[Federal Register Volume 68, Number 55 (Friday, March 21, 2003)]
[Notices]
[Pages 13975-13976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6830]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47494; File No. SR-NSCC-2002-10]


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

March 13, 2003.
    On November 5, 2002, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 \1\ proposed rule change File No. SR-NSCC-2002-10. 
Notice of the proposal was published in the Federal Register on January 
31, 2003.\2\ No comment letters were received. For the reasons 
discussed below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 47206 (Jan. 16, 2003), 
68 FR 5067 (Jan. 31, 2003).
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I. Description

    NSCC will modify its Trade Comparison Service rules to enhance 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.
    RTTM 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. MBSCC implemented RTTM on 
September 27, 2002. NSCC believes that the next logical extension of 
RTTM is to further adapt it for fixed income securities that are 
eligible for processing by NSCC. NSCC currently

[[Page 13976]]

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.
    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 modifications have been endorsed by 
the RTTM Working Group, which consists of representatives of 
participants that hold key positions in The Bond Market Association, 
the Securities Industry Association, and the Regional Municipal 
Operations Association.
    The following is a summary of the 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.'' \3\
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    \3\ 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,\4\ 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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    \4\ 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.\5\
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    \5\ 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 it 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.\6\
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    \6\ 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.\7\
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    \7\ Carry Forward Totals will be retained on New Issue 
Contracts.
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    Along with these changes, NSCC will change the current cutoff time 
for trade date submission from midnight to 8 p.m. and will require the 
submission of certain additional trade data.\8\ Finally, NSCC will 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 will use the term ``business day'' (lower case) throughout 
its rules as is specified in the definition of that term in NSCC Rule 
1-1.
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    \8\ The details for these technical changes can be found in 
NSCC's Important Notice No. A5487 (October 7, 2002).
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II. Discussion

    The Commission finds that NSCC's proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of section 
17A(b)(3)(F)\9\ of the Act. Section 17A(b)(3)(F) requires that the 
rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions. The 
Commission finds that NSCC's rule change meets this requirement because 
it will enable NSCC to prepare its participants for the new RTTM 
functionality that will eventually enable NSCC to process trades in a 
more efficient and timely manner. By effecting an orderly transition to 
RTTM, NSCC's participants should become familiar with RTTM-type 
processing and thereby enable NSCC to continue to promote the prompt 
and accurate clearance and settlement of securities transactions.
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    \9\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-2002-10) be, and hereby 
is, approved.

    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. 03-6830 Filed 3-20-03; 8:45 am]
BILLING CODE 8010-01-P