[Federal Register Volume 69, Number 55 (Monday, March 22, 2004)]
[Notices]
[Pages 13344-13345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6335]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49422; File No. SR-NSCC-2003-20]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Eliminate the 
Higher Capital Requirements Imposed on Members for Processing 
Investment Fund Transactions Through NSCC's Mutual Fund Services

March 16, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 9, 2003, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on October 22, 
2003, amended 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.
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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

    The purpose of the proposed rule change is to amend the standards 
of financial responsibility required for certain NSCC applicants and 
members using NSCC's Mutual Fund and Insurance Services. Specifically, 
the proposed rule change will delete Addendum V to NSCC's Rules thereby 
eliminating the higher capital requirements imposed on NSCC Mutual 
Fund/Insurance Services Members and Fund Members processing Investment 
Funds transactions through NSCC's Mutual Fund Services.

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.\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

    Mutual Fund Services are non-guaranteed services offered by NSCC 
under NSCC Rule 52. In November 2000, NSCC expanded the types of 
products eligible for processing through NSCC's Mutual Fund Services to 
include ``Investment Funds.'' \3\ An Investment Fund is defined in Rule 
1 of NSCC's Rules as a ``fund or investment entity subject to 
regulation under applicable federal and state banking and/or insurance 
laws.'' Examples of such funds include stable value funds, guaranteed 
investment contracts which are regulated as group annuities, and 
collective bank investment trusts.
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    \3\ Securities Exchange Act Release No. 43606 (November 21, 
2000), 65 FR 71182 (November 29, 2000) [File No. SR-NSCC-00-05].
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    NSCC adopted Addendum V, ``Financial Standards for Applicants and 
Participants Processing Investment Fund Transactions through Mutual 
Fund Services,'' in connection with making Investment Fund products 
eligible for processing at NSCC. Addendum V modified the standards of 
financial responsibility and operational capability set forth in 
Addenda B and I \4\ of NSCC's Rules to impose more stringent capital 
requirements on Mutual Fund/Insurance Services Members and Fund Members 
that process Investment Funds through NSCC's Mutual Fund Services. The 
more stringent financial standards were adopted because of NSCC's 
unfamiliarity with the product. Since its introduction, however, this 
service has been actively used and each day brings new requests by 
firms to become participants in order to take advantage of the 
services. NSCC has experienced no member defaults in the processing of 
Investment Funds through NSCC's Mutual Fund Services.
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    \4\ Addendum B applies to Mutual Fund/Insurance Services Members 
processing mutual funds through NSCC's Mutual Fund Services, and 
Addendum I applies to Fund Members processing mutual funds through 
NSCC's Mutual Fund Services.
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    NSCC has determined that the current financial standards are an 
unnecessary barrier to entry. Based on NSCC's experience to date, the 
stringency of the financial criteria applicable to members doing 
transactions in Investment Funds is not commensurate with the 
associated risks.
    Although NSCC is proposing to reduce the financial requirements 
imposed on all Mutual Fund/Insurance Services Member and Fund Member 
applicants and members seeking to process Investment Fund transactions 
at NSCC by deleting Addendum V, such applicants and members shall 
remain subject to the criteria set forth in Addenda B and I.
    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder applicable to NSCC because it will promote the 
prompt and accurate clearance and settlement of securities transactions 
by facilitating more direct access by NSCC members to NSCC Mutual Fund 
Services for Investment Funds.
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    \5\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC believes that the proposed rule change will not impose a 
burden on

[[Page 13345]]

competition not necessary or appropriate in furtherance of the purposes 
of the Act. The proposed rule change would remove a barrier to entry to 
and use of NSCC services for processing Investment Funds at NSCC 
thereby permitting additional entities to access and use NSCC directly 
for their processing of these products.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    NSCC has not solicited nor received written comments directly 
relating to the proposed rule change. Banks and trust company members 
that process mutual fund transactions at NSCC have informed NSCC that 
the stringent capital requirements of Addendum V preclude them from 
processing their Investment Fund transactions directly at NSCC and 
cause them to incur increased processing costs. These entities have 
requested that NSCC review the appropriateness of these criteria. NSCC 
will notify the Commission of any other 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 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., 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-2003-20. 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 http://www.nscc.com/legal/.
    All submissions should refer to File No. SR-NSCC-2003-20 and should 
be submitted by April 12, 2004.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-6335 Filed 3-19-04; 8:45 am]
BILLING CODE 8010-01-P