[Federal Register Volume 68, Number 21 (Friday, January 31, 2003)]
[Notices]
[Pages 5067-5069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2256]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47206; File No. SR-NSCC-2002-10]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Relating to the 
Modification of Fixed Income Transaction System in Preparation for the 
Implementation of Real Time Trade Processing

January 16, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 
1934,\1\ notice is hereby given that on November 5, 2002, the National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change (File 
No. SR-NSCC-2002-10) 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

    NSCC proposes to modify its Trade Comparison Service rules to 
modify its Fixed Income Transaction System (``FITS'') in order to begin 
the move to real time trade matching processing (``RTTM'') for fixed 
income securities that are eligible for processing by NSCC.

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,

[[Page 5068]]

and C below of the most significant aspects of such statements.\2\
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    \2\ 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

    RTTM \3\ was implemented by the Government Securities Clearing 
Corporation (``GSCC''), an NSCC affiliate, in the fourth quarter of 
2000 for the processing of government securities. It was designed with 
a vision to also use the platform for other fixed income securities. 
Once RTTM was deployed for government securities, GSCC and MBS Clearing 
Corporation (``MBSCC'') worked together to adapt RTTM to support the 
requirements of mortgage-backed securities and was implemented by MBSCC 
on September 27, 2002. The next logical extension of RTTM is its 
further adaptation for fixed income securities that are eligible for 
processing by NSCC. NSCC currently plans to implement RTTM for 
corporate bonds, municipal bonds, and Unitary Investment Trusts 
(``UIT'') in the fourth quarter of 2003. RTTM will eventually replace 
NSCC's current FITS.
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    \3\ RTTM provides firms with the ability to compare trades 
shortly after execution. It will facilitate Straight Through 
Processing by utilizing a single pipeline with one communications 
link for all fixed income products. Standardized message formats are 
utilized for all inbound and outbound interactive transmissions.
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    One of NSCC's main objectives will be to ensure an orderly 
transition to RTTM. In order to prepare participants for the new RTTM 
functionality, NSCC proposes that certain modifications be made to FITS 
during March 2003. These modifications will enable participants to 
become familiar with RTTM-type processing. In addition, some lesser-
utilized FITS functionality that will not be incorporated into RTTM 
will be eliminated from FITS. The proposed modifications have been 
endorsed by the RTTM Working Group, which consists of representatives 
of participants who maintain key positions in The Bond Market 
Association, the Securities Industry Association, and the Regional 
Municipal Operations Association.
    The following is a summary of the proposed modifications to FITS:
    [sbull] FITS will automatically compare a trade even if the 
counterparties submit data on the trade in different pieces, a process 
known as ``trade summarization.'' \4\
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    \4\ For example, Firm A submits one trade for $30 million and 
Firm B ``breaks down'' the trade into three $10 million pieces. 
Alternatively, Firm A and Firm B may execute five separate trades 
each worth $10 million. Firm A submits each trade separately while 
Firm B ``bunches'' the five trades into one $50 million piece. In 
both of these examples, the trades will be compared.
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    [sbull] Except for trades where the settlement date is the same 
business day as or the business day after the trade date,\5\ FITS will 
be modified to accept (instead of reject) trade submissions with a 
contractual settlement date of the day of input or of prior dates and 
will automatically assign a settlement date of the next business day to 
the trades.
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    \5\ NSCC will continue to reject trades where the settlement 
date is the same business day as or the business day after the trade 
date regardless of the date of submission.
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    [sbull] Corporate bond trades in quantities of other than multiples 
of a thousand (round-lots) must be divided into separate data 
submissions of the round lot quantity and the odd-lot quantity 
(multiples of less than one thousand).
    The following is a summary of functions that NSCC proposes to 
eliminate from FITS:
    [sbull] Demand As Of processing.\6\
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    \6\ The As Of capability will still be available to compare 
trades that do not initially compare in FITS. The As Of capability 
requires the submission by each counterparty of data that matches in 
all respects whereas the Demand As Of capability permitted a trade 
to be ``force compared'' on the submitter's terms even if the 
counterparty did not respond.
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    [sbull] One Sided Deletes for compared, secondary market municipal 
security trades. In order to delete these trades, both counterparties 
will be required to submit Withholds that match in all respects.\7\
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    \7\ One Sided Deletes functionality will be retained for 
syndicate takedown transactions and for uncompared municipal bond, 
corporate bond, and UIT trades.
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    [sbull] Trade Submit and Carry Forward Totals will not be reported 
on the Supplemental and Added Trade Contracts.
    [sbull] Regular Way Extended Settlement Carry Forward Totals.\8\
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    \8\ Carry Forward Totals will be retained on New Issue 
Contracts.
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    Along with these proposed changes, NSCC proposes to change the 
current cutoff time for trade submission and will require the 
submission of certain additional trade data.\9\ Finally, NSCC wishes to 
make a technical correction to the use of the term ``business day'' in 
its rules. During the preparation of this filing, NSCC realized that 
the use of upper and lower case letters for the term is inconsistent in 
the rules. In order to carry out the intention of the drafters of the 
rules, NSCC proposes that each use of the term throughout its rules be 
``business day'' (lower case) as specified in the definition of that 
term in NSCC rule 1-1.
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    \9\ The details for these technical changes can be found in 
Exhibit C to NSCC's proposed rule change, which is an important 
notice that was distributed to NSCC's participants on October 2, 
2002.
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    NSCC believes that the proposed rule change is consistent with the 
provisions of the Act and the rules and regulations thereunder because 
it would prepare its participants for the new RTTM functionality that 
will enable NSCC to process trades in the efficient manner that is 
currently utilized by GSCC and MBSCC in connection with other fixed-
income trades.

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 it receives.

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 such longer period (i) as the Commission may 
delegate up to ninety days of such date if it finds such longer period 
to be appropriate and published 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0069. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-NSCC-2002-10. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. Copies of the submission, all subsequent 
amendments, all written statements

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with respect to the rule filing that are filed with the Commission, and 
all written communications relating to the rule filing between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with provisions of 5 U.S.C. 552, will be 
available for inspection and copying in the Commission's Public 
Reference Room in Washington, DC. Copies of such filing will also be 
available for inspection and copying at NSCC's principal office. All 
submissions should refer to File No. SR-NSCC-2002-10 and should be 
submitted by February 21, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-2256 Filed 1-30-03; 8:45 am]
BILLING CODE 8010-01-P