[Federal Register Volume 61, Number 15 (Tuesday, January 23, 1996)]
[Notices]
[Pages 1807-1808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-793]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36714; File No. SR-NSCC-95-13]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change Enabling Members 
Settling Mutual Fund Transactions in Same Day Funds To Settle Through a 
Settling Bank

January 16, 1996.
    On November 3, 1995, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-NSCC-95-13) 
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 November 28, 1995.\2\ No comment letters were received. For 
the reasons discussed below, the Commission is approving the proposed 
rule change.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 36495 (November 20, 
1995), 60 FR 58697.
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I. Description

    NSCC's proposed rule change modifies NSCC's rules to enable members 
settling mutual fund transactions in same day funds to settle their 
obligations with NSCC through a settling bank. The proposal establishes 
a new membership category for settling banks. To become a settling 
bank, a bank will be required to meet the operational and financial 
requirements established by NSCC. These requirements include that a 
settling bank must have a short-term obligation rating of at least A-2 
by Standard and Poor's Corporation or P-2 by Moody's Investor Services 
Incorporated.\3\ Banks that do not meet this standard may be considered 
on an exception basis. Each bank that qualifies as a settling bank will 
be required to enter into a separate agreement with each member on 
whose behalf it will perform settlement functions.

    \3\ A-2 and P-2 are credit ratings issued, respectively, by 
Standard and Poor's Corporation and Moody's Investor Services, Inc., 
to recommend the credit worthiness of various financial institutions 
with regard to certain financial obligations. These agencies may 
look at many factors, including profitability, capital, asset 
quality, liquidity, and management, before assigning a rating to the 
obligations of a financial institution.
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    Under the rules, settling banks will have the opportunity to refuse 
to settle for one or more members by notifying NSCC within the time 
established by NSCC. The proposed rules also specify that settling 
banks will be required to wire funds by the deadline imposed by NSCC or 
be subject to a penalty fee. In addition, any settling bank that fails 
to pay on settlement day will be required to cover NSCC's interest 
costs resulting from its failure to settle in a timely manner. NSCC's 
proposed rule change also makes conforming changes to relevant sections 
of NSCC's rules.

II. Discussion

    Section 17A(b)(3)(F) \4\ requires that the rules of a clearing 
agency be designed to promote the 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 change is consistent with NSCC's obligations under 
the Act because the proposal will help facilitate NSCC's conversion to 
a same day funds settlement system on February 22, 1996 by establishing 
a structure by which 

[[Page 1808]]
NSCC and its members can settle in same day funds.\5\

    \4\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
    \5\ For a complete description of the same-day funds conversion, 
refer to NSCC, Important Notice (October 16, 1995 and November 29, 
1995).
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    The proposed rule change allows members settling mutual fund 
transactions in same day funds to settle their obligations with NSCC 
through a settling bank. Because settlement banks net their settling 
members, fund members, and their own NSCC debits and credits into a 
single debit or credit balance with NSCC, the number of payments made 
to NSCC or by NSCC at settlement will be reduced. Reducing the number 
of payments between members and NSCC should make the settlement process 
more efficient and should reduce the risk of error associated with 
multiple payments between NSCC and individual members. As a result, the 
prompt and accurate clearance and settlement of securities transactions 
and the safeguarding of securities and funds which are in the custody 
or control of NSCC or for which it is responsible should be promoted.
    Furthermore, the use of settling banks should reduce the risks 
associated with a member's failure to settle because a settling bank 
must notify NSCC by the designated cutoff time of its refusal to settle 
for a particular member. The settling bank's notice to NSCC allows NSCC 
the opportunity to prepare for the possibility of member failure by 
identifying alternate sources of financing (e.g., lines of credit or 
member collateral). This also should further NSCC's ability to meet its 
obligation to safeguard securities and funds which are in its custody 
or control or for which it is responsible.

III. 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-95-13) be, and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\

    \6\ 17 CFR 200.30-3(a)(12) (1994).
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[FR Doc. 96-793 Filed 1-22-96; 8:45 am]
BILLING CODE 8010-01-M