[Federal Register Volume 65, Number 110 (Wednesday, June 7, 2000)]
[Notices]
[Pages 36204-36205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14253]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42864; File No. SR-NSCC-99-09]


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

    Pursuant to section 19(b)(i) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 16, 1999, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on May 12, 
2000, amended 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, 2001.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ In its amendment, NSCC withdrew any proposed changes to 
Addendum O to NSCC Rules and requested that the Commission extend 
the temporary approval of Addendum O in its current form. Letter 
from Richard Paley, Associate Counsel, NSCC (May 11, 2000).
---------------------------------------------------------------------------

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 that 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 these 
statements.\3\
---------------------------------------------------------------------------

    \3\ 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, the Proposed Rule Change

    NSCC seeks to extend the temporary approval of Addendum O, which 
governs the application of Class A surveillance procedures to and the 
additional collateralization requirements for settling members that 
engage in certain over-the-counter (``OTC'') market making activities. 
Addendum O is designed to decrease the risks associated with OTC market 
makers by use of Class A surveillance and special collateralization 
procedures. The Commission originally granted temporary approval on May 
10, 1996, and has subsequently extended its approval through May 31, 
2000.\4\
---------------------------------------------------------------------------

    \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]; 40034 (May 27, 1998), 63 FR 30277 [File No. SR-NSCC-98-
03]; (June 4, 1999), 64 FR 31664 [File No. SR-NSCC-99-06].

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

[[Page 36205]]

    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 and additional 
collateralization procedures will facilitate the safeguarding of 
securities and funds which are in its custody or control or for which 
it is responsible, and in general will protect investors and the public 
interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(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 NSCC's proposed rule change 
is consistent with these obligations under the Act because it should 
help NSCC protect itself, its members, and investors from members that 
pose an increased risk because of their involvement in OTC market 
making.\6\
---------------------------------------------------------------------------

    \6\ Supra note 4.
---------------------------------------------------------------------------

    Under the proposal, NSCC will continue to have the authority with 
respect to 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\
---------------------------------------------------------------------------

    \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 of its findings 
regarding the adequacy of the controls and discussing any changes to 
be made to the procedures.
---------------------------------------------------------------------------

    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 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. The Commission finds good cause 
for granting approval prior to the thirtieth day after the date of 
publication of the notice because this should allow NSCC to continue to 
protect itself and its participants from the potential risks of OTC 
market making activities without interruption when the current approval 
of Addendum O expires on May 31, 2000.

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, NW., Washington, DC 20549-0609. 
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. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 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-99-09 and should be submitted by June 
28, 2000.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-99-09) be, and hereby 
is approved on an accelerated basis through May 31, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
---------------------------------------------------------------------------

    \8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14253 Filed 6-6-00; 8:45 am]
BILLING CODE 8010-01-M