[Federal Register Volume 68, Number 232 (Wednesday, December 3, 2003)]
[Notices]
[Pages 67714-67715]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30050]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48846; File No. SR-NSCC-2003-21]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Relating to the
New Separately Managed Accounts Service
November 26, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 16, 2003, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') 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.
---------------------------------------------------------------------------
\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 would add a new Rule 59 to NSCC's Rules to
establish an information messaging system called the Separately Managed
Accounts (``SMA'') Service.
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.\2\
---------------------------------------------------------------------------
\2\ The Commission has modified parts of these statements.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The SMA Service will provide a messaging hub for the communication
of information among sponsors of separately managed accounts and the
investment managers participating in their programs.\3\ At year-end
2002, the managed account industry had approximately 2 million accounts
with approximately $398 billion in assets under management. It is
estimated to increase to 5.3 million accounts and $930 billion in
assets under management by 2006.\4\
---------------------------------------------------------------------------
\3\ Separately managed accounts are generally described as
professionally managed individual investment portfolios offered to
investors such as high net worth individuals. The investor's assets
are managed in separate accounts by a sponsor or its custodian that
typically contracts with multiple investment managers to provide a
diversified investment strategy for the investor. The investor is
generally charged an asset-based fee in lieu of commissions and
other fee arrangements. Information about the separately managed
account industry is available on the Web site of The Money Market
Institute (``MMI'') at http://www.moneyinstitute.com. The MMI is the
national organization for the managed account industry, comprised
mostly of portfolio management firms and sponsors of investment
advisory and consulting services.
\4\ The industry forecasts were developed by the Financial
Research Corporation with the cooperation of the MMI through
analysis of data provided by MMI members.
---------------------------------------------------------------------------
Currently, communication of information among sponsors and
investment managers and other participants in the managed account
industry is supported by a combination of methods such as multiple
proprietary vendor and sponsor applications and platforms supplemented
by faxes, emails, and telephone communication. It was the consensus of
industry representatives through their participation in the MMI that
this current operational infrastructure, which depends upon nonstandard
and manual processing over multiple platforms, could not support the
projected growth and even at the current levels has resulted in
excessive processing costs, delays, and errors.
Accordingly, the MMI commissioned a study of the operational
interfaces in the separately managed account industry. This study noted
the lack of standardized protocols and processes and centralized
connectivity as the major areas of operational concern, and concluded
that these inefficiencies could be expected to result in errors with an
adverse economic impact. The authors of the study recommended to the
MMI that the industry look beyond its current technology and operations
platforms to seek an industry-wide approach that would allow the SMA
industry to achieve the type of standardized and centralized processing
accomplished by the mutual fund industry over the last twenty years.\5\
---------------------------------------------------------------------------
\5\ ``Operational Interfaces in the Separately Managed Account
Industry,'' Deloitte & Touche, published by The Money Management
Institute, August 2002. See also, ``2010: A Managed Account Odyssey:
Projections in the Future of the Managed Account Industry.'' Leonard
A. Reinhart and Jay N. Whipple III (copyright) 2002 Lockwood
Financial Services, Inc., also equating the current operational
infrastructure of the managed account industry to that of the mutual
fund industry prior to the implementation of NSCC's mutual fund
services.
---------------------------------------------------------------------------
In response to the operational issues facing the managed account
industry and recognizing the benefits that NSCC's mutual fund services
provide to the mutual fund industry, in early 2002 the MMI asked NSCC
to explore whether NSCC could provide services with similar operational
benefits to the separately managed accounts industry, with the view of
increasing operational efficiency and decreasing operational risks
inherent in the current processing structure. At the request of the
MMI, NSCC was subsequently invited to work with the MMI's Technology/
Operations Committee and to work with industry representatives to
create business communications standards for sponsor firms and
investment managers and to develop a message processing utility that
would support the standards when published. The initial standards,
addressing new account set up, account termination, and account
deposits and withdrawals, were delivered to the industry in late 2002.
These standardized data elements are available to all vendors,
sponsors, and managers to use in programming their various
applications.\6\
---------------------------------------------------------------------------
\6\ The standardized data elements are available on the Web site
of the MMI at http://www.moneyinstitute.com and NSCC at http://nscc.com.
---------------------------------------------------------------------------
At the invitation of the MMI, NSCC initiated the SMA Service
project development work to assess the feasibility of offering the SMA
Service. A prototype of the SMA Service system was made available for
industry testing and feedback in January 2003. On May 21, 2003, DTCC
presented the proposed service to MMI's Board of Governors and the
presentation was well received. On September 4, 2003, NSCC's Board of
Directors approved the proposed rule change.
Pending approval of the Commission, the SMA Service will be
available for use by members, fund members, and data services only
members. As in the case with all NSCC products, NSCC will allow vendors
to build interfaces to
[[Page 67715]]
NSCC's SMA Service on behalf of NSCC members.
Messages transmitted through the SMA Service will consist of
information such as account opening data (e.g. account profile
notifications, verifications of funding amounts, and authorizations to
trade) and account maintenance data (e.g., funding deposit amount
notifications, funding withdrawals, and account termination
notifications). NSCC will not be responsible for the content of the
messages transmitted through the SMA Service nor will NSCC assume any
liability for the completeness or accuracy of the information
transmitted.
The SMA Service will provide centralized platform for the
communication of the basic account opening and maintenance data among
sponsors and investment managers. Because the service does not involve
money settlement or securities clearance or netting through the
facilities of NSCC, it will be a nonguaranteed service of NSCC.\7\
---------------------------------------------------------------------------
\7\ NSCC offers certain guaranteed services through its CNS
system, in which NSCC as a central counterparty provides settlement
related guarantees regarding certain trades cleared and netted at
NSCC. NSCC also offers nonguaranteed services, such as NSCC's Mutual
Fund and Insurance Processing Services, in which members do not
receive the protections of an NSCC guarantee. Some of NSCC's
nonguaranteed services entail settlement of funds through NSCC (e.g.
NSCC's FundSERVE[reg] service); other nonguaranteed
services involve the communication of information only without
settlement of transactions or funds through the facilities of NSCC
(e.g., NSCC's Profile service in NSCC's Mutual Fund Services). The
SMA Service a nonguaranteed service limited to the communication of
information only and does not involve settlement of securities
transactions or funds through the facilities of NSCC.
---------------------------------------------------------------------------
Fees for the use of the SMA Service will be the subject of a
separate rule filing.
Establishing the SMA Service at NSCC will facilitate the
transmission of standardized information for separately managed
accounts products on a centralized communications platform.
Standardization and automation on these products can be expected to
reduce processing errors and delays that are typically associated with
manual processes or the use of multiple platforms and methods to
transmit information. This fosters cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions and furthers the protections of investors and the public
interest. The proposed rule change is therefore consistent with the
provisions of the Act and the rules and regulations thereunder.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe 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
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.
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.
Comments may also be submitted electronically at the following e-mail
address: [email protected]. All comment letters should refer to
File No. SR-NSCC-2003-21. 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 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 and on NSCC's Web site at http://www.nscc.com/legal/. All submissions should refer to the File No. SR-NSCC-2003-21
and should be submitted by December 24, 2003.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30050 Filed 12-2-03; 8:45 am]
BILLING CODE 8010-01-M