[Federal Register Volume 63, Number 246 (Wednesday, December 23, 1998)]
[Notices]
[Pages 71175-71176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33981]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40799; File No. SR-NSCC-98-07]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving a Proposed Rule Change Expanding the 
Annuities Processing Service

December 16, 1998.
    On June 24, 1998, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-NSCC-98-07) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on October 19, 1998.\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).
    \2\ Securities Exchange Act Release No. 40540 (October 9, 1998), 
63 FR 55910.
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I. Description

    On September 19, 1997, the Commission approved NSCC's rule filing 
establishing APS.\3\ APS provides a centralized communication link that 
connects participating insurance carriers with their multiple 
distribution channels, including broker-dealers, banks, and the broker-
dealers' or banks' affiliated insurance agencies where appropriate 
(collectively, ``distributors''). Phase one of APS provides NSCC's 
participants with the ability to send and receive daily information 
regarding annuity contract positions, the value of each contract's 
underlying assets, and settlement of commission monies.\4\
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    \3\ Securities Exchange Act Release No. 39096 (September 19, 
1997), 62 FR 50416 [order approving the establishment of APS and the 
implementation of phase one of APS].
    \4\ Id.
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    The proposed rule change implements phase two of APS. Phase two 
provides distributors with the ability to transmit to insurance 
carriers information concerning annuity applications and subsequent 
premium payments and to settle initial and subsequent premiums through 
NSCC's money settlement process. Distributors will submit application 
information to NSCC, and NSCC will forward the application information 
to the insurance carrier designated as recipient by the distributor.
    The subsequent premium component allows distributors to transmit to 
insurance carriers information related to subsequent premium payments 
made by annuity contract owners. Distributors will submit subsequent 
premium information to NSCC, and NSCC will forward the subsequent 
premium information to the insurance carrier designated as recipient by 
the distributor.
    The proposed rule change provides that a distributor that has 
submitted application information or subsequent premium information to 
NSCC may also include data with respect to the annuity contract owner's 
initial premium payment or subsequent premium payment. If the 
information regarding the initial or subsequent premium payment is 
included with the application information or subsequent premium 
information, distributors and carriers will settle these payments 
through NSCC's money settlement system.
    Distributors initiate initial and subsequent premium payment 
settlement by submitting instructions to NSCC. All initial and 
subsequent premium payments submitted on a business day prior to that 
day's cutoff time (2:00 pm Eastern time) will settle on that day. 
Payments submitted on a business day after the cutoff time will settle 
on the next business day. Distributors have the ability to cancel a

[[Page 71176]]

previously submitted transaction on a business day as long as the 
cancel instruction is initiated prior to 2:00 pm Eastern time.
    If a distributor submits an instruction to NSCC to withdraw 
application information and an initial premium payment had been 
submitted with that application information, then NSCC will not settle 
the initial premium payment. A distributor does not have the ability to 
cancel a subsequent premium payment that has been included with 
previously submitted subsequent premium information.
    Phase two will also enable insurance carriers to transmit to 
distributors information and details about transactions and events that 
have occurred with respect to existing annuity contracts. An example of 
a transaction that may occur with respect to an existing annuity 
contract is a contract owner initiated transfer of underlying annuity 
contract assets from one subaccount to another subaccount. An example 
of an event is a dividend declared by an underlying fund. Distributors 
often use such financial information for the monthly account statements 
they send to their customers.
    The proposed rule change provides that if the application 
information submitted by a distributor to NSCC appears to contain the 
information required by NSCC but does not appear to contain the 
information required by the designated insurance carrier, NSCC will 
nevertheless transmit the application information to the designated 
insurance carrier but will not settle any initial premium payments 
submitted with such information. However, if the information contains 
four or more errors, NSCC will reject all of the submitted information 
and will not settle any initial premium payments submitted with such 
information.

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 Section 
17A(b)(3)(F).\5\ Section 17A(b)(3)(F) requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F)(1988).
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    The Commission believes that NSCC's rule change meets this standard 
because the implementation of the second phase of APS should provide 
more centralized communications and settlement between insurance 
carriers and distributors and should provide for more efficient 
processing. Thus, the proposal promotes prompt and accurate clearance 
and settlement of securities transactions.

III. Conclusion

    On the basis of the forgoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A(b)(3)(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-98-07) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-33981 Filed 12-22-98; 8:45 am]
BILLING CODE 8010-01-M