[Federal Register Volume 65, Number 205 (Monday, October 23, 2000)]
[Notices]
[Pages 63278-63279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27137]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43447; File No. SR-NSCC-00-05]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Related to Mutual 
Fund Services

October 16, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 7, 2000, National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change and 
on April 19, 2000, and May 8, 2000, amended the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by NSCC.\2\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ A copy of NSCC's proposed rule change, the attached 
exhibits, and amendments are available at the Commission's Public 
Reference Section and the principal office of NSCC.
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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 to permit 
additional types of investment products to be processed through NSCC's 
Mutual Fund Services.

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\
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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

1. Purpose
    NSCC participants who utilize NSCC's Defined Contribution Clearance 
and Settlement Service of NSCC's Mutual Fund Services and who recognize 
the value of processing investment product transactions through NSCC 
have requested that NSCC permit additional types of investment products 
regulated under state insurance laws or federal or state banking laws 
to be eligible for processing through NSCC's Mutual Fund Services. 
Examples of ``Investment Funds'' include stable value funds, separate 
account group guaranteed investment contracts (which are regulated as 
group annuities), and collective bank investment trust. Asset classes 
of these types are typically included in defined contribution 
retirement plans and thus their inclusion in Mutual Fund Services will 
benefit third party administrator (``TPA'') members and other 
participants by standardizing their processing of these Investment 
Funds in the same manner as mutual funds are now processed under NSCC's 
mutual fund services. Standardized processing will permit defined 
contribution plan administrators to provide Investment Fund products to 
defined contribution plan clients without the systems or manual 
processing infrastructure and related costs required by the current 
processing methods.

[[Page 63279]]

    To accommodate their participants' request, NSCC proposes to create 
a new class of eligible securities, defined as Investment Funds, that 
may be processed through its mutual fund services. This rule filing 
will permit NSCC to: (1) Add such class of securities to those 
currently eligible for processing through mutual fund services; (2) 
make corresponding changes to the categories of entities eligible to 
process these transactions through the mutual fund services; (3) 
establish standards of financial responsibility and operational 
capability for those participants wishing to process such Investment 
Funds through NSCC's mutual fund services; and, (4) make technical 
conforming changes to the existing rules where necessary.
    Investment Funds will be defined as any fund or investment entity 
that is subject to regulation under applicable federal and state 
banking and/or insurance laws. Investment Funds will include such 
things as bank collective investment trusts, separate account 
guaranteed investment contracts, and other similar pooled investment 
vehicles. All Investment Fund products will be subject to regulation 
under federal or state banking laws or state insurance laws. Only 
Investment Funds that have been assigned a CUSIP number would be 
eligible for processing through NSCC's mutual fund services.
    For the purpose of processing transaction in Investment Funds, NSCC 
also proposes expanding the types of entities that may qualify as a 
Fund Member under Rule 51 of NSCC's Rules to permit insurance 
companies, banks, and trust companies as packagers and sponsors of such 
funds to apply to become a Fund Member. As with other entities seeking 
to become a Fund Member, an insurance company, bank, or trust company 
seeking to process Investment Fund transaction through NSCC's Mutual 
Fund Services will be required to enter into an agreement setting forth 
its rights and obligations as a Fund Member, including that it will 
limit its use of NSCC's services to use of Mutual Fund Services (or 
Insurance Processing Services, as the case may be), comply with NSCC's 
rules and procedures, and permit NSCC to inspect its books and records. 
Moreover, as with all other transactions in Mutual Fund Services, 
transactions involving Investment Funds will not be guaranteed by NSCC. 
As currently provided in NSCC's Rules, if one side fails to pay for a 
transaction, the contra side will be required to return to NSCC any 
funds received from NSCC.\4\
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    \4\ Addendum D of NSCC's Rules and Procedures.
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    Under the proposed rule change, Rule 2 of NSCC's Rules and 
Procedures will be amended to permit an insurance company to become a 
mutual fund member or insurance services member in order to transmit 
Investment Fund purchases, exchanges, and redemption orders to a fund 
member and engage in other customer-related transactions with a fund 
member. In addition to the standards set forth in Addenda B and I of 
NSCC's Rules currently applicable to mutual fund and insurance services 
members and fund members respectively, entities seeking to process 
Investment Fund transactions through Mutual Fund Services would be 
required to meet the rating and capital requirements set forth in new 
Addendum V, Financial Standards for Applicants and Participants 
Processing Investment Funds Transactions Through Mutual Fund Services, 
of NSCC's Rules.
2. Statutory Basis
    Since NSCC is proposing to make a new category of securities 
eligible for mutual fund services processing, the proposed rule change 
will also make technical conforming changes to certain existing rules 
in order to include a reference to Investment Funds as applicable.
    NSCC believes the proposed rule change is consistent with Section 
17A of the Act because it will make a new class of securities eligible 
for processing through NSCC's mutual fund services and thereby should 
facilitate the prompt and accurate clearance and settlement of these 
transactions.

(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

    The Commission received one comment letter which was subsequently 
withdrawn by the commenter.\5\
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    \5\ Letter from Harold H. Morley, Chairman and Chief Executive 
Officer, Morley Financial Services, Inc., to Jonathan Katz, 
Secretary, Commission (May 16, 2000); and from Joan K. Hall, Senior 
Vice President and Director, Morley Financial Services, Inc., to 
Secretary of the Commission, Commission (August 18, 2000).
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III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 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 90 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 the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change 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, 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-00-05 and should 
be submitted by November 13, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
Margaret H. McFarland,
Deputy Secretary.
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    \6\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 00-27137 Filed 10-20-00; 8:45 am]
BILLING CODE 8010-01-M