[Federal Register Volume 72, Number 19 (Tuesday, January 30, 2007)]
[Notices]
[Pages 4320-4321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1381]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55157; File No. SR-NSCC-2006-12]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Approval to Proposed Rule Change Relating 
to Buy-Ins of Municipal Securities

January 23, 2007.

I. Introduction

    On October 16, 2006, the National Securities Clearing Corporation 
(``NSCC'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to modify NSCC's rules concerning buy-ins of 
municipal securities. The proposed rule change was published for 
comment in the Federal Register on December 14, 2006.\3\ No comment 
letters were received on the proposal. This order approves the 
proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 54900 (Dec. 8, 2006), 71 
FR 75286.
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II. Description of the Proposal

    The purpose of this filing is to amend NSCC's rules to streamline 
the processing of continuous net settlement (``CNS'') buy-ins of 
municipal securities. At the request of members and after consultation 
with the Buy-In Subcommittee of the Securities Industry Association, 
NSCC is modifying Rule 11 (CNS System), Procedure VII (CNS Accounting 
Operation), and Procedure X (Execution of CNS Buy-Ins) with respect to 
CNS buy-ins of municipal securities as set forth below.
    Executions of buy-ins of municipal securities are governed by the 
rules of the Municipal Securities Rulemaking Board (``MSRB'') and have 
a ten-day cycle from notification of intent to buy-in to buy-in 
execution. In contrast, buy-ins for equity and corporate bond 
securities have a two-day cycle.
    Under NSCC's rules (except with respect to securities subject to 
voluntary corporate reorganizations), an NSCC member that has a long 
CNS position at the end of any day (``originator'') may submit to NSCC 
a Notice of Intention to Buy-In (``Buy-In Notice'') specifying a 
quantity of securities not exceeding such long CNS position that it 
intends to buy-in (``Buy-In Position''). The day the Buy-In Notice is 
submitted is referred to as N and the succeeding days are referred to 
as N+1 and N+2. The Buy-In Position is given high priority for CNS 
allocations until expiration of the buy-in.
    While increased priority is provided to facilitate the allocation 
of the Buy-In Position in CNS, municipal securities are usually thinly 
traded and the increased allocation priority has not been generally 
effective in accelerating the delivery process. Accordingly, when a 
municipal security Buy-In Position is not satisfied by a CNS 
allocation, the long member must have its Buy-In Position exited from 
CNS in order to be able to proceed under MSRB rules, which entails 
issuing a new buy-in notice and then waiting an additional ten days 
before executing the buy-in. As a result, a member typically will 
request that NSCC exit the municipal security Buy-In Position from CNS, 
and NSCC will exit the municipal security from CNS, which results in 
receive and deliver obligations for the affected parties two days 
later.
    To assist members in their timely processing of buy-ins of 
municipal securities, NSCC is modifying its rules and procedures to 
automatically exit from CNS unsatisfied municipal security Buy-In 
Positions. Under the new procedures, CNS will automatically exit such 
positions prior to the night cycle on N+1. This will create a broker-
to-broker close-out receive and deliver obligation between the member 
with the long CNS position and the member(s)

[[Page 4321]]

with the oldest short CNS position(s). Thus, the Buy-In Position will 
be automatically exited from CNS one day earlier than is currently the 
case and the buy-in process under MSRB rules can likewise commence one 
day earlier.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a registered clearing agency. In particular, 
the Commission believes the proposal is consistent with the 
requirements of Section 17A(b)(3)(F),\4\ which among other things, 
requires the rules of a clearing agency to promote the prompt and 
accurate clearance and settlement of securities transactions. By 
automating and accelerating the exiting of unsatisfied municipal 
securities Buy-In Positions, the new rule should expedite and make more 
efficient the processing of municipal securities buy-ins. As a result, 
the new rule should promote the prompt and accurate clearance and 
settlement of such securities transactions.
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    \4\ 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 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of Section 17A of the Act \5\ and the 
rules and regulations thereunder.
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    \5\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-NSCC-2006-12) be, 
and hereby is, approved.\7\
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    \6\ 15 U.S.C. 78s(b)(2).
    \7\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1381 Filed 1-29-07; 8:45 am]
BILLING CODE 8011-01-P