clearing such 
transactions broker-to- [[Page 28815]] broker is labor intensive, 
requires more time to complete, and results in more fails than 
transactions processed through a registered clearing agency. The labor 
intensive nature of broker-to-broker processing may introduce errors 
into the process from keystroke errors, manually handling documents, 
delivery errors, and payment errors. Further, the increase in the 
number of failed trades and the corresponding increase in potential 
financial exposure to members creates systemic clearance risk.
II. Discussion

    Section 15A(b)(6) of the Act\4\ requires that the rules of the NASD 
be designed to perfect the mechanism of a national market system, and, 
in general, to protect investors and the public interest. By requiring 
its members to clear transactions in corporate debt securities through 
the facilities of a registered clearing agency, the proposed rule 
change should reduce the number of failed trades and should reduce or 
eliminate the risks and inefficiencies associated with broker-to-broker 
clearance and settlement of such transactions which should further the 
goal of a national market system. As a result of the rule, more trades 
will have the benefit of a clearing agency's guarantee of trade 
settlement and risk and thereby enhance investor protection.

    \4\15 U.S.C. 78o-3(b)(6) (1988).
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    Furthermore, the move to three day settlement of securities 
transactions on June 7, 1995, will reduce the time available to 
complete all tasks necessary to settle a transaction.\5\ By increasing 
the number of transactions that must be settled through the facilities 
of a registered clearing agency, the rule also facilitates the 
implementation of a three day settlement.

    \5\Securities Exchange Act Release Nos. 33023 (October 6, 1993), 
58 FR 52891 (adopting Rule 15c6-1) and 34952 (November 9, 1994), 59 
FR 59137 (changing effective date from June 1, 1995, to June 7, 
1995).
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    The NASD 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 because accelerated approval 
will permit the NASD to notify their members two weeks before the 
effective date of the rule. Such notification should help the NASD and 
its members to implement the rule in an orderly manner while still 
permitting the rule to become effective shortly after the 
implementation of T+3 settlement, which is scheduled to occur on June 
7, 1995.

III. Conclusion

    For the reasons stated above, the Commission finds that NASD's 
proposal is consistent with Section 15A of the Act.\6\

    \6\15 U.S.C. 78o-3 (1988).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\7\ that the proposed rule change (File No. SR-NASD-95-11) be and 
hereby is approved, effective June 30, 1995.

    \7\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\17 CFR 200.30(a)(12) (1994).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-13466 Filed 6-1-95; 8:45 am]
BILLING CODE 8010-01-M