[Federal Register Volume 66, Number 94 (Tuesday, May 15, 2001)]
[Notices]
[Pages 26897-26898]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12138]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44277; File No. SR-NSCC-2001-05]


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

May 8, 2001.
    Pursuant to Section 10(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 24, 2001, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') 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 proposed rule change through December 31, 
2002.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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 of 
Class A surveillance and the clearing fund deposit and other collateral 
requirements for such members until NSCC's proposed rule change, SR-
NSCC-2001-04, is phased in. \2\
---------------------------------------------------------------------------

    \2\ In NSCC-2001-04, which is subject to Commission approval, 
NSCC proposes to apply its current clearing fund requirements for 
settling members on surveillance (Addendum O) to all NSCC members 
and to incorporate those requirements as well as all the clearing 
fund formulae and requirements currently found in Addendum B into 
NSCC's Procedure XV. The phase in of the new procedures under SR-
NSCC-2001-04 will begin June 15, 2001, and will end no later than 
December 31, 2002. See Securities Exchange Act Release No. 44276 
(May 8, 2001) [File No. NSCC-2001-04] (notice of filing of proposed 
rule change to modify and consolidate clearing fund rules).
---------------------------------------------------------------------------

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

[[Page 26898]]

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\
---------------------------------------------------------------------------

    \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 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, 
2001. \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]; 41478 (June 4, 1999), 64 FR 31664 [File No. SR-NSCC-99-06]; and 
42864 (May 30, 2000), 65 FR 36204 [File No. SR-NSCC-99-09] 
(Commission approval date corrected in Federal Register, 65 FR 
42065).
---------------------------------------------------------------------------

    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.\6\ 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.\7\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ 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 to (1) place such 
members on Class A surveillance, (2) requires such members to post 
additional collateral with NSCC, and (3) 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 or is 
responsible and to protect investors and the public interest.
    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 
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 when the 
previous temporary approval expires on June 1, 2001, and until NSCC's 
proposed rule change, SR-NSCC-2001-04, is completely phased in.

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 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, NW., Washington, DC 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-2001-05 and should be submitted by June 5, 2001.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-NSCC-2001-05) be and 
hereby is approved through December 31, 2002.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-12138 Filed 5-14-01; 8:45 am]
BILLING CODE 8010-01-M