[Federal Register Volume 61, Number 204 (Monday, October 21, 1996)]
[Notices]
[Pages 54695-54697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26929]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37818; File No. SR-NSCC-96-15]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change to Process 
Corporate Reorganizations Involving Elections Through NSCC's Continuous 
Net Settlement System

October 11, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ notice is hereby given that on August 7, 1996, the 
National Securities Clearing Corporation (``NSCC'') filed

[[Page 54696]]

with the Securities and Exchange Commission (``Commission'') the 
proposed rule change (File No. SR-NSCC-96-15) as described in Items I, 
II, and III below, which items have been prepared primarily by NSCC. On 
August 9, 1996, and October 1, 1995, NSCC amended the proposed rule 
change.\2\ The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988)
    \2\ Letters from Julie Beyers, Associate Counsel, NSCC, to Jerry 
Carpenter, Assistant Director, Division of Market Regulation, 
Commission (August 8, 1996, and September 27, 1996, as revised 
October 1, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change.

    NSCC has filed a proposed rule change that will enable members with 
long positions in securities subject to a tender offer with an election 
as to consideration to receive protection for receipt of the tender 
offer consideration.

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 that 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 summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\3\
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    \3\ The Commission has modified the text of the statements NSCC 
submitted.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change.

    NSCC currently provides a service for participants with long 
positions in some securities subject to a tender offer. Pursuant to 
this service, NSCC guarantees to such participants the delivery of 
funds or securities pursuant to the terms of the tender offer. NSCC 
proposes to extend this protection to tender offers for which there are 
elections as to the form of consideration to be received.
    Generally, a person who wishes to participate in a tender offer 
must notify the tenderer of its decision prior to the expiration of the 
tender offer. All shares to be exchanged in the tender offer must be 
delivered to the tenderer's agent prior to the end of the protect 
period, typically three days after the end of the expiration of the 
offer.\4\ However, participants with long positions at NSCC (``long 
participants'') are dependent upon the delivery of the securities by 
participants with short positions at NSCC (``short participants'') 
prior to the end of the protect period. If short participants do not 
deliver in time, the long participants will not be able to participate 
in the offer. If a long participant has elected to have NSCC guarantee 
the delivery pursuant to the terms of the tender offer, certain short 
participants will be liable for delivery to the long participant of the 
consideration it would have received pursuant to the terms of the 
tender offer. The proposed rule change will extend this protection to 
tender offers that have an election as to the form of consideration.
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    \4\ The purpose of the protect period is to accommodate persons 
who purchase securities on the expiration date with the intention of 
participating in the tender offer. Such persons generally will not 
receive the securities to forward to the tenderer until the 
settlement date three business days later.
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    Once NSCC receives timely notification of a tender offer and 
starting two business days prior to the expiration of an offer, long 
participants and short participants with positions in the subject 
security will receive information regarding the offer each business day 
on the CNS reorganization information report. On the day prior to the 
expiration of the protect period in a tender offer with an option as to 
the consideration to be received, long participants will be permitted 
to elect their preferences (e.g., cash or securities) by submitting 
electronic instructions to NSCC through DTC's PTS Terminal system. Such 
participants will receive a preliminary protection report. On the same 
day, NSCC will issue a report to short participants advising them of 
their potential liability in the security if delivery is not made by 
the next business day.
    If short participants deliver securities prior to the close of 
business on the expiration of the protect period, NSCC will redeliver 
these securities to long participants. Such participants can then 
participate in the tender offer outside the facilities of NSCC. If not 
all delivery obligations to the long participants are met, NSCC will 
issue to the remaining long participants a final protection report and 
will issue to the remaining short participants a final liability 
report, both of which reflect open positions remaining as of the close 
of business of that day.
    At the expiration of the protect period, NSCC will establish two 
CNS subaccounts representing the alternative forms of consideration for 
each security subject to a tender offer. All open positions for which a 
long participant has made an election will be moved into the 
appropriate CNS reorganization subaccount. Positions in a CNS 
subaccount are frozen until the payable date for the tender offer 
(i.e., short participants may not deliver in the securities). The short 
participants will immediately be charged a mark based on the difference 
between the market value of the subject securities and the 
consideration, and NSCC will retain such funds.\5\ In addition, the 
long positions and short positions will continue to be marked to the 
market daily.
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    \5\ In the case of a long participant selecting cash as 
consideration, the corresponding short participant will be charged 
the difference between the cash offered in the tender offer and the 
market price of the securities. In the case of a long participant 
selecting securities as consideration, the corresponding short 
participant will be charged the difference between the market value 
of the subject securities and the market value of the consideration 
securities.
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    On payable date, the subaccounts will be closed. NSCC will credit 
the general CNS account of long participants with either the securities 
or cash that they have elected to receive. NSCC will debit the general 
account of short participants with either the cash or securities they 
have been assigned to deliver (i.e., consideration securities). NSCC 
also will credit the account of short participants with the marks to 
the offer price being retained by NSCC. Some offers have limits on how 
many of the subject securities the offeror will accept or what 
percentage of consideration will be paid in cash or securities. At the 
end of the protect period, the offeror will reject on a pro rata basis 
excess securities. NSCC will similarly only hold short participants 
liable for the consideration for subject securities to the extent such 
securities would have been accepted by the tenderer.
    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because it should facilitate the prompt and accurate 
clearance and settlement of securities transactions by expanding the 
types of reorganization that can be processed through CNS.\6\
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    \6\ 15 U.S.C. Sec. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC perceives no impact on competition by reason of the proposed 
rule change.

[[Page 54697]]

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    NSCC has not solicited nor received comment on the proposed rule 
change.

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 NSCC consents, 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 N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Room, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of NSCC. All 
submissions should refer to the file number (File No. SR-NSCC-96-15) 
and should be submitted by November 12, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26929 Filed 10-18-96; 8:45 am]
BILLING CODE 8010-01-M