[Federal Register Volume 63, Number 118 (Friday, June 19, 1998)]
[Notices]
[Pages 33750-33753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16350]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40086; File No. SR-NSCC-98-4]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Adopting an
Interpretation of the Board of Directors Regarding NSCC's Obligation to
Continuously Review Participants to Determine if Participants Are
Required to Reapply for Membership Due to a Material Change in
Conditions
June 12, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 24, 1998, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-NSCC-98-4) as described in Items I, II, and II
below, which items have been prepare primarily by NSCC. The Commission
is publishing this notice to solicit comments from interested persons
on the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change would add Addendum T to NSCC's Rules and
Procedures regarding NSCC's obligation to continuously review
participants to determine if they are required to reapply for
membership due to a material change in conditions. A copy of proposed
Addendum T is attached as Exhibit A to the rule filing.
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 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.\2\
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\2\ The Commission has modified the text of the summaries
prepared by NSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Under the proposed rule change, NSCC will be permitted to (i)
reexamine a participant who has undergone a material change in
circumstances,\3\ (ii) reconsider the participant's continuing status
as a participant as if such entity was initially applying for
membership when conditions originally in existence at the time a
participant was accepted for membership have materially changed, and
(iii) require the participant to satisfy any concerns NSCC may have as
to the participant's ongoing membership in NSCC as part of such
reevaluation. In addition, Addendum T explicitly states that
participants have the affirmative obligation to advise NSCC if such
material change occurs.
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\3\ Proposed Addendum T sets forth three categories where
changes may warrant reconsideration: (1) material changes in
ownership, control of management, (2) material changes in business
lines, including but not limited to, new business lines undertaken,
or (3) participation as a defendant in litigation which could
reasonably have a direct negative impact on the participant's
business. Proposed Addendum T states that these categories are
listed as examples and should not be viewed as exclusive in the
process.
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Under the Act and the rules and regulations thereunder, NSCC is
obligated to safeguard securities and funds in the possession and
control. NSCC believes that this obligation, coupled with the fact that
NSCC is the guarantor of participants' transaction submitted to it for
clearance and settlement, require that NSCC have flexibility to
consider material changes pertaining to such participants and have the
ability to take appropriate steps in light of such changes.
When a material change occurs with respect to an existing
participant's ownership, control or management, mix of business, use of
third party service provides, or regulatory history, among other areas,
NSCC is faced with a different risk perspective than that which it
faced at the time it approved such participant's application for
membership. The NSCC board has concluded that it is in the best
interests of NSCC and its membership as a whole that NSCC address these
types of changes, including the ability to require the participants to
reapply for membership, as if the participant was not already a
participant.
NSCC believes that participants change their business mix as their
focus in the financial industry change. According to NSCC, enter new
businesses, discontinue old ones, change management, change risk
policies, or take other actions or steps which could result in an
entirely different entity (other than changing the corporate name of
such entity) from the one which was approved for NSCC membership. NSCC
believes that if it did not have the ability to continually reexamine
participants' status, the purpose behind scrutinizing applications and
the comfort level provided by such process, would be undermined.
NSCC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
because it will clarify the rules of NSCC relating to the continuing
standards required for membership and NSCC's obligation to safeguard
securities and fund within its control.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change will impact or
impose a burden on competition that is
[[Page 33751]]
not necessary to appropriate in furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No written comments have been solicited or received. NSCC will
notify the Commission of any written comments received by NSCC.
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, including whether the proposed rule
change is consistent with the Act. 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 Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of NSCC. All
submissions should refer to File No. SR-NSCC-98-3 and should be
submitted by July 10, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
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[FR Doc. 98-16350 Filed 6-18-98; 8:45 am]
BILLING CODE 8010-01-C