[Federal Register Volume 64, Number 112 (Friday, June 11, 1999)]
[Notices]
[Pages 31664-31666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14867]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41478; File No. SR-NSCC-99-06]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change That Establishes Additional Procedures for 
Class A Surveillance of Certain Settling Members and Permits the 
Collection of Clearing Fund and Other Collateral Deposits From These 
Settling Members

June 4, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 10, 1999, the National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') and amended on June 2, 1999, 
the proposed rule change as described in Items I and II below, which 
items have been prepared primarily by NSCC.\2\ The Commission is 
publishing this notice and order to solicit comments from interested 
persons and to grant accelerated approval of the proposed rule change 
through May 31, 2000.
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    \1\ 15 U.S.C. 78(b)(1).
    \2\ Letter from Julie Beyers, Vice President and Associate 
Counsel, NSCC, to Jerry Carpenter, Assistant Director, Division of 
Market Regulation, Commission (June 2, 1999).

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[[Page 31665]]

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

    The proposed rule change extends the temporary approval of 
additional procedures which govern the placement of NSCC members on 
Class A surveillance and the clearing fund deposit and other collateral 
requirements for such members.

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.\3\
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    \3\ 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 seeks to extend the temporary approval of a rule change 
governing the application of Class A surveillance procedures and the 
additional collateralization requirements to settling members that 
engage in certain over-the-counter (``OTC'') market making 
activities.\4\ To decrease the risk associated with OTC market makers, 
NSCC has added Addendum O to its rules and procedures. Addendum O 
permits NSCC to place setting members on Class A surveillance under 
certain conditions.
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    \4\ For a complete discussion of NSCC's Class A surveillance 
procedures and collateralization requirements, refer to Securities 
Exchange Act Release Nos. 37202 (May 10, 1996), 61 FR 24993 [File 
No. SR-NSCC-95-17]; 38622 (May 19, 1997), 62 FR 27285 [File No. SR-
NSCC-97-04]; and 40034 (May 27, 1998), 63 FR 30277 [File No. SR-
NSCC-98-03].
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    NSCC has also adopted an interim collateralization policy which 
permits NSCC in its discretion to require settling members that clear 
for or are themselves OTC market makers and that are placed on Class A 
surveillance to deposit special collateral in amounts based upon the 
settling member's OTC activities relative to its amount of excess net 
capital.
    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder because the surveillance procedures and 
additional collateralization will facilitate the prompt and accurate 
clearance and settlement of securities transactions and in general will 
protect investors and the public interest.
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    \5\ 15 U.S.C. 78q-1
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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

    No written comments relating to the proposed rule change 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 assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency 
and generally to protect investors and the public interest. As the 
Commission previously stated, it finds that the proposed rule change is 
consistent with NSCC's obligations under the Act because it will help 
NSCC protect itself, its members, and investors from members that pose 
an increased risk because of their involvement in OTC market making.\6\
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    \6\ Supra note 3.
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    Under the proposal, NSCC will continue to have the authority with 
respect to settling members which participate in OTC market making 
activities or clear for correspondents that engage in such activity (1) 
to place such members on Class A surveillance, (2) to require such 
members to post additional collateral with NSCC, and (3) to calculate 
an alternative clearing fund requirement for such members when 
additional risk factors are present. Collectively, the higher level of 
surveillance, the additional level of collateralization, and the 
alternative clearing fund requirements should help ameliorate NSCC's 
exposure which in turn should assist NSCC in fulfilling its obligations 
under the Act to safeguard securities and funds for which it has 
control of or is responsible for and to protect investors and the 
public interest.\7\
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    \7\ As noted in each of the previous approval orders, prior to 
filing a proposed rule change seeking permanent approval of the 
procedures set forth in this temporary approval order, NSCC shall 
present to the Commission a more detailed report on its findings 
regarding the adequacy of the controls and discussing any changes to 
be made to the procedures.
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    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 
allow NSCC to continue to utilize its Class A surveillance procedures, 
the interim collateralization policy, and the alternative clearing fund 
formula without interruption until it makes a filing requesting 
permanent approval of the rule change. This will allow NSCC to continue 
to protect itself and its participants from the potential risks of OTC 
market making activities.

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 submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. Copies 
of the submissions, 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, 
D.C. 20549-0609. Copies of such filings will also be available for 
inspection and copying at the principal office of NSCC. All submissions 
should refer to the file number SR-NSCC-99-06 and should be submitted 
by July 2, 1999.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-99-06) be, and hereby 
is, approved on an accelerated basis through June 4, 2000.


[[Page 31666]]


    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. 99-14867 Filed 6-10-99; 8:45 am]
BILLING CODE 8010-01-M