[Federal Register Volume 63, Number 192 (Monday, October 5, 1998)]
[Notices]
[Pages 53479-53481]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26530]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-40487; File No. SR-NSCC-98-06)


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Modifying the 
Automated Customer Account Transfer Service

September 28, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 5, 1988, the National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') and on June 17, 1998, amended 
the proposed rule change, as described in Items I, II, and III below, 
which items have been prepared primarily by NSCC. 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. 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 will modify NSCC's rules and procedures 
regarding the automated customer account transfer service (``ACATS'') 
to expand the types of eligible ACATS participants and the kinds of 
accounts that may be transferred.

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 include 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 parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    ACATS enables members of NSCC to effect automated transfers of 
customer accounts among NSCC members.\3\ The proposed rule change will 
expand the types of eligible ACATS participants and the kinds of 
accounts that may be transferred. Additionally, it will permit NSCC to 
transmit data to clearing agencies in order to expand the automated 
settlement capabilities of ACATS.\4\
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    \3\ ACATS complements New York Stock Exchange (``NYSE'') and 
National Association of Securities Dealers (``NASD'') rules that 
require NYSE and NASD members to use automated clearing agency 
customers account transfer services and to effect customer account 
transfers within specified time frames.
    \4\ NSCC stated that another reason for the redesign is to make 
the ACTS system Year 2000 compliant.
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Users
    Currently, only NSCC members, primarily broker-dealers, may 
participate in ACATS. The proposed rule change will permit a qualified 
securities depository (``QSD'') to also effect customer account 
transfers on behalf of its participants in ACATS.\5\ Thus the proposed 
rule change will permit ACATS transfers between two participants of a 
QSD and between a QSD participant and a NSCC member.
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    \5\ QSD is a defined term in NSCC's rules (see Rule 1). A QSD is 
a registered clearing agency, pursuant to Section 3(a)(23) of the 
Act, that has entered into an agreement with NSCC pursuant to which 
it will act as a securities depository for NSCC and will effect 
book-entry transfers of securities for NSCC with respect to NSCC's 
continuous net settlement system. The Depository Trust Company is 
the only registered clearing agency that has entered into such an 
agreement with NSCC.
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Transfers
    The proposed rule change will set forth three categories of ACATS 
transfers: (1) Receiving member \6\ initiated full account transfers; 
(2) delivering member \7\ initiated partial account transfers; and (3) 
receiving member initiated partial account transfers. Categories one 
and two, while currently available, will be modified. Category three 
will be a new addition to ACATS.
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    \6\ The proposed rule change will define the receiving member as 
a NSCC member or QSD to whom a customer's full account is to be 
transferred.
    \7\ The proposed rule change will define the delivering member 
as the NSCC member or QSD which currently has the account.
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    Receiving member initiated full account transfers. Under the 
proposed rule filing, a receiving member will be required to submit 
transfer information to NSCC in automated format. The ``transfer 
initiation request'' paper form will no longer be accepted by NSCC.\8\
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    \8\ A receiving member will be able to continue to utilize the 
facilities of NSCC to submit physical documentation that a 
delivering member may need in order to act upon the receiving 
member's request.
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    Upon submission of customer account asset data, the delivering 
member will be required to specify the quantity of mutual fund services 
eligible book share mutual fund assets (``mutual fund assets'') to be 
processed, if any, and to indicate whether the transfer will be a full 
or a partial transfer. A full transfer will cause all mutual fund 
assets, whether greater or lesser than the quantity specified, to be 
transferred. A partial transfer will cause only the quantity specified 
or, if the account has less than such amount, such lesser amount to be 
transferred. Since the actual quantity registered on the records of the 
mutual fund may be adjusted between the time of the transfer request 
submission and settlement of the ACATS transfer (due for example to 
reinvested dividends or capital gains), this modification will provide 
ACATS participants with a means to transfer the quantity of assets 
available on settlement date. In addition, the rule filing states that 
if the transfer is not confirmed or rejected by the mutual fund 
processor or fund member within the time frame established by NSCC, it 
will be deleted from the Fund/Serv system \9\ by NSCC. As a result, 
such transfer requests will no longer pend in NSCC's systems for an 
indefinite period of time.
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    \9\ For a complete description of NSCC's Fund/SERV system refer 
to Securities Exchange Act Release No. 31937 (March 1, 1993), 58 FR 
12609 [File No. SR-NSCC-92-14] (order approving proposed rule change 
regarding Fund/SERV system).
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    Currently, once a delivering member rejects a receiving member's 
transfer request, the receiving member is required to reinitiate the 
ACATS process. The rule filing will provide that in response to certain 
enumerated categories of delivering member rejections, the receiving 
member may make corrections to its customer account transfer request. 
This will allow a receiving member to adjust within one business day 
after notification of a delivering member's rejections its customer 
account transfer request by

[[Page 53480]]

submitting corrections to NSCC. A delivering member must then either 
reject the adjusted transfer request by submitting a new rejection to 
NSCC or submit to NSCC detailed customer account asset data. If the 
delivering member fails to respond to the adjusted transfer request 
within the time frame established by NSCC, NSCC will delete the request 
from ACATS and will notify the receiving and delivering members.
    To the extent that a receiving member determines that any 
information as reported on the transfer initiation request is 
inaccurate, the rule filing will provide that the receiving member may 
cause an adjustment to be made by submitting corrected data to NSCC. 
Similarly, if a delivering member determines that the account number of 
its customer as reported on the transfer initiation request is 
inaccurate, it may cause that adjustment to be made by submitting 
corrected data to NSCC.
    The proposed rule change will permit a receiving member to 
accelerate the transfer of a customer account by accepting the report 
detailing the customer account asset data on the business day it 
receives the report from NSCC. However, under these new circumstances, 
if a delivering member submits a timely adjustment to an account for 
which an accelerated acceptance has been received by NSCC, it will 
cause such accelerated acceptance to be void.
    To the extent an ACATS transfer is between two NSCC members, the 
proposed rule change will differentiate between the processing of 
continuous net settlement (``CNS'') eligible and non-CNS eligible items 
that are otherwise eligible at The Depository Trust company (``DTC''). 
The rule filing will not change the processing of CNS eligible items. 
The proposed rule change provides that NSCC will produce ACATS 
instruction files for all non-CNS eligible items that are otherwise 
eligible at DTC. The instruction files will be similar to DTC deliver 
orders (i.e., naming the receiving and delivering participants, the 
quality of the securities to be delivered, and the value for such 
delivery). Any such deliveries will be subject to the rules of DTC. If 
a delivering member does not want instruction files to be submitted to 
DTC, it may request, at the time the account asset details are 
submitted or pursuant to a standing instruction filed with NSCC, that 
separate receive and deliver instructions be produced. In such 
instances, it will be up to the delivering member to initiate the 
delivery of the asset.
    Under the proposed rule change, foreign currency assets may be 
transferred from a delivering member to a receiving member. ACATS will 
produce receive and deliver instructions but will not specify a value 
for such assets.
    To the extent that either a receiving member or a delivering member 
(or both) is a participant of a QSD, such transfer will be processed in 
the same manner as the transfers described in the current rule, except 
as specified below:
    1. For all DTC eligible assets, other than United States dollar 
cash balances (``cash''), assets covered by a standing instruction 
filed by a delivering member with NSCC, and assets for which a receive/
deliver instruction request was received from a delivering member at 
the time asset details were submitted, NSCC will issue an instruction 
file to DTC specifying the quantity of each asset to be delivered with 
a deliver value of zero.
    2. For all non-DTC eligible assets (other than assets available at 
other registered clearing agencies and cash), assets covered by 
standing instructions filed by a delivering member with NSCC and assets 
for which a receive/deliver instruction request was received from a 
delivering member at the time asset details were submitted, NSCC will 
produce receive and deliver instructions naming the receiving member 
and the delivering member. All such receive and deliver instructions 
will specify no value. Unlike a transfer between NSCC members, NSCC 
will not debit and credit the value of assets being transferred between 
participants of a QSD or between a participant of a QSD and a member of 
NSCC.\10\
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    \10\ Under the current ACATS rule, the delivering firm is 
debited the current market value of the assets and the member 
receiving firm is credited the current market value of the assets. 
The member delivering firm recovers its money by making delivery of 
the assets. Under the proposed rule change, whenever a QSD 
participates in the ACATS process, the assets will be delivered on a 
no value basis.
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    3. If the account has a cash balance, NSCC will issue an 
instruction to DTC indicating the participants to be debited and 
credited and the corresponding amount.
    Delivering member initiated partial account transfers. The proposed 
rule change will permit a delivering member to initiate additional 
types of partial account transfers. In addition to the transfer of 
residual credit positions, delivering members will be able to: Deliver 
a partial account (in the form of cash or securities); initiate the 
delivery of a position which was purchased by the delivering member for 
the benefit of a customer's account and which the customer wants to be 
custodied at the receiving member; obtain the return of cash previously 
paid with respect to fail positions for which delivery is unable to be 
completed; \11\ and obtain the return of cash or securities mistakenly 
delivered through ACATS other than mutual fund assets and positions 
eligible for processing at The Options Clearing Corporation (``OCC''), 
the Government Securities Clearing Corporation (``GSCC'') or the 
Participants Trust Company (``PTC'').\12\
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    \11\ This service may only be initiated to the extent that the 
fail is between two NSCC members.
    \12\ This service may only be initiated to the extent that the 
delivery is between two NSCC members.
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    NSCC proposes that a delivering member may initiate a transfer by 
submitting to NSCC those transfer details that are required by NSCC. 
NSCC will reject the transfer if the details contain an edit or format 
error. NSCC will notify the delivering member if a transfer is rejected 
in which case the delivering member must reinitiate the transfer as if 
it had never been previously submitted.
    NSCC also proposes that a receiving member may reject the transfer 
by submitting information on the same day as the transfer request is 
received. No action will be required by the receiving member if it 
determines to accept the transfer. A receiving member may not submit 
corrections, and a delivering member may not make adjustments to such 
transfer request.
    Settlement date will be one business day following the day NSCC 
receives the transfer request unless the request includes option assets 
which are eligible for processing at OCC in which case the settlement 
date for all assets shall be two business days following the day NSCC 
receives the transfer request.
    Receiving member initiated partial account transfers. Under the 
proposed rule change, a receiving member may submit a request to 
initiate the transfer of a partial customer account. The request will 
be delivered by NSCC to the delivering member on the same day that it 
is received by NSCC. Each day NSCC will produce a report that indicates 
all of the requests received by NSCC that day. A delivering member may 
respond to a receiving member's request for a partial account transfer 
at any time by the delivering member initiating a partial account 
transfer, by following the procedure set forth in the delivering member 
initiated transfer section set forth above. No action will be required 
by the delivering member if it determines not to respond to a request 
and no transfer will occur.
    Agreement with DTC. NSCC intends to enter into an agreement with 
DTC to

[[Page 53481]]

permit DTC to obtain access to ACATS on behalf of its participants.\13\ 
NSCC's agreement with DTC will permit ACATS to be used for the transfer 
of accounts between two DTC participants or between a DTC participant 
and an NSCC member.
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    \13\ This agreement will be similar to the current agreement 
between NSCC and DTC regarding DTC's access to NSCC's mutual funds 
services.
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    Linkage Agreements. NSCC currently has an agreement in place with 
OCC regarding the transfer of options positions within customer 
accounts being transferred pursuant to ACATS. The agreement provides 
that NSCC may send instructions to OCC for the delivery and receipt of 
options positions on behalf of ACATS participants that are members of 
NSCC as well as of OCC.
    In order to broaden the types of assets which can be transferred 
through ACATS based on instructions from NSCC, the proposed rule change 
will permit NSCC to establish links with other registered clearing 
agencies (``RCA''), such as DTC, PTC and GSCC. Once an agreement has 
been reached with the applicable RCA, to the extent a transfer involves 
an asset position eligible for delivery at such RCA and both the 
receiving member and delivering member have an account there, NSCC will 
issue instructions to the applicable RCA indicating the delivering or 
receiving participant and the quantity of assets to be delivered and 
received. Such instructions shall not specify a value unless the 
transfer is between two members of NSCC and the assets to be 
transferred are government securities (where a nominal value shall be 
specified) \14\ or mortgage-backed securities. If the assets are 
mortgage-backed securities, on settlement date NSCC will debit the 
deliverer the value and credit the receiver the value of the assets.
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    \14\ On June 17, 1998, NSCC amended the proposed rule change 
(File No. NSCC-98-06) to include the transfer of government 
securities where a nominal value is specified.
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Indemnification Provision
    The proposed rule change will include indemnification provisions 
similar to those currently in use by users of ACATS. While the revised 
rule will include such provisions, it will not preclude participants 
from entering into separate indemnification arrangements which are 
broader than those contained in the rule.
    NSCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) because it will facilitate the prompt and accurate 
clearance and settlement of securities transactions and, in general, 
protect investors and the public interest.\15\
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change will have an 
impact on 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

    Written comments relating to the proposed rule change have not yet 
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 rule filing or
    (B) institute proceedings to determine whether the rule filing 
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 
statement with respect to the rule filing that are filed with the 
Commission, and all written communications relating to the rule filing 
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. 
552, will be available for inspection and copying in the Commission's 
Pubic Reference Room in Washington, D.C. 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 No. SR-NSCC-98-06 and 
should be submitted by October 26, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-26530 Filed 10-2-98; 8:45 am]
BILLING CODE 8010-01-M