[Federal Register Volume 69, Number 82 (Wednesday, April 28, 2004)]
[Notices]
[Page 23246]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9630]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49598; File No. SR-NSCC-2003-20]


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

April 22, 2004.

I. Introduction

    On October 9, 2003, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') and on October 22, 2003, amended proposed rule change 
SR-NSCC-2003-20 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 March 22, 2004.\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. 49422 (March 16, 2004), 
69 FR 13344.
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II. Description

    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 deletes 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.
    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.
    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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    \3\ Securities Exchange Act Release No. 43606 (November 21, 
2000), 65 FR 71182 (November 29, 2000) [File No. SR-NSCC-00-05].
    \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 reducing 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.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible.\5\ The Commission finds that NSCC's 
proposed rule change is consistent with this requirement because while 
it is reducing the financial requirement imposed on Mutual Fund/
Insurance Services Members and Fund Members, it should not affect 
NSCC's ability to protect itself against the risk of member default.
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    \5\ 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-2003-20) be and hereby 
is approved.

    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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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 04-9630 Filed 4-27-04; 8:45 am]
BILLING CODE 8010-01-P