[Federal Register Volume 69, Number 11 (Friday, January 16, 2004)]
[Notices]
[Pages 2639-2641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-952]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49051; File No. SR-NSCC-2003-15]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change to Implement 
Real-Time Trade Matching for Fixed Income Securities

January 12, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 27, 2003, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change 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 parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NSCC is seeking to implement a real-time trade matching system 
(``RTTM'') for certain NSCC-eligible corporate bonds, municipal bonds, 
and unit investment trusts (``NSCC debt securities'').\2\
---------------------------------------------------------------------------

    \2\ The proposed rule change does not apply to debt securities 
transactions that are submitted to NSCC via its correspondent 
clearing service, by regional exchanges/marketplaces, or through 
qualified securities depositories as defined in NSCC's rules because 
such transactions will not be processed by RTTM.
---------------------------------------------------------------------------

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 these 
statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified the text of the summaries 
prepared by NSCC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    RTTM was implemented in the fourth quarter of 2000 by the former 
Government Securities Clearing Corporation (``GSCC''),\4\ an NSCC 
affiliate, for the processing of government securities transactions.\5\ 
It was designed with a vision to use the platform for other fixed 
income securities. Accordingly, it was implemented in 2002 for 
mortgage-backed securities transactions processed by the former 
MBSCC.\6\ The purpose of the proposed rule change is to implement RTTM 
for NSCC debt securities. RTTM will eventually replace NSCC's current 
Fixed Income Transactions System (``FITS'').\7\
---------------------------------------------------------------------------

    \4\ On January 1, 2003, MBS Clearing Corporation (``MBSCC'') was 
merged into GSCC and GSCC was renamed the Fixed Income Clearing 
Corporation (``FICC''). The functions previously performed by GSCC 
are now performed by the Government Securities Division (``GSD'') of 
FICC, and the functions previously performed by MBSCC are now 
performed by the Mortgage-Backed Securities Division (``MBSD'') of 
FICC. Securities Exchange Act Release No. 47015 (December 17, 2002), 
67 FR 78531 (File Nos. SR-GSCC-2002-09 and SR-MBSCC-2002-01).
    \5\ Securities Exchange Act Release No. 44946 (October 17, 
2001), 66 FR 53816 (File No. SR-GSCC-2001-01).
    \6\ Securities Exchange Act Release No. 45563 (March 14, 2002), 
67 FR 13389 (File No. SR-MBSCC-2001-02).
    \7\ In March 2003, the Commission approved certain modifications 
to FITS in order to prepare NSCC participants for the new RTTM 
functionality. Securities Exchange Act Release No. 47494 (March 13, 
2003), 68 FR 13975 (File No. SR-NSCC-2003-10).
---------------------------------------------------------------------------

    The two areas of NSCC debt securities processing rules that require 
changes to implement RTTM are (1) inbound submissions to NSCC and (2) 
NSCC's reporting of information related to such submissions to 
participants. Specifically, interactive messages and the RTTM Web User 
Interface (``RTTM Web'') \8\ will be added as ways in which 
participants can submit trade data and subsequent related trade 
processing instructions.\9\ With respect to output issued by NSCC, 
initially upon implementation, end-of-day reports will continue to be 
produced by FITS

[[Page 2640]]

whereas intraday reports will be produced by RTTM. In addition, NSCC 
will make output available for interactive message users and RTTM Web 
users in those respective media.
---------------------------------------------------------------------------

    \8\ The RTTM Web will replace NSCC's PC Web application for NSCC 
fixed income securities.
    RTTM will be implemented in phases in 2004. Participants will be 
notified of specific implementation dates by Important Notice. 
Conversation with Nikki Poulos, Vice President and Associate General 
Counsel, FICC (January 9, 2004).
    \9\ Initially, RTTM will support the current batch method of 
data input.
---------------------------------------------------------------------------

    The following is a summary of the key proposed rule changes needed 
to implement RTTM:
    [sbull] References to ``Contract Lists'' will be replaced with 
references to ``output'' or to ``information made available'' by NSCC 
to cover the additional types of output that could be generated by 
RTTM.
    [sbull] References to the names of specific instructions that 
participants may submit to resolve uncompared trades (e.g., ``Delete of 
Original Trade Input'') will be replaced with general references to 
``appropriate instructions'' to include similar instructions which have 
different names that may be submitted by interactive message users and 
RTTM Web users.\10\
---------------------------------------------------------------------------

    \10\ For example, in the current version of NSCC's procedures 
there is a reference to an instruction called a ``Delete of Original 
Trade Input'' that is used by batch participants to delete 
uncompared trade data they have submitted. Interactive message users 
and RTTM Web users will use an instruction called a ``Cancel'' to 
accomplish the same result. Therefore, references to ``Delete of 
Original Trade Input'' will be replaced by references to 
``appropriate instruction'' in order to cover the equivalent 
interactive message and RTTM Web instruction.
---------------------------------------------------------------------------

    [sbull] With respect to trades submitted for two-sided comparison 
processing, interactive message users and RTTM Web users will be able 
to modify their trades, subject to the timeframes and requirements 
imposed by NSCC from time to time, and will also be able to remove an 
unmatched trade from processing by sending an instruction indicating 
that they do not agree with the terms of a trade that has been 
submitted against them.\11\ Locked-in trade sources and syndicate 
managers that are interactive message users or RTTM Web users will also 
be able to modify their trade submissions.
---------------------------------------------------------------------------

    \11\ RTTM Web users will also be able to subsequently restore a 
trade to processing by submitting the requisite instruction.
---------------------------------------------------------------------------

    [sbull] RTTM will accept cash and next-day transactions for 
comparison-only processing.
    [sbull] RTTM will add an intraday money tolerance pursuant to which 
NSCC will compare a trade using the seller's contract amount if the 
contract amounts submitted by the buyer and seller are within a net $2 
difference for trades of $1 million or less or $2 per million for 
trades greater than $1 million.\12\ In addition, RTTM will compare a 
trade if trade data matches in all respects, including contract amounts 
which have been compared pursuant to the money tolerances, except for 
trade date. In this case, the earlier of the two trade dates submitted 
will be used. RTTM will not use the summarization process used to 
compare trades currently set forth in NSCC procedure II, section 
D.1(e).
---------------------------------------------------------------------------

    \12\ No changes are being proposed to NSCC's existing end-of-day 
money tolerance currently contained in procedure II, section D.1(a).
---------------------------------------------------------------------------

    [sbull] NSCC's rules and procedures will continue to provide that 
the submission of a locked-in trade or a syndicate takedown trade 
results in a compared trade. However, RTTM will provide members on 
behalf of whom locked-in and syndicate takedown trades are submitted 
(``LI/ST contrasides'') the option of submitting matching trade details 
for their internal reconciliation purposes. In order to facilitate the 
participants' internal reconciliation process, RTTM has been designed 
to issue output that indicates a status of ``unmatched'' or ``match 
request'' upon receipt of a locked-in or syndicate takedown trade. 
Notwithstanding the output indicating unmatched and match request, the 
proposed rule changes make clear that the submission of matching trade 
data by LI/ST contrasides will have no legal effect on the status of 
locked-in and syndicate takedown trades as compared trades. In 
addition, notwithstanding that output is made available by NSCC as a 
result of subsequent processing information submitted by LI/ST 
contrasides that are not specifically provided for in NSCC's rules and 
procedures, the proposed rule changes make clear that such submissions 
will have no legal effect and that RTTM has been designed to accept 
such submissions for participants' internal reconciliation purposes 
only.
    In addition to the above, NSCC is proposing the following 
additional technical changes and corrections:
    [sbull] References to the ``Automated Bond System'' (``ABS'') will 
be deleted because ABS trades submitted by the New York Stock Exchange 
are locked-in trades and are covered by provisions dealing with locked-
in trades. In addition, references to the ``AMEX Order File System'' 
will be deleted because that system is no longer operational.
    [sbull] Technical corrections will be made throughout the debt 
when-issued section of NSCC's procedure II, section E to clarify the 
submission requirements for a transaction to be treated as a when-
issued transaction. It should be noted that due to the systems 
development schedule, RTTM will not be available with respect to when-
issued corporate debt securities transactions upon implementation. NSCC 
will file a rule change pursuant to section 19(b)(3) of the Act and 
will notify members when the service becomes available for these 
transactions.
    [sbull] Technical corrections will be made to the use of the term 
``settlement date'' so that when referenced with upper case letters it 
means the settlement date as established by NSCC.\13\
---------------------------------------------------------------------------

    \13\ For example, if a trade is made on September 15 with a 
contract settlement date of September 18, but the trade does not 
match until September 18 or later, NSCC will provide the Settlement 
Date.
---------------------------------------------------------------------------

    NSCC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \14\ and the rules and 
regulations thereunder applicable to NSCC because it should permit the 
accurate clearance and settlement of securities by enabling NSCC to 
process fixed income trades more efficiently.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

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

    NSCC does not believe that the proposed rule changes 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 changes 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 35 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 90 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 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, 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.,

[[Page 2641]]

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-2003-15. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your 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 also will be available 
for inspection and copying at the principal office of NSCC and on 
NSCC's Web site at www.nscc.com/legal/.
    All submissions should refer to File No. SR-NSCC-2003-15 and should 
be submitted by February 6, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-952 Filed 1-15-04; 8:45 am]
BILLING CODE 8010-01-P