[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Notices]
[Pages 39923-39925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19752]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40224; File No. SR-NSCC-98-2]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Allowing Users of NSCC's Mutual Fund Services 
(``MFS'') Access to Annuity Processing Services (``APS'') and to Allow 
Users of APS Access to MFS

July 16, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 12, 1998, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change and on March 26, 1998, amended the proposed rule change as 
described in Items I and II below, which items have been prepared 
primarily by NSCC. The Commission is publishing this notice and order 
to solicit comments from interested persons and to grant accelerated 
approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change amends NSCC's rules to allow users of 
NSCC's Mutual Fund Services (``MFS'') access to Annuity Processing 
Services (``APS'') and to allow users of APS access to MFS.

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),

[[Page 39924]]

and (C) below, of the most significant aspects of such statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by NSCC.
---------------------------------------------------------------------------

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, Proposed Rule Change

    The purpose of the proposed rule change is to give users of NSCC's 
MFS, currently restricted to use by MFS members, access to APS and to 
give users of APS, currently restricted to use by APS members, the 
ability to use MFS. Specifically, shared access to MFS and APS will be 
achieved by combining categories of Annuities Agency Members and Mutual 
Fund Service Members into a new category to be known as Mutual Fund/
Annuity Services Members. No changes are being made to the financial or 
operational requirements for MFS members or APS members.
    The proposed rule change will also permit an Insurance Entity, 
which may become an APS member but not a MFS member under the present 
rules, to become a Mutual Fund/Annuity Services Member.
    Currently, participants who are MFS members or Fund Members are not 
permitted to use any NSCC service other than MFS. Similarly, 
participants who are Annuities Agency Members or Annuities Carrier 
Members are not allowed to use any NSCC service other than APS. 
According to NSCC, there is no reason not to permit these participants 
to use either or both services. The membership criteria for these two 
categories of membership, (as set forth in Addendum B of NSCC's Rules) 
are identical.
    Because the proposed rule change merely combines different 
membership types into one, no changes are being made with respect to 
the clearing fund requirements related to the use of MFS or APS. There 
will continue to be no clearing fund requirement relating to the use of 
APS. Mutual Fund/Annuities Service Members that use MFS will continue 
to be required to deposit the appropriate amount of clearing fund.
    The following is a detailed description of the changes made to 
NSCC's Rules and Procedures
Rule 1: (Definitions)
    A new definition entitled ``Insurance Entity'' is added. This term 
is substituted in NSCC's Rules where a lengthy phrase, which is not the 
definition of Insurance Entity, was previously used in the text of the 
Rules.\3\ The defined terms ``Annuities Agency Member'' and ``Mutual 
Fund Services Member'' are deleted and are replaced with the new 
defined term ``Mutual Fund/Annuity Services Member.'' The definition of 
``Mutual Fund/Annuity Services Member''is a combination of the old 
definitions of annuities Agency Member and Mutual Fund Services Member. 
A footnote is added to the definition of ``Mutual Fund/Annuity Services 
Member'' to inform members that this category of membership replaces 
both the ``Annuities Agency Member'' category and ``Mutual Fund 
Services member'' category.
---------------------------------------------------------------------------

    \3\ The term Insurance Entity is defined using language that is 
currently in NSCC's Rules as ``an insurance company, partnership, 
corporation, limited liability corporation or other organization, 
entity or person who is licensed to sell insurance products and is 
subject to supervision or regulation pursuant to the provisions of 
state insurance law.''
---------------------------------------------------------------------------

Rule 2: (Members)
    The language of Sections (iv) and (vi) of Section 1 are replaced 
with the new defined term ``Insurance Entity.'' The inclusion of a 
limited liability corporation as a type of entity which can apply for 
membership is added to Section 1 to make it consistent with the preface 
to such Section. The paragraphs relating to applicants whose use of 
NSCC's service is limited to MFS and APS are combined into one 
paragraph. Section 2(i) is revised to reflect that the Membership 
Agreement which will be entered into by ``Mutual Fund/Annuity Services 
Members'' will appropriately restrict their use of NSCC's services to 
MFS and/or APS.
Rule 4: (Clearing Fund)
    Conforming changes relating to the new defined terms are made.
Rule 15: (Financial Responsibility and Operational Capability)
    Previously, Annuities Agency Members were required by Section 2(a) 
to submit to NSCC certain reports filed with state insurance 
departments. This requirement is now being imposed on Mutual Fund/
Annuities Services Members that use APS. Conforming changes relating to 
the new defined terms are made to Section 2(b).
Rule 29: (Qualified Securities Depositories)
    The proposed rule change makes conforming changes relating to the 
new defined terms.
Rule 51: (Fund Member)
    The proposed rule change adds a footnote to Section 2(a) clarifying 
that Fund Members are not precluded from applying to become an 
Annuities Carrier Member or Mutual Fund/Annuity Services Member.
Rule 52: (Mutual Fund Services)
    The proposed rule change deletes the reference to MFS Member 
because the term ``Member'', by definition, includes MFS Member, now 
known as ``Mutual Fund/Annuities Service Member.''
Rule 56: (Annuities Carrier Member)
    A footnote was added to Section 2(a) clarifying that Annuities 
Carrier Members are not precluded from applying to become a Fund Member 
or Mutual Fund/Annuity Services Member.
Rule 57: (APS--Commissions and Charge Backs)
    The reference to Annuities Agency Members in Section 3(f) is 
replaced with ``Members,'' which by definition includes Mutual Fund/
Annuity Services Members.
Procedure XV: (Clearing Fund Formula and Other Matters)
    The clearing fund formula for users of MFS, is revised to refer to 
those Mutual Fund/Annuity Services Members that use MFS. The proposed 
rule change revises footnote 2 to clarify that Section A.I.(b) only 
applies to entities whose use of NSCC's services is restricted to MFS 
and/or APS. The proposed rule change makes conforming changes relating 
to the new defined terms in Section A.III. Section A.IV. is revised to 
reflect that, as was the case with Annuities Agency Members, those 
Mutual Fund/Annuity Services Members that use only APS are not subject 
to a clearing fund requirement.
Addendum B--(Standards of Financial Responsibility and Operational 
Capability)
    Previously, section B.4 covered applicants whose use of NSCC's 
services was limited to MFS, and Section B.5 covered applicants whose 
use of NSCC's services was limited to APS. Because these sections 
currently contain identical requirements, they are combined into 
Section B.4. Accordingly, Section B.5. is deleted, and Section B.6. is 
renumbered. Section I is revised to refer to the new defined term of 
Mutual Fund/Annuity Services Members. Section J previously prescribed 
the information required to be filed by Mutual Fund Services Members 
and Section K previously prescribed the information required to be 
filed by Annuities Agency Members. Because there is now one membership 
category, these sections are combined in Section J, with appropriate 
technical changes,

[[Page 39925]]

and section K is deleted. Section II.F has been revised to refer to the 
new defined term of Mutual Fund/Annuity Services Members.
Addendum F--(Statement of Policy in Relation to Same Day Funds 
Settlement)
    Section II is revised to refer to the new defined term of Mutual 
Fund/Annuity Services Members.
Addendum I--(Standards of Financial Responsibility and Operational 
Capability for Fund Members)
    The lead-in to this Addendum and the lead-in to Section I.A. are 
revised to clarify that this addendum pertains to Fund Members.
Addendum Q--(Standards of Financial Responsibility and Operational 
Capability for Annuities Carrier Members)
    The lead-in to Section II is modified to clarify that the 
prescribed information must be furnished by applicants, in addition to 
current Annuities Carrier Members. Additional modifications which 
conform to insurance industry terminology are made.
    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 provides for the equitable allocation of dues, 
fees, and other charges among NSCC's members.

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.

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

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to remove impediments to and perfect the 
mechanisms of a national system for the prompt and accurate clearance 
and settlement of securities transactions.\4\ The Commission believes 
that the rule change is consistent with this obligation because the 
proposal will reduce the number of memberships an entity would need to 
have in order to use MFS and APS. Because the requirements for these 
membership categories are identical, it is duplicative to require 
participants to obtain two separate memberships to use these services. 
Therefore, combining the membership categories promote efficiencies and 
helps promote the development of the national clearance and settlement 
system.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    NSCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication of the notice of filing. The Commission finds good cause 
for approving the proposed rule change prior to the thirtieth day after 
publication of the notice of filing because accelerated approval will 
permit NSCC to make the Mutual Fund/Annuity Services membership 
category available immediately. Thus, NSCC will be able to reduce the 
current administrative burdens on both itself and on its participants.

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-98-2 and should be 
submitted by August 14, 1998.
    It is therefore, ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-98-2) be and hereby is 
approved on an accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
---------------------------------------------------------------------------

    \5\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 98-19752 Filed 7-23-98; 8:45 am]
BILLING CODE 8010-01-M