[Federal Register Volume 72, Number 185 (Tuesday, September 25, 2007)]
[Notices]
[Pages 54498-54499]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-18825]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56468; File No. SR-NSCC-2007-11]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Allow As-of Fixed 
Income Trades To Be Processed in the Continuous Net Settlement System

 September 19, 2007.

I. Introduction

    On July 12, 2007, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2007-11 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 August 
20, 2007.\2\ The Commission received no comment letters. 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. 56250(August 14, 2007), 
72 FR 46528.
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II. Description

    NSCC is modifying its procedures to allow as-of fixed income trades 
to be

[[Page 54499]]

processed in NSCC's Continuous Net Settlement (``CNS'') system.
    When NSCC revised and updated CNS in 2004 (referred to as the ``CNS 
Rewrite''), it provided the capability on any settlement day to take in 
and process transactions due for settlement that day provided the 
trades are recorded or compared prior to an established cut-off time in 
the morning.\3\ This capability is currently provided for as-of equity 
transactions but has not yet been expanded to as-of fixed income 
transactions.\4\ Rather, settlement of as-of fixed income corporate 
debt, municipal, and unit investment trust (``UIT'') trades (corporate 
debt, municipal, and UIT trades are collectively referred to as ``CMU'' 
trades) compared on or after their designated settlement date currently 
occurs on the business day following the day they are compared. Given 
that settlement risks associated with CMU trades would be reduced if 
they settled on an accelerated basis in the same manner that as-of 
equity trades are settled, NSCC is enhancing its fixed income 
processing to permit same day settlement of as-of fixed income 
transactions.\5\ To accomplish this, NSCC is amending Procedure II 
(Trade Comparison and Recording Service) so that CNS-eligible as-of CMU 
trades matched on or after their originally designated settlement date 
will be processed in CNS on the day they are submitted for comparison 
so long as they compare prior to the cut-off time established for same 
day settlement, which currently is 11:30 a.m.\6\ As-of trades not 
eligible for CNS processing will settle on a trade-for-trade basis. 
Trades that match after the designated cut-off time will continue to be 
assigned a settlement date of the next business day.
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    \3\ Securities Exchange Act Release No. 50026 (July15, 2004), 69 
FR 43650 [File No. SR-NSCC-2004-01].
    \4\ NSCC's systems did not have the capacity forsame day 
settling trades for fixed income transactions in 2004.
    \5\ The settlement of cash and next day CMU tradeswhich are 
compared by NSCC will continue to be the responsibility of the 
parties to the trades.
    \6\ In addition, references in Procedure VII (CNSAccounting 
Operation) that currently note that debt securities are not eligible 
for such accelerated settlement will be removed.
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    In addition, because these trades are effectively guaranteed upon 
comparison, risk associated with the trades will be mitigated through 
the existing component of the Clearing Fund formula, as set forth in 
Procedure XV (Clearing Fund Formula and Other Matters), that is 
designed to mitigate the risk to NSCC associated with trades that are 
processed on a settlement cycle shorter than three days. Under this 
component, activity specified for a shortened settlement cycle is 
isolated, and a charge is calculated.\7\
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    \7\ The component calculates a charge based on theaverage of a 
member's charges for the specified activity on the three days with 
the highest charges calculated for the specified activity over the 
most recent twenty day period. Securities Exchange Act Release No. 
54816 (November 27, 2006), 71 FR 69604 [File No. SR-NSCC-2006-09].
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III. Discussion

    Section 19(b) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization. Section 17A(b)(3)(F) of the Act requires that the rules 
of a clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions.\8\ The Commission 
believes that NSCC's rule change is consistent with this Section 
because it should facilitate the prompt and accurate clearance and 
settlement of securities by increasing automated trade processing and 
by expanding the types of trades eligible for CNS netting and NSCC 
settlement.
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    \8\ 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. In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-2007-11) be and hereby 
is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-18825 Filed 9-24-07; 8:45 am]
BILLING CODE 8010-01-P