[Federal Register Volume 73, Number 140 (Monday, July 21, 2008)]
[Notices]
[Pages 42390-42391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16594]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58160; File No. SR-NSCC-2007-07]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Restructure Its 
Rules Relating to Fines and To Harmonize Them With Similar Rules of Its 
Affiliates

July 15, 2008.

I. Introduction

    On April 30, 2007, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission''), and on December 10, 2007, and February 12, 2008, 
amended proposed rule change SR--NSCC-2007-07 pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ The 
proposed rule change was published for comment in the Federal Register 
on April 22, 2008.\2\ 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\ Securities Exchange Act Release No. 57667 (Apr. 15, 2008), 
73 FR 21677.
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II. Description

    The proposed rule change restructures the NSCC rules related to 
fines and where practicable or beneficial harmonizes them with similar 
rules of NSCC's affiliates, The Depository Trust Company (``DTC'') and 
the Fixed Income Clearing Corporation (``FICC'').\3\
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    \3\ DTC and FICC have filed similar proposed rule changes. 
Securities Exchange Act Release No. 57665 (Apr. 15, 2008), 73 FR 
21673 [SR-DTC-2007-05]. Securities Exchange Act Release No. 57666 
(Apr. 15, 2008), 73 FR 21675 [SR-FICC-2007-05].
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A. Fines Scheduled for Failure To Submit Financial and Other 
Information

    NSCC members are assessed fines for failure to submit required 
financial, regulatory, and other information within the time frame 
established by NSCC. As part of the effort to harmonize its rules with 
its affiliates, NSCC is adopting the fine schedule currently used by 
FICC for this purpose. Pursuant to its filing, members will be fined 
$300, $600, and $1,500 for their first, second, and third occasion of 
failing to timely provide financial, regulatory, and other related 
information. NSCC is also changing the footnotes of this section of the 
applicable fine schedule to make certain clarifications, including that 
the determination of the fine amount after the fourth or more occasion 
of an offense within a twelve month rolling period will be made by the 
Board of Directors.\4\
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    \4\ Under NSCC rules, the terms ``Board'' or ``Board of 
Directors'' mean the Board of Directors of NSCC or a committee 
thereof acting under delegated authority.
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    Often a member that is fined is a common member of NSCC and FICC, 
NSCC and DTC, or NSCC, FICC, and DTC, (collectively the ``Clearing 
Agencies'') which would cause the member to incur multiple penalties 
for the same offense.\5\ When a common member of the Clearing Agencies 
is late in providing the same information to more than one Clearing 
Agency, the fine amount will be divided equally among the Clearing 
Agencies, as appropriate.\6\
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    \5\ DTC does not currently maintain a fine schedule with respect 
to late submission of required financial, regulatory, or other 
information. However, DTC has filed a proposal to adopt a fine 
schedule similar to the one NSCC is adopting. Supra note 3.
    \6\ For example, if a firm is a member of NSCC and FICC, did not 
submit its annual audited financial statements within the required 
time frame, and this was the firm's first failure to meet the 
deadline, the $200 fine will be split equally between NSCC and FICC.
    Where the member is a participant of DTC and also a member of 
one or more of the other Clearing Agencies, the fine would be 
collected by DTC and allocated equally among the other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member of NSCC and FICC, NSCC will collect the fine 
and allocate the appropriate portion to FICC.
    The Clearing Agencies do not view the proposed rule changes as 
fee reductions, because they never intended to charge a common 
member multiple times for a single violation.

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[[Page 42391]]

B. General Continuance Standards

    NSCC's rules currently require a member to promptly notify NSCC of 
the member's non-compliance with general member continuance standards 
but do not set forth a specific time frame in which to do so and do not 
provide for the imposition of a fine for not promptly notifying NSCC. 
In the interest of harmonizing this provision with a similar FICC 
provision, NSCC is: (a) Requiring the member to make such a 
notification within two business days; (b) requiring the member to 
notify NSCC within the two-day time frame if it becomes subject to a 
statutory disqualification; and (c) subjecting the member to a $1,000 
fine for failure to timely notify NSCC.
    NSCC also currently imposes a fine in the amount of $5,000 if an 
applicable member fails to notify NSCC of a material change to its 
business. Pursuant to NSCC's rules, a material change currently 
includes a merger or acquisition involving the member; a change in 
corporate form; a name change; a material change in ownership, control, 
or management; and participation as a defendant in litigation which 
reasonably could be anticipated to have a direct negative impact on the 
member's financial condition or ability to conduct its business. For 
uniformity with similar FICC provisions, NSCC is amending its rules so 
that notice of such events must be provided at least ninety calendar 
days prior to the effective date of such event unless the member 
demonstrates that it could not have reasonably given notice within that 
time frame.
    With respect to both fines, NSCC is amending its rules to reflect 
that when a common member of the Clearing Agencies is late in providing 
the same information to more than one Clearing Agency, the fine amount 
will be divided equally among the Clearing Agencies.\7\
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    \7\ DTC does not currently maintain a fine in this regard. 
However, DTC has filed a proposal to adopt a fine schedule similar 
to the one NSCC is proposing to adopt. Supra note 3.
    Where the Member is a participant of DTC and is a common member 
of one or more of the other clearing agencies, the fine would be 
collected by DTC and allocated equally among other clearing 
agencies, as appropriate. If the member is not a DTC participant, 
but is a common member between NSCC and FICC, NSCC will collect the 
fine and allocate the appropriate portion to FICC.
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C. Fine Schedule for Late Clearing Fund Deficiency Payments

    NSCC members are subject to fines for late payments of Clearing 
Fund deficiency calls. NSCC is amending the footnote to this section of 
its fine schedule to correspond with that of FICC's fine schedule as 
proposed by FICC in a separate rule filing.\8\ If the number of 
occasions of late Clearing Fund deficiency call payments within a 
three-month rolling period exceeds four, NSCC will obtain the Board's 
concurrence for the fine amount. Furthermore, a late payment of more 
than one hour will result in a fine equal to the amount applicable to 
the next highest occasion for the specific deficiency amount.\9\ If a 
member is late for more than one hour and it is the member's fourth 
occasion in the rolling period, NSCC will obtain the Board's 
concurrence for the fine amount.
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    \8\ Supra note 3.
    \9\ For example, if a firm's deficiency amount is under 
$1,000,000, it is the firm's second occurrence of late satisfaction 
of a deficiency call in the rolling three-month period, and the firm 
is late by more than one hour, the firm would be fined $200 (i.e. , 
the fine for a third occasion) instead of $100 (i.e. , the fine for 
a second occasion) pursuant to the proposed fine schedule.
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D. Fine Schedule for Late Settlement Payments

    The Clearing Agencies currently have provisions for fines for late 
payment of settlement obligations. NSCC is amending the footnote in 
this section of its fine schedule to correspond with those of the other 
Clearing Agencies. If the number of occasions of late settlement 
payments within the rolling three-month period exceeds four, NSCC will 
obtain the Board's concurrence for the fine amount.\10\ Furthermore, a 
payment late by more than one hour will result in a fine equal to the 
amount applicable to the next highest occasion for the specific 
deficiency amount. If a member is late by more than one hour and it is 
the member's fourth occasion in the rolling three-month period, NSCC 
will obtain the Board's concurrence for the fine amount.
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    \10\ This change requires the removal of language granting NSCC 
discretion over the fine amount upon consultation with the settling 
bank only member, member, mutual fund/insurance services member, or 
fund member.
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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),\11\ which, among other things, 
requires that the rules of a clearing agency are designed to remove 
impediments to and perfect the mechanisms of a national system for the 
prompt and accurate clearance and settlement of securities transactions 
and with the requirements of Section 17A(b)(3)(H) \12\ which, among 
other things, requires that the rules of a clearing agency provide a 
fair procedure with respect to the disciplining of participants and the 
denial of participation to any person seeking to be a participant. The 
Commission finds that the proposed rule change, which restructures and 
harmonizes NSCC's fines with those of DTC and FICC, is consistent with 
those statutory obligations.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 15 U.S.C. 78q-1(b)(3)(H).
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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 \13\ and the 
rules and regulations thereunder.
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    \13\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (File No. SR-NSCC-2007-07) be, 
and hereby is, approved.\15\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ 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 Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-16594 Filed 7-18-08; 8:45 am]
BILLING CODE 8010-01-P