[Federal Register Volume 70, Number 14 (Monday, January 24, 2005)]
[Notices]
[Pages 3413-3414]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-219]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51035; File No. SR-NSCC-2004-07]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Amend the 
Membership Standards Required of Insurance Companies

 January 13, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 26, 2004, 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.
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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 this proposed rule change is to amend NSCC's Rules 
regarding the membership standards required of insurance companies.

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

    The proposed rule change amends NSCC's Rules regarding the 
membership standards required of insurance companies. As a general 
matter, the current membership standards for insurance companies are 
based in part on ratings provided by rating agencies. The proposed rule 
replaces these standards in relevant part by a measure

[[Page 3414]]

based on Risk-Based Capital (``RBC'') ratios.
    The RBC model was developed by the National Association of 
Insurance Commissioners (``NAIC''), the organization of insurance 
regulators from the 50 states, the District of Columbia, and the four 
U.S. territories. State insurance regulators created the NAIC in 1871 
to address the need to coordinate regulation of multistate insurers. 
The NAIC has developed uniform financial reporting by insurance 
companies and an RBC model to measure the minimum amount of capital 
that an insurer needs to support its overall business operations based 
on the degree of risk taken by the insurer and to protect the 
policyholders and business against adverse developments. Currently 
substantially all of the U.S. state insurance jurisdictions have 
adopted laws, regulations, or bulletins that are considered to be 
substantially similar to the NAIC's RBC for Insurers Model Act for life 
insurers.
    The calculation of the RBC ratio is based on an insurer's Total 
Adjusted Capital (``TAC''). TAC is comprised primarily of capital plus 
surplus divided by a capital level determined by the RBC formula called 
the Authorized Control Level Risk-Based Capital (``ACL RBC''). The ACL 
RBC is comprised of asset risk, credit risk, underwriting risk, and 
business risk.
    In general, state regulatory authorities require no corrective 
action so long as an insurance company maintains an RBC ratio over 
200%. NSCC proposes that its membership requirement would be an RBC 
ratio of 250%, as derived from financial data reported by the insurance 
company to its state regulatory authority as part of its annual 
statutory financial statements. All current insurance company members 
of NSCC would meet the proposed 250% requirement.
    Insurance companies would be required to submit the relevant data 
to NSCC on an annual basis at which time their compliance with the 
minimum standard will be reviewed by NSCC. In addition, any insurance 
company that fell below the 250% ratio during the course of the year 
would be required to notify NSCC immediately of this fact.
    NSCC believes that the RBC standard is preferable to the existing 
NSCC requirements of using third-party ratings for the following 
reasons. First, the RBC standard accurately represents the financial 
strength of an insurer because the RBC system is based on statutory 
financial statements, taking into account asset risks, credit risks, 
underwriting and pricing risks, and the risk that the return from 
assets are not aligned with the requirements of the company's 
liabilities and general business risk. Second, the RBC standard is the 
industry benchmark. Third, the information needed to calculate the RBC 
ratio is readily available in the statutory financial statements, which 
are to be provided to NSCC annually.
    NSCC's membership standards are intended to protect NSCC and its 
members from undue risk while providing broad access to NSCC services. 
Because the proposed rule change relates to the standards of financial 
responsibility applicable to insurance companies, NSCC believes that it 
will assist NSCC in assuring the safeguarding of funds and securities 
in NSCC's control or for which NSCC is responsible. For this reason, 
NSCC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act \3\ and the rules and 
regulations thereunder applicable to NSCC.
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    \3\ 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 competition not necessary or appropriate in furtherance of 
the purposes of the Act.

(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 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml) or
     Send an e-mail to [email protected]. Please include 
File Number SR-NSCC-2004-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-NSCC-2004-07. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NSCC-2004-07 and should be 
submitted on or before February 14, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).

J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E5-219 Filed 1-21-05; 8:45 am]
BILLING CODE 8010-01-P