[Federal Register Volume 68, Number 134 (Monday, July 14, 2003)]
[Notices]
[Pages 41671-41672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17711]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48131; File No. SR-NSCC-2003-08]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change Relating 
to Rule 4, Section 12, Clearing Fund and Pledges of Deposits

July 3, 2003.

I. Introduction

    On May 6, 2003, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-NSCC-2003-08 pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the 
proposal was published in the Federal Register on May 21, 2003.\2\ No 
comment letters were received. For the reasons discussed below, the 
Commission is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 47874 (May 15, 2003), 68 
FR 27881.
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II. Description

    Each NSCC member pays or receives the net debit or net credit 
balance in its NSCC money settlement account at the end of each day. 
NSCC's principal risk is the possible failure of one or more members to 
settle their net debit obligations. To assure that it is able to 
complete its settlement obligations each day, NSCC maintains liquidity 
resources, including a committed line of credit (maximum amount of $1.9 
billion) with a consortium of banks. This committed line of credit is 
part of a combined syndicated facility with The Depository Trust 
Company (``DTC'').
    The line of credit matures annually. As part of the negotiations to 
extend the facility for the year beginning May 27, 2003, the lenders 
requested that Section 12 of NSCC's Rule 4, ``Clearing Fund,'' be 
clarified.\3\ Section 12 currently provides that for the purpose of 
securing loans to NSCC, NSCC may pledge and repledge and grant its 
lenders a security interest in (i) cash deposits in the clearing fund, 
(ii) all securities, repurchase agreements, or deposits in which such 
cash is invested, and (iii) qualified bonds pledged by a member or 
letters of credit issued on a member's behalf for NSCC's benefit to 
secure the member's open account indebtedness to NSCC. That section 
also provides that any such loan to NSCC may be on such terms as NSCC, 
in its discretion, may deem necessary or advisable and may be in 
amounts greater and extend for time periods longer than the obligations 
of any member in NSCC. Subject to the terms and conditions of such 
loan, NSCC remains obligated to its members to return any items of 
pledged collateral or permit substitutions and withdrawals thereof as 
provided in its rules.
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    \3\ The lenders made a similar request of DTC which also 
resulted in the filing of a proposed rule change by DTC. Securities 
Exchange Act Release No. 47875 (May 15, 2003), 68 FR 27877 (May 21, 
2003) [File No. DTC-2003-08].
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    It was always the intent and understanding of NSCC and its members 
that by virtue of Rule 4, Section 12, members had authorized NSCC to 
pledge to its lenders a member's actual deposits.\4\ In order to 
accommodate NSCC's lenders, NSCC is modifying the language of Rule 4, 
Section 12, to make clear NSCC's right to pledge its members' actual 
deposits to one or more lenders for the purposes enumerated in the 
rule. In addition, NSCC is also adding language to the rule to make 
clear what is implicit in the current rule that while there remain any 
outstanding obligations under any such loan, no member may assert a 
claim against the lender for the return of any collateral pledged by 
NSCC as security therefore.\5\

[[Page 41672]]

Subject to the foregoing and the terms of any such loan, the obligation 
of NSCC to return any items of pledged collateral to its members or to 
permit substitutions and withdrawals thereof remains unaffected.
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    \4\ Securities Exchange Act Release No. 28784 (January 16, 
1991), 56 FR 2575 (January 23, 1991) [File No. SR-NSCC-90-22].
    \5\ The new language states, ``No Member, Insurance Carrier 
Member or Fund Member shall have any right, claim or action against 
any secured Lender (or any collateral agent of such secured Lender) 
for the return, or otherwise in respect, of any such collateral 
Pledged by the Corporation to such secured Lender (or its collateral 
agent), so long as any loans made by such Lender to the Corporation 
or other obligations, secured by such collateral, are unpaid and 
outstanding.''
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III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible.\6\ By adding language, as requested by its 
lenders, to its rules to make clear the rights of NSCC, lenders, and 
members with respect to pledged deposits, the proposed rule change will 
help NSCC maintain adequate liquidity resources and therefore should 
help assure NSCC's ability to safeguard securities and funds.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular 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-2003-08) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-17711 Filed 7-11-03; 8:45 am]
BILLING CODE 8010-01-P