[Federal Register Volume 61, Number 11 (Wednesday, January 17, 1996)]
[Notices]
[Pages 1195-1199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-426]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36684; File Nos. SR-CHX-95-27, SR-DTC-95-22, SR-MCC-95-
04, SR-MSTC-95-10, SR-NSCC-95-15]


Self-Regulatory Organizations; Chicago Stock Exchange, 
Incorporated; the Depository Trust Company; National Securities 
Clearing Corporation; Midwest Securities Trust Company; Midwest 
Clearing Corporation; Order Approving Proposed Rule Changes Regarding 
Arrangements Relating to a Decision by the Chicago Stock Exchange, 
Incorporated To Withdraw From the Clearance and Settlement, Securities 
Depository, and Branch Receive Businesses

January 5, 1995.
    In November 1995, several self-regulatory organizations (``SROs'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule changes pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ concerning the decision by the 
Chicago Stock Exchange, Incorporated (``CHX'') to terminate the 
clearance and settlement services offered by several of its 
subsidiaries. Those SROs include the CHX, the Midwest Clearing 
Corporation (``MCC''), the Midwest Securities Trust Company (``MSTC''), 
The Depository Trust Company (``DTC''), and the National Securities 
Clearing Corporation (``NSCC'').\2\ Notice of the proposals were 
published in the Federal Register on November 28, 1995,\3\ December 1, 
1995,\4\ and on December 8, 1995.\5\ The Commission received one 
comment letter expressing concern about the proposed CHX decision\6\ 
and responses from CHX, MSTC, MCC, and NSCC.\7\ For the reasons 
discussed below, the Commission is approving the proposed rule changes.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ On November 16, 1995, CHX, MCC, and MSTC filed with the 
Commission proposed rule changes (File Nos. SR-CHX-95-27, SR-MCC-95-
04, and SR-MSTC-95-10). On November 13, and November 24, 1995, 
respectively, DTC and NSCC filed with the Commission proposed rule 
changes (File Nos. SR-DTC-95-22 and SR-NSCC-95-15).
    \3\ Securities Exchange Act Release No. 36497, (November 20, 
1995), 60 FR 58693.
    \4\ Securities Exchange Act Release Nos. 36509, (November 27, 
1995) 60 FR 61720; 36510, (November 27, 1995), 60 FR 61724; and 
36511, (November 27, 1995), 60 FR 61722.
    \5\ Securities Exchange Act Release No. 36547 (December 1, 
1995), 60 FR 63090.
    \6\ Letter from Leland W. Hutchinson, Jr., Freeborn & Peters, 
[counsel for Scattered Corporation and Laura Bryant (``Scattered and 
Bryant'') members of CHX] to Richard R. Lyndsey, Director, Division 
of Market Regulation, Commission (December 15, 1995).
    \7\ Letters from J. Craig Long, Foley & Lardner [counsel to CHX, 
MSTC, and MCC], to Mr. Jonathan G. Katz, Secretary, Commission 
(December 22, 1995) and from Robert J. Woldow, General Counsel, 
NSCC, to Mr. Jonathan G. Katz, Secretary, Commission (December 27, 
1995).
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I. Description of the Proposals

    CHX's filing notes that it is closing its clearance and settlement 
and securities depository businesses, conducted principally through 
three subsidiaries, in order to focus its resources on the operations 
of the exchange. This decision was made by the CHX Board of Directors 
on November 13, 1995, and approved by the CHX membership on December 
14, 1995. The proposals filed by CHX, MSTC, MCC, DTC, and NSCC involve 
the proposed arrangements relating the CHX's decision. Parties to the 
proposed arrangements are CHX, MSTC, MCC, Securities Trust Company of 
New Jersey (``STC/NJ''),\8\ DTC, and NSCC.

    \8\ STC/NJ is a wholly-owned subsidiary of CHX that currently 
provides certain services, including a securities custody service. 
STC/NJ is not a clearing agency as defined in the Act and therefore 
is not required to register with the Commission.
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    As noted in the proposal MSTC and MCC will cease providing 
securities 

[[Page 1196]]
depository and securities clearing services, respectively, by January 
15, 1996. CHX will assist members of MCC and MSTC to find substitute 
service providers including other registered clearing agencies and will 
develop plans to assist floor brokers and specialists to obtain access 
to NSCC and DTC services by pursuing arrangements with those 
organizations similar to the arrangements structured by the Pacific and 
Boston Stock Exchanges.
    In general, for a period of ten years CHX, MCC, MSTC, and STC/NJ 
will not engage in the businesses from which they have decided to 
withdraw (i.e., the securities clearing, securities depository, and 
branch receive businesses). However, CHX and its subsidiaries will be 
free to provide specified securities depository-related and securities 
clearing-related services and products to CHX members and certain 
third-parties under certain circumstances.\9\

    \9\ Refer to File Nos. SR-CHX-95-27, Exhibit 2, SR-MCC-95-04, 
Exhibit 2, and SR-MSTC-95-10, Exhibit 2, for a more detailed 
description of the proposed arrangements by and among the SROs. A 
copy of each of the filings and all respective exhibits is available 
for copying and inspection in the Commission's Public Reference 
Room.
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    The proposed rule change modifies CHX's Constitution to reduce the 
size of the Board of Governors. This reduction conforms with the 
simultaneous reductions in the size of the boards of directors of MCC 
and MSTC. Because of its withdrawal from the businesses described 
above, CHX no longer believes it is necessary to maintain such a large 
board of directors. As a result, CHX is eliminating the board positions 
specifically reserved for representatives of MCC and MSTC. Those 
current board members whose slots have been eliminated may serve out 
the remainder of their terms.
    DTC will offer sole MSTC participants an opportunity to become DTC 
participants if they meet DTC's qualifications. DTC and MSTC will 
cooperate to assure the orderly transfer of securities from the custody 
of MSTC to the custody of DTC for (i) sole MSTC participants and (ii) 
dual DTC/MSTC participants which authorize such transfer. DTC will 
acquire certain assets and assume certain lease and other contractual 
obligations of STC/NJ. DTC also will assume certain lease obligations 
of CHX and make certain payments to CHX, MSTC, and STC/NJ.
    The proposal also makes conforming changes in DTC procedures to, 
among other things, eliminate the service of providing fourth-party 
deliveries between participants of the Philadelphia Depository Trust 
Company (``Philadep'') and participants of MSTC through the facilities 
of DTC. The proposal also includes an adjustment to reallocate some of 
the DTC general refund to sole DTC participants to the extent necessary 
to equalize between sole DTC participants and dual DTC/MSTC 
participants the significant cost savings duel DTC/MSTC participants 
will realize as a result of the proposed arrangements.\10\

    \10\ DTC has a policy of refunding to its participants each year 
all revenues in excess of current and anticipated needs. In order to 
equalize the return on DTC's investment in the arrangements as 
between dual DTC/MSTC participants and sole DTC participant's DTC 
proposes to ``ear-mark'' a portion of its general refund for 1995 
and to the extent necessary for 1996 and subsequent years for 
allocation to sole DTC participants only. Dual DTC/MSTC participants 
will realize savings because they will no longer have to pay MSTC 
fees for largely redundant custody-related processing.
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    NSCC will offer sole MCC participants an opportunity to become NSCC 
participants if they meet NSCC's qualifications. NSCC and MCC will 
cooperate to assure to orderly transfer of continuous net settlement 
securities positions of (i) Sole MCC participants and (ii) dual NSCC 
MCC participants which authorize such transfer. NSCC will make certain 
payments to CHX and MCC.
    DTC and NSCC believe that the proposed arrangements will facilitate 
the industry's planned conversion to same-day funds settlement \11\ and 
that the proposal will result in substantial savings for securities 
industry participants. The SROs have stated that where there are 
interfaces between securities depositories, and interfaces among the 
securities clearing corporations, same-day funds settlement exposes 
each depository or clearing corporation to certain risks. These include 
risks such as the failure of another depository or clearing corporation 
to settle its new payment obligation because of a failure by one of the 
participants of such other depository or clearing corporation to settle 
with it or because such other depository or clearing corporation is 
experiencing a major system problem. The SROs believe these risks 
cannot be entirely avoided with existing and available risk management 
controls. The SROs have stated the CHX's withdrawal from the securities 
depository and securities clearing corporation business will eliminate 
the exposure of DTC and its participants and NSCC and its participants 
to the payment system risks associated with the DTC-MSTC and NSCC-MCC 
interfaces. At the same time, the SROs believe that their proposed 
arrangements will provide for the interests of MSTC and MCC 
participants in an orderly manner that will help assure their 
successful integration in the process of converting the same-day funds 
settlement.

    \11\ The term ``same-day funds'' refers to payment in funds that 
are immediately available and generally are transferred by 
electronic means. Currently, transactions in equities, corporate 
debt, and municipal debt are settled in ``next-day funds'' (a term 
that refers to payment by means of certified checks that are for 
value on the following day). Transactions in commercial paper and 
other money market instruments are settled in same-day funds. DTC 
and NSCC have been working with the industry over the last few years 
to develop a system that will provide for the settlement of 
virtually all securities transactions in same-day funds. DTC's and 
NSCC's efforts have been encouraged by and their plans have been 
monitored by the staffs of the Commission, the Board of Governors of 
the Federal Reserve System, and the Federal Reserve Bank of New 
York. In approving certain modifications of DTC's existing system in 
order to accommodate the overall conversion to same-day funds 
settlement, the Commission stated that it believes the overall 
conversion to a same-day funds settlement system will help reduce 
systemic risk by eliminating overnight credit risk. The same-day 
funds settlement system also will reduce risk by achieving closer 
conformity with the payment methods used in the derivatives markets, 
government securities markets, and other markets. Securities 
Exchange Act Release No. 35720 (May 16, 1995), 60 FR 27360 [File No. 
ST-DTC-95-06] (order granting accelerated approval to proposed rule 
change modifying the same-day funds settlement system). Under the 
conversion plan, all issues currently settling in next-day funds 
will convert to settlement in same-day funds on a single day. 
Several months ago, a consensus was reached that the conversion date 
will be February 22, 1996.
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    Furthermore, interdepository and interclearing corporation 
interfaces involve the maintenance of substantial facilities, 
communications networks, and account and inventory reconciliation 
mechanisms, As a result of the proposal the SROs believe the 
substantial costs incurred by both DTC and MSTC and by NSCC and MCC in 
operating their interfaces would be eliminated.\12\

    \12\ Because CHX no longer will be operating a securities 
depository, certain changes will be required in DTC procedures, 
principally the elimination of fourth-party deliveries between MSTC 
participants and Philadep participants through the interfaces that 
DTC has maintained with MSTC and Philadep. MSTC and Philadep never 
established their own interface. In addition, the SROs noted that 
dual DTC/MSTC and dual NSCC/MCC participants would achieve special 
savings by discontinuing their payment of MSTC and MCC fees for 
largely redundant processing costs related to securities clearing 
and settlement. Furthermore, both DTC and NSCC anticipate an 
increase in the number of their participants. DTC and NSCC have 
stated that this increase will result in higher DTC and NSCC 
transaction volumes thereby reducing the per-unit service costs that 
must be recovered through DTC and NSCC participant service fees.
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II. Discussion

    The Commission must approve proposed exchange and clearing agency 
rule changes if it finds that the proposals are consistent with the 
requirements of the Act and the rules 

[[Page 1197]]
and regulations thereunder that govern those organizations.\13\ In 
evaluating a given proposal, the Commission examines the record before 
it and relevant factors and information.\14\ Competition among clearing 
agencies is a factor that the Commission must consider in its 
examination.\15\ However, Congress explicitly refused to require the 
Commission to achieve its regulatory objectives in the least 
anticompetitive manner and stated that `` `[c]ompetition was simply not 
to become paramount to the great purposes of the (1934) Act * * * .' '' 
\16\ Rather, ``at most, [the Act] only requires the Commission to 
decide that any anticompetitive effects of its actions are `necessary 
or appropriate' to the achievement of its objectives.'' \17\ Thus, in 
assessing anticompetitive conduct the Commission is required to do no 
more than balance the maintenance of fair competition along with a 
number of other equally important express purposes of the Act.\18\ In 
balancing competition concerns, the Commission cannot preserve or 
promote competition at an unjustifiable cost to its statutory 
objectives.

    \13\ 15 U.S.C. 78s(b). The Commission's statutory role is 
limited to evaluating the rules as proposed against the statutory 
standards. See, S.Rep. No. 75, 94th Cong., 1st Sess., at 13 (1975) 
(hereinafter ``S.Rep.'').
    \14\ The Court of Appeals has noted that in adopting the 1975 
amendments to the Act (``1975 Amendments'') ``Congress recognized 
the need for a `[n]ational system for clearance and settlement of 
securities transactions,' the objective of which is to interconnect 
all American clearing agencies and place them under uniform rules, 
so that together they can provide prompt, safe, and efficient 
clearance facilities that take full advantage of modern data 
processing and communication technology.'' Bradford National 
Clearing Corporation v. Securities and Exchange Commission, 590 F.2d 
1085, 1091 (D.C. Ct. App. 1978), citing, 15 U.S.C. Sec. 78q-1(a)(1). 
The 1975 Amendments direct the Commission to establish a national 
clearing system in accordance with these objectives and with due 
regard to several concerns, including the maintenance of fair 
competition among brokers and dealers, clearing agencies, and 
transfer agents. Brandford, 590 F.2d at 1091-92, citing, 15 U.S.C. 
78q-1(a)(2). Furthermore, to carry out its broad statutory 
directive, Congress gave the Commission the authority to register 
clearing agencies that meet certain criteria and ``cemented the 
[Commission's] control over the shape of the clearing industry by 
requiring its approval of any new or modified rules adopted by a 
clearing agency.'' Bradford, 590 F.2d at 1092 and 1094.
    \15\ The Commission received one comment letter in connection 
with the proposed rule changes filed by CHX, MCC, MSTC, DTC, and 
NSCC. In the comment letter, Scattered and Bryant expressed concern 
that the proposed transaction was unduly anticompetitive and would 
lead to an inevitable monopoly and monopolistic abuse by NSCC and 
DTC in the business of clearance and settlement. With due 
consideration given to the concerns raised by Scattered and Bryant, 
as set forth below, the Commission does not believe that the 
proposed arrangements will have an effect on or impose a burden on 
competition not necessary or appropriate in furtherance of Section 
17A of the Act. The Commission notes, as asserted by CHX, MSTC, MCC, 
and NSCC in their response letters, that some of Scattered and 
Bryant's conclusions appear to blur the distinct standards and 
objectives applicable to the Commission's examination of issues 
relating to the national market system as opposed to the national 
clearance and settlement system. Although ``[t]he drafters of the 
1975 Amendments assumed that the national market system and national 
clearing systems would reinforce each other,'' the national market 
system and the national clearing system were ``not perceived by 
Congress as identical pillars supporting the legislators' conception 
of a modernized approach to securities marketing.'' Bradford, 590 
F.2d at 1095. In fact, Congress's ``directives to the Commission 
with respect to the [national market and clearing] systems vary 
slightly but significantly.''Id. Specifically, fair competition is 
included as an objective of the national market system, but is not 
an objective of the national clearance and settlement system. Id. at 
1095-96, See, 15 U.S.C. Secs. 78k-1(a)(1), 78q-1(a)(1), and S.Rep. 
at 2, 55.
    \16\ Bradford, 590 F.2d at 1105, quoting, S.Rep. at 14.
    \17\ Bradford, 590 F.2d at 1105.
    \18\ Id. at 1106.
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    Section 6(b)(5) of the Act \19\ requires that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
regulating, clearing, settling, processing information with respect to, 
and facilitating transactions in securities, to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest. The Commission believes CHX's proposed rule change is 
consistent with section 6(b)(5) of the Act in that it will enable the 
CHX to focus its resources and efforts on implementing a more viable 
and profitable long-term strategy for its core business, the exchange, 
including reengineering and restructuring of the exchange. CHX 
anticipates that the proceeds of the proposed transaction also will 
help provide liquidity for the operations of the exchange and that the 
transaction will allow CHX to avoid significant future capital 
expenditures for the businesses of MCC, MSTC, and STC/NJ. Consequently, 
the Commission believes that the proposal should help promote just and 
equitable principles of trade, remove impediments and perfect the 
mechanism of a free and open market and a national market system, and 
in general, protect investors and the public interest. In addition, the 
Commission believes the proposal provides for an orderly closing of 
services by MCC, MSTC, and STC/NJ and an orderly transition for 
participants to substitute clearing and depository service providers 
and to the conversion to same-day funds settlement. Thus, the proposal 
fosters cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions.

    \19\ 15 U.S.C. 78f(b)(5) (1988).
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    Section 17A(b)(3)(F) \20\ of the Act requires that the rules of a 
clearing agency be designed to promote prompt and accurate clearance 
and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible. The 
Commission believes the proposed rule changes by CHX, MCC, MSTC, DTC, 
and NSCC are consistent with the requirements of section 17A(b)(3)(F) 
because the proposals will facilitate the industry's conversion to 
same-day funds settlement for virtually all securities transactions and 
thereby will facilitate the prompt and accurate clearance and 
settlement of such transactions. The Commission also believes CHX's 
withdrawal from the securities depository and securities clearing 
businesses pursuant to the proposed transactions should help make the 
conversion to and operation of the same-day funds settlement system 
safer for DTC and NSCC and their respective participants by eliminating 
the financial exposure and payment system risks associated with the 
DTC-MSTC and NSCC-MCC interfaces. The Commission also believes the 
proposals facilitate prompt and accurate clearance and settlement of 
securities of securities transactions by providing more efficient and 
less expensive clearing and depository services.\21\ Moreover, because 
the proposals provide qualified sole MCC participants with access to 
NSCC's facilities and qualified sole MSTC participants with access to 
DTC's facilities and provide for the orderly transfer of open positions 
and securities, the Commission believes the proposals are being 
implemented consistently with the SROs' obligations to safeguard 
securities and funds in their custody and control. The Commission 
appreciates the efforts of the SROs and other regulators during the 
transition and will continue to monitor developments to facilitate an 
orderly transfer of accounts.

    \20\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
    \21\ The Commission also believes the proposed allocation of 
DTC's general refund is consistent with the requirements of Section 
17A(b)(3)(D) of the Act, which requires the rules of a clearing 
agency provide for the equitable allocation of reasonable dues, 
fees, and other charges among its participants, by assuring that 
DTC's costs associated with the proposed arrangements are equitably 
allocated among sole DTC participants and dual DTC/MSTC participants 
based upon DTC's estimate of the savings that each of these groups 
will obtain as a result of the proposed arrangements.

[[Page 1198]]

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    The Commission shares the commenter's concern that CHX's decision 
to withdraw from the clearance and settlement businesses reduces 
competition in that market. Nevertheless, as discussed in more detail 
below, the Commission believes circumstances exist that mitigate these 
concerns. The Commission will monitor developments in various areas 
closely, including progress in such areas as services pricing \22\ and 
service innovation, and will not hesitate to use its authority under 
the Act to address future competitive concerns.

    \22\ Any change to dues or fees charged by a clearing agency 
must be fled with the Commission for public comment. 15 U.S.C. 
Sec. 78s(b)(3)(A) (1988).
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    Despite the dominant market position of DTC and NSCC, the 
Commission believes the current regulatory scheme and the particular 
structure and nature of the clearing and depository industries provide 
ample means of avoiding the potential negative effects of a monopoly. 
Sections 17A and 19 of the Act and the rules thereunder provide the 
Commission appropriate and effective regulatory authority over DTC and 
NSCC.\23\ DTC is owned by its members who utilize its services; NSCC is 
owned by the New York Stock Exchange, the American Stock Exchange, and 
the National Association of Securities Dealers, which are themselves 
membership organizations. DTC's and NSCC's boards of directors are 
comprised of their members. Both NSCC and DTC must assure a fair 
representation of its shareholders (or members) and participants in the 
selection of its directors and administration of its affairs. In 
addition, as previously noted, NSCC and DTC not only provide services 
at costs reviewed by their user comprised boards of directors and 
subject to public notice and comment. NSCC provides monthly discounts 
and DTC provides annual rebates to their participants in the event that 
any fees collected have not been expended. The Commission believes 
existing regulations and member control have provided and will continue 
to provide the appropriate mechanisms to monitor the operations of DTC 
and NSCC.

    \23\ The 1975 Amendments provided the Commission with broad 
authority in the establishment of a national clearance and 
settlement system through the registration and rule filing 
processes. Section 17A(b)(3)(A) of the Act requires, among other 
things that--
    A clearing agency shall not be registered unless the Commission 
determines that * * * [s]uch clearing agency is so organized and has 
the capacity to be able to facilitate the prompt and accurate 
clearance and settlement of securities and transactions for which it 
is responsible, to safeguard securities and funds in its custody or 
control or for which it is responsible, to comply with the 
provisions of this title and the rules and regulations thereunder * 
* *.
    Section 17A further requires that the rules of a clearing 
agency--
    * * * assure a fair representation of its shareholders (or 
members) and participants in the selection of its directors and 
administration of its affairs, * * * provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
participants, * * * [and] promote the prompt and accurate clearance 
and settlement of securities transactions, * * * assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible, * * * 
foster cooperation and coordination with persons engaged in the 
clearance and settlement of securities transactions, * * * remove 
impediments to and perfect the mechanism of a national system for 
the prompt and accurate clearance and settlement of securities 
transactions, and, in general, to protect investors and the public 
interest, * * * and are not designed to permit unfair discrimination 
in the admission of participants or among participants in the use of 
the clearing agency * * *.
    15 U.S.C. 78q-1(b)(3)(C)-(F) (1988).
    Section 19(b) of the Act requires, among other things, that a 
clearing agency file its proposed rule changes with the Commission 
for approval and that the Commission publish the proposed rule 
changes for public comment prior to approval. Accordingly, all 
interested persons have an opportunity to submit written data, views 
and arguments concerning such proposed rule changes. 15 U.S.C. 
78s(b)(1) (1988).
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    The Commission also believes that after consummation of the 
proposed arrangements, securities industry members will continue to 
have access to high-quality, low-cost depository and clearing services 
provided under the mandate of the Act. The overall cost to the industry 
of having such services available should be reduced, thereby permitting 
a more efficient and productive allocation of industry resources. 
Furthermore, because most of a depository's and a clearing 
corporation's interface costs must be mutualized thereby requiring some 
participants to subsidize costs incurred by others, CHX's withdrawal 
from the depository and clearing businesses should reduce costs to its 
members and to participants of DTC and NSCC and thereby remove 
impediments to competition. Finally, CHX's ability to focus its 
resources on the operations of its exchange should help enhance 
competition among securities markets. The Commission believes, based 
upon its obligation to balance the foregoing factors against the 
competition concerns attendant to the proposed transaction, that the 
proposed transaction advances the objectives of the national clearance 
and settlement system without an inappropriate or unnecessary burden 
upon competition.
    However, the Commission recognizes that consolidation of core 
services poses a risk that support for innovative products, trading 
systems, and clearing procedures could flounder. Accordingly, NSCC and 
DTC must be responsive to the particular needs of their constituents, 
including exchanges, to support innovation and application of new 
technologies. The existence of competitive organizations such as an 
independent depository for mortgage-backed securities and clearing 
corporations for options, as well as the potential for new clearing 
agency registrants, offer potent checks on monopoly power.\24\ The 
Commission notes that the proposed transaction itself provides for 
certain competition by CHX, MCC, and MSTC notwithstanding the general 
ten-year noncompetition provisions. The proposed transaction permits 
CHX, MSTC, and MCC to, among other things, develop securities 
depository services or securities clearing services for new products of 
CHX if DTC and/or NSCC cannot develop and provide services for the new 
product at a fee that is reasonably acceptable to CHX.

    \24\ Although NSCC and DTC have maintained and even increased 
their large market share in the industry, in recent years there has 
been increasing competition by clearing corporations that provide 
services in connection with particular securities. E.g., Securities 
Exchange Act Release Nos. 35198 (January 6, 1995) 60 FR 3286 [File 
No. 600-24] (notice of filing and order approving application by 
Delta Government Options Corporation for extension of temporary 
registration as a clearing agency); 35482 (March 13, 1995) 60 FR 
14806 [File No. 600-25] (notice of filing of request and order 
approving application by Participants Trust Company for extension of 
temporary registration as a clearing agency); and 36573 (December 
12, 1995), [File No. 600-27] (order approving application by the 
Clearing Corporation for Options and Securities for exemption from 
registration as a clearing agency). These specialized clearance and 
settlement service providers have developed markets that are 
unlikely to encounter the competitive strain and inefficiencies 
associated with the redundant services and infrastructure described 
in the proposed rule changes.
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    The Commission intends to monitor closely NSCC and DTC actions in 
such areas as integration of post-trade information proceeding, 
settlements in foreign currency, and developing links to clearing 
agencies for options and futures. Currently, the Commission is 
anticipating such innovative actions as the implementation of the 
Direct Registration System by DTC and others and the execution of the 
accord between NSCC and the Options Clearing Corporation. If necessary, 
the Commission will use its authority to require clearing agency action 
to promote prompt and accurate clearance and settlement or the 
safeguarding of funds and securities.\25\

    \25\ The Commission's broad rulemaking authority set forth in 
Section 17A(d) of the Act provides in part that ``[n]o registered 
clearing agency * * * shall, directly or indirectly, engage in any 
activity as a clearing agency, * * * in contravention of such rules 
and regulations (A) as the Commission may prescribe as necessary or 
appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of this title, or (B) as 
the appropriate regulatory agency for such clearing agency * * * may 
prescribe as necessary or appropriate for the safeguarding of 
securities and funds.'' 15 U.S.C. 78q-1(d)(1) (1988).

[[Page 1199]]

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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Sections 6(b)(5) and 17A of the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule changes (File Nos. SR-CHX-95-27, SR-MSTC-95-10, 
SR-MCC-95-04, SR-DTC-95-22, and SR-NSCC-95-15) be, and hereby are, 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\26\

    \26\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-426 Filed 1-16-96; 8:45 am]
BILLING CODE 8010-01-M