[Federal Register Volume 60, Number 207 (Thursday, October 26, 1995)]
[Notices]
[Pages 54899-54900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26544]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36392; File No. SR-NSCC-95-11]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Temporary Approval of a Proposed Rule 
Change Concerning Book-Entry Money Settlements With Members

October 18, 1995.
    On August 8, 1995, the National Securities Clearing Corporation 
(``NSCC'') filed a proposed rule change (File No. SR-NSCC-95-11) with 
the Securities and Exchange Commission (``Commission'') 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 August 
24, 1995.\2\ No comments were received by the Commission. This order 
approves the proposal on a temporary basis.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 36112 (August 17, 1995), 
60 FR 44093.
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I. Description of the Proposal

    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 

[[Page 54900]]
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.\7\

    \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), 59 FR 44443 [File No. SR-NSCC-
94-17].
    \7\ It is anticipated that same-day funds settlement will be 
instituted in early 1996.
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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 a member by check for next-day value and the member pays 
NSCC by NSCC directing the settlement bank to make an irrevocable 
transfer from the member's account to NSCC's account for next-day 
availability or whereby a member pays NSCC by check and NSCC effects 
payment by electronic transfer (``one-way electronic transfers'') and 
(2) electronic transfers whereby on settlement day both NSCC and a 
member 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 rule change 
imposes three requirements. First, any such payment must be effected on 
a next-day funds availability basis.\8\ 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.\9\ Third, any bank that acts as an intermediary for such funds 
transfers must meet NSCC's standards for letter of credit issuers.\10\

    \8\ 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.
    \9\ The September 4, 1992, order noted that on March 24, 1992, 
NSCC filed with the Commission a letter representing that NSCC: (1) 
Will submit for Division approval the current form of any agreement 
pursuant to which intrabank funds transfers are to be made and (2) 
will 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).
    \10\ 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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II. Discussion

    The Commission believes that the proposal is consistent with the 
Act and particularly with Section 17A of the Act.\11\ Section 17A(a)(1) 
of the Act\12\ encourages the use of efficient, effective, and safe 
procedures for securities clearance and settlement. Moreover, Section 
17A(b)(3)(F) of the Act\13\ requires that the rules of clearing 
agencies be designed to promote the prompt and accurate clearance and 
settlement of securities transactions and to assure the safeguarding of 
funds in the custody or control of clearing agencies or for which they 
are responsible. As set forth in its original approval order of 
September 4, 1992, the Commission agrees with NSCC that substantial 
marketplace efficiencies should be achieved by authorizing NSCC and its 
members to effect electronic intrabank funds transfers to satisfy their 
settlement obligations. The Commission recognizes that the exchange of 
checks is labor-intensive and that physical movement of checks can 
involve loss or delay. Intrabank funds transfers should, therefore, 
enhance the proficiency of the transferring and the safeguarding of 
funds. Moreover, earlier finality of settlement provides certainty to 
the marketplace and serves to increase investor confidence in the 
markets.

    \11\ 15 U.S.C. 78q-1 (1988).
    \12\ 15 U.S.C. 78q-1(a)(1) (1988).
    \13\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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    The Commission is temporarily approving this proposed rule change 
in order that NSCC may continue the program until such time as NSCC 
implements its same-day funds settlement system. Furthermore, the 
Commission notes that this order relates only to intrabank transfers of 
funds available on a next-day basis. If and when NSCC desires to 
implement an interbank funds transfer program whereby same-day funds 
are transferred, NSCC will be required to submit for Commission 
approval a separate and comprehensive Rule 19b-4 filing.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act\14\ that the above-mentioned proposed rule change (File No. SR-
NSCC-95-11) be, and hereby is, approved until such time as NSCC 
implements its same-day funds settlement system.

    \14\ 15 U.S.C. 78s(b)(2) (1988).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\

    \15\ 17 CFR 200.30-3(a)(12) (1991).
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[FR Doc. 95-26544 Filed 10-25-95; 8:45 am]
BILLING CODE 8010-01-M