[Federal Register Volume 67, Number 166 (Tuesday, August 27, 2002)]
[Notices]
[Pages 55051-55053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21774]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46385; File No. SR-NSCC-2002-06]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Relating to the 
Imposition of Fines

August 20, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 26, 2002, National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') and on August 19, 2002, 
amended the proposed rule change as described in Items I, II, and III 
below, which items have been prepared primarily by NSCC. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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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

    The proposed rule change would clarify NSCC's rules with regard to 
the imposition of fines upon its members and would more specifically 
identify the actions or inactions of members that would result in fines 
being imposed upon them.\2\ In addition, a technical correction is 
proposed to be made to NSCC Rule 48, Disciplinary Proceedings, to 
conform the rule to other changes that were made effective by Release 
No. 34-36866.\3\
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    \2\ Exhibit 1 to this notice sets forth NSCC's proposed 
revisions.
    \3\ Securities Exchange Act Release No. 36866 (February 27, 
1996), 61 FR 7288 [File No. NSCC-96-03] (order modifying NSCC's 
Rules and Procedures to accommodate same-day funds settlement).
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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.\4\
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    \4\ The Commission has modified parts of these statements.
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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 48 allows NSCC to impose fines upon its members for any 
error, delay, or other conduct that is determined to be detrimental to 
the operations of NSCC. Historically, NSCC has imposed fines upon 
members for failures to settle in a timely manner end of day settlement 
balances, for late settlement acknowledgements, and for late payments 
of clearing fund deposits.
    NSCC's Rule 15 permits NSCC to request that members furnish to NSCC 
such adequate assurances of their financial responsibility and 
operational capability as NSCC may at any time deem necessary. Pursuant 
to this rule and in furtherance of NSCC's responsibility, NSCC 
periodically requests that its members provide financial and 
operational information about their business. While many members comply 
with these requests, some do not. The lack of this information could 
create risk for NSCC. To address this concern, NSCC proposes to fine 
members who fail to timely respond to requests for information.
    In connection with imposing fines for failure to timely provide 
requested financial and operational information, NSCC would notify all 
members that it requires certain information on an ongoing basis and 
that failure to provide the information would result in a fine being 
imposed with such fining commencing three months after the Commission 
approves the proposed rule change. For a period of one year from that 
date, members that fail to timely provide information would be issued 
one warning letter prior to the imposition of the fine. At the 
conclusion of the one-year period, NSCC would discontinue the warning 
letters prior to fining.
    In addition to the above, members have an affirmative duty to 
notify NSCC on an ongoing basis of certain internal conditions that may 
cause NSCC to reevaluate the member's continued participation. NSCC is 
proposing to fine members that fail to meet these notification 
requirements. Upon learning of an event upon which the member failed to 
provide timely notification, NSCC would impose a fine. No reminder 
letter would be sent in this context.
    Participants would continue to have the ability to contest fines, 
as currently provided for within NSCC's rules and procedures. Fines 
imposed against settling members would be collected through a 
miscellaneous charge in the member's monthly statement of charges. 
Fines imposed against settling bank members may be collected through an 
adjustment to the settling bank's end-of-day settlement balance, 
through a separate fed wire, or through checks made payable to NSCC. 
Alternatively, if the settling bank maintains additional memberships 
with NSCC, the fine may be collected through a settling account under 
its additional membership.
    In conjunction with the above, NSCC proposes making a technical 
correction to Rule 48 Disciplinary Proceedings. In Release No. 34-
36866, the Commission approved an NSCC rule change to accommodate same-
day funds

[[Page 55052]]

settlement (``SDFS'').\5\ This rule change, in part, created Addendum P 
that set SDFS Failure to Settle fines in the range of $100 to $10,000. 
At that time, Section 1 of Rule 48 should have been modified to change 
the maximum fine for any single offense from $5,000 to $10,000, and a 
reference to settling bank only members should also have been included.
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    \5\ Supra note 3.
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    NSCC believes that the proposed rule change is consistent with 
Section 17A of the Act and the rules and regulations thereunder because 
it ensures that NSCC is able to safeguard securities and funds in 
NSCC's possession.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change would have any 
impact on or impose any 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

    Within thirty five 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 ninety 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 the proposed rule change or
    (b) institute proceedings to determine whether the proposed rule 
change should be disapproved.

VI. 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 will also be available for 
inspection and copying at the principal office of NSCC. All submissions 
should refer to the File No. SR-NSCC-2002-06 and should be submitted by 
September 17, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.

Exhibit 1: Text of Proposed Changes to NSCC's Rules and Procedures

Addendum P

Fine Schedule

    (1) SDFS Failure-To-Settle and Late Acknowledgment Fines

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                                                                 First        Second       Third        Fourth
                          Net Debit                             occasion     occasion     occasion     occasion
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$0--100,000.................................................         $100         $200         $500       $1,000
$100,000--900,000...........................................          300          600        1,500        3,000
$900,000--1,700,000.........................................          600        1,200        3,000        6,000
$1,700,000--2,500,000.......................................          900        1,800        4,500        9,000
$2,500,000--up..............................................        1,000        2,000        5,000       10,000
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    Notes: (a) In addition to the fine, interest is charged to the 
Member, or the Settling Bank Only Member, that failed to settle for 
the cost of borrowing to complete settlement.
    (b) The number of occasions will be determined over a moving 
three-month period. A Member, or a Settling Bank Only Member, that 
exceeds four failure-to-settle occasions in a three-month period 
will be subject to further fees and/or other actions at the 
Corporation's discretion after consultation between the Member, or 
the Settling Bank Only Member, and the Corporation.
    (c) If the Corporation determines that it had significantly 
affected a Member's, or a Settling Bank Only Member's, ability to 
settle (because of a Corporation system delay, for example), the 
Corporation may determine to waive failure-to-settle fines for that 
occurrence.

    (2) Failure to notify and supply required data as provided for 
under these Rules & Procedures (other than as provided in items one, 
three and four of this addendum): Each single offense, $5,000.00 fine.
    (3) Late Satisfaction of Clearing Fund Deficiency Call \1\
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    \1\ The number of occasions is determined over a moving three-
month period beginning with the first occasion.

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                                                                                                        Fourth
                                                                 First        Second       Third       occasion
                           Amount                              occasion      occasion     occasion       (or
                                                                                                       greater)
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Up to $100 M...............................................            *          $100         $200         $500
$100 M to $900 M...........................................            *           300          600        1,500
$900 M to $1.7 MM..........................................            *           600        1,200        3,000
$1.7 MM to $2.5 MM.........................................            *           900        1,800        4,500
Greater than $2.5 MM.......................................            *         1,000        2,000       5,000
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* First occasions result in a warning letter issued to the Member.


[[Page 55053]]

    (4) Requests For Information \2\
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    \2\ Fines to be levied for offenses within a moving twelve-month 
period beginning with the first occasion.

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                                                                 First        Second       Third        Fourth
    Request for information  (Failure to timely provide)       occasion      occasion     occasion     occasion
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Financial Statements:
    Audited Financial Statements for Member or Parent......            *          $300         $600       $1,500
    Monthly and/or Quarterly Regulatory Filings............            *           300          600        1,500
    Monthly and/or Quarterly Financial Statements..........            *           300          600        1,500
    Proforma Financial Statements..........................            *           300          600        1,500
    Any Financial Computations, Consolidating Worksheets or            *           300          600        1,500
     Internal Statements, Upon Special Request.............
    Risk Questionnaires/Profiles...........................
    Questionnaires.........................................            *           150          300          750
    Profiles...............................................            *           150          300          750
    Risk Management Policies and Procedures................            *           150          300          750
    Disaster Recovery Procedures...........................            *           150          300         750
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*First occasions result in a warning letter issued to the Member. Warning Letters for first occasion violations
  will be discontinued one year after implementation of this schedule, at which time each violation will be
  subject to imposition of a fine.

[FR Doc. 02-21774 Filed 8-26-02; 8:45 am]
BILLING CODE 8010-01-P