[Federal Register Volume 64, Number 13 (Thursday, January 21, 1999)]
[Notices]
[Pages 3328-3329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1325]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40946; File No. SR-NSCC-98-15]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Regarding Year 2000 Testing

January 14, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 29, 1998, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on January 8, 
1999, 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 proposal.
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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

    Under the proposed rule change, NSCC will require certain NSCC 
members to participate in the Security Industry Association's (SIA) 
Year 2000 test beginning in March 1999.

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 
test 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

    NSCC's Rule 15 provides, ``The Corporation shall establish, as it 
deems necessary or appropriate, standards of financial responsibility, 
operational capability, experience and competence for membership.'' In 
connection with this standard, NSCC has determined that members who 
utilize Equity, Fixed Income, or Mutual Funds services and who settle 
transactions through NSCC must validate their Year 2000 readiness 
through participation in the SIA Year 2000 test beginning in March 
1999. NSCC considers the SIA test appropriate to confirm Year 2000 
readiness of its critical members because NSCC's products and services 
will be represented in this industry-wide effort.
    As a prerequisite to participation in the SIA test, members are 
required to perform connectivity and point-to-point testing with NSCC. 
NSCC members are required to contact NSCC by January 15, 1999, to 
establish a date to perform such prerequisite testing.
    On an exception basis, NSCC members subject to this testing mandate 
may be represented in the SIA test by their service bureau. To qualify 
for this exception (on a per service basis), the member must obtain 
prior approval from NSCC and meet all of the following three 
conditions: (1) the member cannot rely upon a direct connection into 
NSCC (specifically, their input and output must be handled by a service 
bureau); (2) the member's volume must not be in the top 90% of the 
volume of all firms who utilize the service by either dollar or 
transaction count measurements; and (3) the member cannot represent a 
processing arrangement with the service bureau that is unique to that 
member. Members subject to the testing mandate who may be represented 
in the SIA test by their service bureau will be notified by NSCC by 
January 29, 1999, that they fall within this exception category.
    At the conclusion of the SIA test, all members subject to the 
testing mandate will be required to provide NSCC with written 
confirmation, in a format proscribed by NSCC, that test files have been 
received from NSCC and successfully processed in a Year 2000 compliant 
manner.\3\
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    \3\ NSCC will inform members by Important Notice as to the form 
in which they must provide written confirmation to NSCC regarding 
test results.
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    Members who fail to complete prerequisite testing with NSCC prior 
to the March 1999 SIA test as well as members who are required to 
participate in the SIA test but fail to do so will be subject to 
appropriate disciplinary action in accordance with NSCC's rules. Such 
disciplinary action permits NSCC to limit or restrict a member's access 
to NSCC. In addition, NSCC could require a member to clear trades 
through another entity.
    NSCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder. In 
particular, the proposed rule change is consistent with Section 
17A(b)(3)(F) of the Act,\4\, which requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and, in general, to 
protect investors and the public interest.
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    \4\ 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 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

    NSCC advised members of its Year 2000 testing requirements in 
presentations and in an Important Notice, dated September 1, 1998. 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 \5\ requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions. The Commission 
believes that the proposed rule change is consistent with this 
obligation because the required prerequisite and SIA Year 2000 testing 
should allow NSCC to address potential problems associated with its 
critical members' Year 2000 readiness. As a result, NSCC should be able 
to continue

[[Page 3329]]

to provide prompt and accurate clearance and settlement of securities 
transactions before, on, and after Year 2000 without interruption.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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    NSCC requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after the 
publication of notice of the filing. The Commission finds good cause 
for approving the proposed rule change prior to the thirtieth day after 
the publication of notice of the filing because such approval will 
allow NSCC to implement its mandatory Year 2000 testing program in a 
timely manner.

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 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 No. SR-NSCC-98-15 and should be 
submitted by February 11, 1999.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-NSCC-98-15) be and 
hereby is approved.
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    \6\ 15 U.S.C. 78s(b)(2).

    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-1325 Filed 1-20-99; 8:45 am]
BILLING CODE 8010-01-M