[Federal Register Volume 60, Number 164 (Thursday, August 24, 1995)]
[Notices]
[Pages 44093-44095]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-20953]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36112; File No. SR-NSCC-95-11]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Concerning 
Book-Entry Money Settlements With Members

August 17, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 8, 1995, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-NSCC-95-11) as described in Items I, II, and III 
below, which items have been prepared primarily by NSCC. The Commission 
is publishing this notice to solicit comments from interested persons.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Change

    NSCC is asking for renewal of its temporary authority to allow 
intrabank funds transfers between NSCC and its members in satisfaction 
of settlement obligations.

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 it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NSCC has prepared 

[[Page 44094]]
summaries, set forth in sections A, B, and C below of such 
statements.\2\

    \2\ The Commission has altered some of these statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    On October 5, 1990, NSCC filed a proposed rule change with the 
Commission that was noticed in the Federal Register \3\ and was 
subsequently amended three times.\4\ On September 4, 1992, the proposal 
as amended was approved on a temporary basis through August 31, 
1993.\5\ The temporary approval subsequently was extended through 
August 31, 1995.\6\ The current filing requests an extension of the 
temporary approval order until such time as NSCC implements its same-
day funds settlement system.

    \3\ Securities Exchange Act Release No. 28715 (December 12, 
1990), 55 FR 715 [File No. SR-NSCC-90-21].
    \4\ Letters from: (1) Jeffrey F. Ingber, Associate General 
Counsel, NSCC, to Jonathan Kallman, Assistant Director, Division of 
Market Regulation (``Division''), Commission (August 14, 1991); (2) 
Peter J. Axilrod, Associate General Council NSCC, to Jerry 
Carpenter, Branch Chief, Division, Commission (March 23, 1992); and 
(3) Peter J. Axilrod, Associate General Counsel, NSCC, to Thomas C. 
Etter, Jr., Attorney, Division, Commission (July 22, 1992).
    \5\ Securities Exchange Act Release No. 31157 (September 4, 
1992), 57 FR 42602 [File No. SR-NSCC-90-21].
    \6\ Securities Exchange Act Release No. 32836 (September 2, 
1993), 58 FR 47483 [File No. SR-NSCC-93-08]; Securities Exchange Act 
Release No. 34573 (August 22, 1994), 49 FR 44443 [File No. SR-NSCC-
94-17].
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    As discussed in detail in the approval order of September 4, 1992, 
the rule change permits NSCC members to satisfy their settlement 
obligations to NSCC and permits NSCC to satisfy its settlement 
obligations to its members by means of electronic intrabank funds 
transfers between members' accounts and NSCC's accounts at various 
settlement banks. Under the proposal, two types of intrabank funds 
transfers are available: (1) Electronic transfers whereby on settlement 
day NSCC pays members by check for next-day value and members pay NSCC 
by NSCC directing the settlement banks to make irrevocable transfers 
from the members' accounts to NSCC's accounts for next-day availability 
or whereby members pay NSCC by check and NSCC effects payments by 
electronic transfers (``one-way electronic transfers'') and (2) 
electronic transfers whereby on settlement day both NSCC and members 
pay by NSCC directing the settlement banks to make irrevocable 
transfers for next-day value without any netting (``two-way electronic 
transfers'').
    As a prerequisite to either NSCC or any of its members making a 
settlement payment by an electronic funds transfer, the proposed rule 
change imposes three requirements. First, any such payment must be 
effected on a next-day funds availability basis.\7\ Second, any such 
payment must be in conformity with an agreement, which must be executed 
by NSCC and any bank that acts as a payment intermediary, which 
stipulates that any such funds transfer must be effected on an 
irrevocable and final basis.\8\ Third, any bank that acts as an 
intermediary for such funds transfers must meet NSCC's standards for 
letter of credit issuers.\9\

    \7\ The term ``next-day funds'' refers to funds paid today that 
will be available tomorrow. By contrast, ``same-day funds'' refers 
to funds that are immediately available.
    \8\ The September 4, 1992, order noted that on March 24, 1992, 
NSCC filed with the Commission a letter representing that NSCC will: 
(1) Submit for Division approval the current form of any agreement 
pursuant to which intrabank funds transfers are to be made and (2) 
notify the Division of the identity of each bank that enters into 
any such contract. Letter from Peter J. Axilrod, Associate General 
Counsel, NSCC, to Jerry Carpenter, Branch Chief; Division, 
Commission (March 23, 1992).
    \9\ For a bank or trust company to be approved by NSCC to issue 
letters of credit on behalf of members for purposes of clearing fund 
requirements, the bank or trust company must meet specific standards 
in terms of: (1) Minimum levels of stockholders' equity and (2) 
certain credit ratings for its short term obligations as determined 
by Standard and Poor's Corporation or Moody's Investor Service, Inc. 
NSCC Rule 4, Section 1; Securities Exchange Act Release No. 29444 
(July 16, 1991), 56 FR 34081 [File No. SR-NSCC-91-03] (order 
approving NSCC's revised standards for approved issuers of letters 
of credit for clearing fund purposes).
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    NSCC believes that a renewal of the approval of the rule change 
would be consistent with the Act and particularly with Section 17A 
thereof.\10\ Section 17A(a)(1) of the Act encourages the use of 
efficient, effective, and safe procedures for securities clearance and 
settlement. Moreover, section 17A(b)(3)(F) of the Act requires that the 
rules of clearing agencies be designed to assure the safeguarding of 
funds in the custody or control of clearing agencies or for which they 
are responsible.

    \10\ 15 U.S.C. 78q-1 (1988).
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    NSCC believes that substantial marketplace efficiencies can be 
achieved by authorizing NSCC to effect electronic intrabank funds 
transfers to satisfy settlement obligations between itself and its 
members. NSCC also believes that the exchange of checks is labor 
intensive and that physical movement of checks can involve loss or 
delay. NSCC therefore believes that intrabank funds transfers should 
enhance the safeguarding of funds and that earlier finality of 
settlement provides certainty to the marketplace and serves to increase 
investor confidence in the markets.
    The Commission temporarily approved the proposed rule change to 
permit NSCC and other interested parties to assess prior to permanent 
Commission approval the effects intrabank funds transfers have on money 
settlement payments at NSCC. Because the assessment process is not 
complete, the facts and circumstances justifying temporary approval of 
the rule change have not changed significantly from the date of 
original temporary approval. NSCC also expects to implement a same-day 
funds settlement system and to file a proposed rule change with the 
Commission in connection therewith. Therefore, NSCC is requesting that 
temporary approval be extended until such time as NSCC implements its 
same-day funds settlement system.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which self-regulatory organizations consent, the 
Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. Copies 
of the submissions, all subsequent 

[[Page 44095]]
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 Section, 450 5th 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 File No. SR-
NSCC-95-11 and should be submitted by September 14, 1995.

    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-20953 Filed 8-23-95; 8:45 am]
BILLING CODE 8010-01-M