[Federal Register Volume 75, Number 212 (Wednesday, November 3, 2010)]
[Notices]
[Pages 67796-67798]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-27687]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63194; File No. SR-NSCC-2010-12]


Self-Regulatory Organizations; The National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Modify Procedures Related to the Automated Customer 
Account Transfer Service

October 27, 2010.
    Pursuant to Section 19(b)(4) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 15, 2010, The 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared primarily by NSCC. NSCC filed the proposal pursuant to Section 
19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-4(f)(4) \3\ thereunder so 
that the proposal was effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to modify NSCC's Rules 
so that in certain circumstances shares delivered to a Member through 
NSCC's Continuous Net Settlement System (``CNS'') would be allocated to 
a Member's buy-in delivery obligation in a security before being 
allocated to satisfy an Automated Customer Account Transfer Service 
(``ACATS'') delivery obligation in the same security.

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 such 
statements.\4\
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    \4\ The Commission has modified the text of the summaries 
prepared by NSCC.

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[[Page 67797]]

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change.

    NSCC's ACATS enables Members to effect automated transfers of 
customers' accounts among themselves.\5\ For ACATS transfers processed 
through CNS,\6\ long and short positions are passed against Members' 
positions at The Depository Trust Company (``DTC'') and available 
securities are delivered by book-entry movements from short Members' 
accounts at DTC and to long Members' accounts at DTC. On August 16, 
2010, the Commission approved enhancements to ACATS.\7\ Pursuant to 
Procedure VII of NSCC's Rules, except with respect to securities that 
are subject to certain corporate action events, Members with failing 
long positions in a particular security may issue a Notice of Intention 
to Buy-In (``Buy-In Notice'') that specifies a quantity of securities 
not exceeding such long positions that it intends to buy-in. Generally, 
deliveries of securities to fulfill CNS long positions, which represent 
securities NSCC owes Members, are processed in an order determined by 
an algorithm and are allocated to Members' long positions as they are 
received by NSCC. A Buy-In Notice affects the priority in which 
securities are allocated, and Members with long CNS positions that have 
issued Buy-In Notices have high priority to receive shares of the 
security. Members with short CNS positions, which represent securities 
those Members owe NSCC, are passed the liability for the shares subject 
to the Buy-In Notice and have the opportunity to deliver the shares to 
CNS to avoid being subject to a buy-in execution.
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    \5\ ACATS complements a Financial Industry Regulatory Authority 
(``FINRA'') rule requiring FINRA members to use automated clearing 
agency customer account transfer services and to effect customer 
account transfers within specified time frames.
    \6\ CNS is an ongoing accounting system which nets today's 
settling trades with yesterday's closing positions to produce a net 
short or long position for a particular security for a particular 
Member. NSCC is the counter party in all transactions. The positions 
are then passed against the Member's designated depository positions 
and available securities are allocated by book-entry movement. This 
allocation of securities is accomplished through an evening cycle 
followed by a day cycle. Positions which remain open after the 
evening cycle may be changed as a result of trades accepted for 
settlement that day. CNS allocates deliveries in both the night and 
day cycles using an algorithm based on such things as priority 
groups, age of position within a priority group, and random numbers 
within age groups.
    \7\ Securities Exchange Act Release No. 34-62726 (August 16, 
2010), 75 FR 162 (August 23, 2010) (SR-NSCC-2010-05).
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    Upon implementation of the enhancements to ACATS, deliveries or 
receives in a particular security processed through CNS will be deemed 
by NSCC to satisfy a Member's ACATS receive or deliver obligation 
before satisfying other CNS-related obligations for that Member in the 
same security. However, in the limited situation where a Member is 
receiving securities being delivered pursuant to a Buy-In Notice it has 
issued and that Member also has an ACATS receive obligation in that 
same security on that same day, deliveries of the security to the 
Member will first satisfy its ACATS receive obligation. Any remaining 
shares in the security being delivered to the Member will then be 
applied to satisfy the delivery obligation under the Buy-In Notice. If 
the number of remaining shares delivered in the security are 
insufficient to cover the obligation under the Buy-In Notice but do 
satisfy the delivering Member's CNS short position, then the delivering 
Member will be deemed to have satisfied its buy-in obligation. 
Consequently, if the receiving Member elects to execute the buy-in for 
the security as permitted in the Rules, NSCC as the central 
counterparty will have a market exposure in that security equal to the 
amount of shares that were first allocated to satisfy the ACATS 
delivery obligation.
    To address this scenario, NSCC is amending Procedure VII to make 
clear that for either (a) long positions against which a Buy-In Notice 
is due to expire that day but for which positions were not satisfied 
the previous day and (b) long positions against which a buy-in notice 
is due to expire the following day, deliveries of securities through 
CNS will be applied first to satisfy the buy-in delivery obligation for 
the security. Only after the buy-in delivery obligation is satisfied 
will shares in the security be deemed to satisfy any ACATS delivery 
obligation. Any additional shares delivered in the security will then 
be applied to remaining delivery obligations.\8\
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    \8\ The proposed changes to NSCC's Rules can be found in Exhibit 
5 to proposed rule change SR-NSCC-2010-12 at http://www.dtcc.com/downloads/legal/rule_filings/2010/nscc/2010-12.pdf.
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    NSCC intends to implement enhancement to ACATS as approved in 
Exchange Act Release 34-62726 \9\ and as modified by this proposed rule 
change on or about October 29, 2010. The date of implementation would 
be announced by Important Notice.
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    \9\ Supra note 7.
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    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \10\ and the rules and 
regulations thereunder applicable to NSCC because the proposed rule 
change would promote the prompt and accurate clearance and settlement 
of securities transactions, assure the safeguarding of securities and 
funds which are in its possession or control or for which it is 
responsible and, in general, protect investors and the public interest 
by modifying NSCC's Rules so that in certain circumstances shares 
delivered to a Member through CNS would be allocated to a Member's buy-
in delivery obligation in a security before being allocated to satisfy 
an ACATS delivery obligation in the same security.
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    \10\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments relating to the proposed rule change have not yet 
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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(iii) of the Act \11\ and Rule 19b-4(f)(4) \12\ thereunder 
because the proposed rule change effects a change in an existing 
service of a registered clearing agency that: (i) Does not adversely 
affect the safeguarding of securities or funds in the custody or 
control of the clearing agency or for which it is responsible and (ii) 
does not significantly affect the respective rights or obligations of 
the clearing agency or persons using the service. At any time within 
sixty days of the filing of such rule change, the Commission summarily 
may suspend such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. If the Commission takes such action, the Commission shall 
institute proceedings to determine whether the proposed rule should be 
approved or disapproved.
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    \11\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \12\ 17 CFR 240.19b-4(f)(4).

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[[Page 67798]]

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

     Electronic comments may be submitted by using the 
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or
     Send an e-mail to [email protected]. Please include 
File No. SR-NSCC-2010-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2010-12. 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 Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filings also will be available for 
inspection and copying at the principal office of NSCC and on NSCC's 
Web site at http://www.dtcc.com/downloads/legal/rule_filings/2010/nscc/2010-12.pdf.
    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-2010-12 
and should be submitted on or before November 24, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-27687 Filed 11-2-10; 8:45 am]
BILLING CODE 8011-01-P