[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30265-30266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15182]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37290; File No. SR-NSCC-96-05]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change Modifying the
Automated Customer Account Transfer Service To Facilitate the Transfer
of Shares Being Tracked in the Initial Public Offering Tracking System
June 7, 1996.
On February 27, 1996, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-NSCC-96-05)
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') which modifies NSCC's Automated Customer Account Transfer
(``ACAT'') service.\1\ Notice of the proposal was published on March
12, 1996, in the Federal Register to solicit comments on the proposed
rule change.\2\ No comment letters were received. For the reasons
discussed below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ Securities Exchange Act Release No. 36931 (March 6, 1996),
61 FR 10050.
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I. Description
NSCC's proposed rule change modifies NSCC's rules relating to its
ACAT service to facilitate the transfer of shares which are purchased
in an initial public offering (``IPO'') and which are being tracked in
The Depository Trust Company's (``DTC'') IPO Tracking System.\3\
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\3\ This filing is made in conjunction with DTC's proposed rule
change seeking to implement the IPO Tracking System. The IPO
Tracking System will allow lead managers and syndicate members of
equity underwritings to monitor flipping of new issues in an
automated book-entry environment. For a complete description of the
IPO Tracking System, refer to Securities Exchange Act Release No.
37208 (May 13, 1996), 61 FR 25253 (order approving a proposed rule
change seeking to implement the IPO Tracking System).
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NSCC, through its ACAT service, currently provides an automated and
standardized service for the transfer of assets in a customer account
from one brokerage firm to another. The proposed rule change modifies
NSCC's Rule 50 to state that shares to be transferred through the ACAT
system that are being tracked through DTC's IPO Tracking System will
not be entered into NSCC's Continuous Net Settlement (``CNS'')
accounting operation even if such shares are CNS eligible.\4\ Rule 50
also states that NSCC will prepare ACAT receive and deliver orders for
such shares.
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\4\ CNS Eligible securities are those securities that are
eligible for transfer on the books of a securities depository
registered with the Commission under Section 17A of the Act and that
are contained in a list maintained by NSCC as subject to clearance
and settlement in its CNS system.
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Under DTC's IPO Tracking System, broker-dealers will have IPO
control accounts at DTC for IPO shares and free accounts for shares
purchased in the secondary market. The segregated accounts aid in
tracking the movement of IPO shares. In NSCC's CNS system, deliver
obligations must be made from the free account. If IPO shares for which
there is an ACAT deliver obligation were to settle in NSCC's CNS
system, the shares would have to be moved out of the DTC member's
segregated IPO control account and into the DTC member's free account.
The IPO Tracking System would register the movement from the IPO
control account into the free account as a flip \5\ and would no longer
be able to track the shares.
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\5\ Flipping occurs when a syndicate's lead manager is
supporting the IPO with a stabilization bid (i.e., the lead manager
is purchasing shares in the secondary market in order to keep the
price of the issue from dropping its initial offering price) and
when securities that had been distributed to investors are resold by
those investors in the secondary market back to the syndicate. The
lead manager may wish to identify flipped transactions so that
underwriting concessions (the discount from the offering price
received by the syndicate member) can be recovered from the
appropriate syndicate members.
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NSCC's proposed rule change requires IPO shares transferred through
the ACAT service to be delivered ex-CNS (i.e., outside of the CNS
system). The shares will be delivered pursuant to DTC's new IPO
customer account transfer function where the shares will continue to be
tracked and will not register as flipped even though they are subject
to an ACAT deliver obligation.
II. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder and particularly with the requirements of Sections 17A(b)(3)
(A) and (F).\6\ Sections 17A(b)(3) (A) and (F) require that the rules
of a clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes that NSCC's rule change meets this standard because by
implementing these changes to its ACAT service, NSCC will make it
easier and more efficient to transfer IPO securities held in customer
accounts at one broker-dealer to another broker-dealer. Without this
enhancement, IPO shares transferred through NSCC's ACAT service from
one brokerage account to another would register as a flip in DTC's IPO
Tracking System. When shares register as a flip, syndicate members may
forfeit the concession they earn from the initial sale to the retail
customer. As a result, retail customers could be discouraged from
transferring their accounts during the tracking period. As a result of
this rule change, transfers of customer IPO securities through DTC's
IPO Tracking System will be accurately recorded thereby enhancing
retail investors' ability to transfer their accounts.
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\6\ 15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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The proposed rule change is an important component in creating an
accurate tracking system. The tracking system is intended to reduce the
number of IPO transactions that settle through delivery of physical
certificates and to increase the number of IMP transactions settled
through book entry. By enhancing the IPO Tracking System as described
above, the proposal will further promote the prompt and
[[Page 30266]]
accurate clearance and settlement of securities transactions.
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 Sections 17A(B)(3) (A) and (F) 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 change (File No. SR-NSCC-96-05) be and hereby is
approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-15182 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-M