[Federal Register Volume 75, Number 181 (Monday, September 20, 2010)]
[Notices]
[Pages 57318-57321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23372]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62882; File No. SR-NSCC-2010-09]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Regarding the
Creation of a Universal Trade Capture Application and Automated Special
Representative Facility
September 10, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 30, 2010, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') and on September 9,
2010, amended the proposed rule change described in Items I and II
below, which Items have been prepared primarily by NSCC. The Commission
is publishing this notice to solicit comments on the 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 proposed rule change would modify NSCC's rules and procedures
regarding the creation of a Universal Trade Capture application and an
automated Special Representative facility.
[[Page 57319]]
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Universal Trade Capture (``UTC'')
i. Background
Since the 1970s, NSCC has provided a framework for the clearance
and settlement of transactions executed on national securities
exchanges and in the over-the-counter (``OTC'') market through its
``Comparison and Trade Recording Operation.'' \2\ A Regional Interface
Operation (the ``Interregional Interface Service'' or ``RIO'') was
established in 1974 through National Clearing Corporation (one of
NSCC's predecessor organizations) that permitted participating
registered clearing corporations to provide for settlement of
transactions in listed securities in the OTC market.\3\ Due to efforts
to promote straight-through processing, markets have assumed
responsibility for trade comparison (i.e., matching the buy and sell
side of a securities transaction) at the point of trade and submit the
compared transaction to NSCC for trade recording purposes (i.e., the
transaction details have already been compared and the transaction is
submitted to NSCC on a ``locked-in'' basis).
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\2\ On separate platforms, NSCC also provides services
supporting mutual funds, alternative investments, and insurance
products in addition to providing various other services.
\3\ In 1983, the service was further expanded to facilitate the
settlement of transactions that had been confirmed and affirmed
through the facilities of a registered securities depository.
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ii. Trade Comparison and Recording Operation
Transaction data is for the compared trades submitted to NSCC on a
locked-in basis by self-regulatory organizations (``SROs'') and
Qualified Special Representatives (``QSRs'') on behalf of their members
for the purpose of trade recording with purchaser and seller trade
details compared by the SRO or QSR prior to submitting the information
to NSCC. NSCC validates and records the transaction and reports the
details back to the SRO, QSR, and member, as appropriate. NSCC also
provides a Comparison Operation for its members whereby the
purchasering and selling members may submit transactions that NSCC
validates, compares, and reports back to the members. Compared and
recorded trades are subsequently routed to the Continuous Net
Settlement (``CNS'') Accounting Operation, the Balance Order Accounting
Operation, or the Foreign Security Accounting Operation, as applicable.
NSCC makes transaction details available to members, SROs, and QSRs on
either a real-time, intra-day, or end-of-day basis.
As NSCC's systems for receipt of input and generation of output
have developed, depending upon the transaction and the originating
entity, different reporting formats for both input and output may be
utilized. There is currently no standard common record that is utilized
by all market places or members.
iii. Regional Interface Operation
Originally, each participating clearing corporation had the
opportunity to provide its own system for comparison. Inter-clearing
corporation (``RIO'') trades had to be compared by one of the two
clearing corporations involved in the RIO transaction, and an inter-
clearing corporation had to be one side to each RIO trade. Over time,
as organizations discontinued providing clearance and settlement
services for their members and as those members ultimately became
direct NSCC members or entered into clearing arrangements with other
NSCC members, the reporting and settlement of trades submitted to NSCC
changed.
With the discontinuance of the RIO service, NSCC nevertheless
continued to accept trade input from regional exchanges and other
marketplaces using the RIO formats. The formats used by regional
exchanges for the submission of transaction data to NSCC are generally
the same as the formats that had been used for information processed
through the interface operation and continue to commonly be referred to
as ``RIO.'' Consequently, references today to ``RIO'' are not in
reference to services previously provided under the interface service
but rather to information received by NSCC in connection with NSCC's
trade recording and trade reporting.
iv. Proposed Changes
The proposed rule change will amend NSCC's rules to accommodate the
UTC application, which will standardize, streamline, consolidate, and
modernize NSCC's existing legacy trade capture applications
(specifically, with respect to trade recording applications within
NSCC's Trade Comparison and Recording Operation) to create a more
efficient and centralized process. The UTC application will accept and
process a common input record from all marketplaces and will provide
for receipt and reporting of data in both real-time and intraday-batch
submissions to and from members and SROs.
UTC will replace all current locked-in OTC and listed trade capture
applications with one central real-time validation and reporting
process. UTC will have the capability to accept or reject, validate,
process, and send contract output to members in real-time. Members will
only have to support one standardized input and output format.
As further described below, trade data will be received from
markets in real-time and in batch. NSCC will convert the existing input
format to the new UTC input record format, which will enable the UTC to
provide members and SROs with their trade output in the format of their
choice (new or old).\4\
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\4\ See below, Section II.A.4. ``Implementation Timeframe.''
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As part of this effort, NSCC will also provide for enhancements to
its Correspondent Clearing Service and QSR processing as further
described below.
2. Automated Special Representative Facility for Special
Representatives and Qualified Special Representatives
i. Background
NSCC's Correspondent Clearing Service is designed to provide an
automated method by which a member acting as a Special Representative
may move an obligation (a position) that is in the process of clearance
at NSCC to the account of another member (its correspondent) on whose
behalf the original trade was executed.\5\
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\5\ The term ``original trade'' is used within Correspondent
Clearing solely to distinguish between trades executed in the
marketplace by the Special Representative and transactions booked
for accounting purposes to accommodate the movement of positions
between members as provided for in NSCC Procedure IV. Correspondent
Clearing is not a mechanism for original trade submission.
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ii. Proposed Changes
(a) Expanding Permitted Use of Service
Currently, NSCC's rules provide the Correspondent Clearing Service
may only be used in the following situations: (a) To accommodate a
member with
[[Page 57320]]
multiple affiliate accounts that wishes to move a position resulting
from an ``original trade'' in the process of clearance from one
affiliate account to another and (b) to accommodate a member that
relies on its Special Representative to execute a trade in a market
that the member is precluded due to membership requirements (e.g.,
membership requirement for access to markets) or applicable regulation
in order to enable the resulting position to be moved from the Special
Representative to that member.
Since it is not uncommon that members utilize the services of other
broker-dealers to execute trades in markets where they are members in
order to facilitate their trading strategies, NSCC proposes to modify
its rules to provide that the Correspondent Clearing Service may be
utilized by members to accommodate a member that relies on its Special
Representative to execute a trade in any market regardless of whether
that member maintains direct access to that market to enable the
resulting position to be moved from the Special Representative to that
member.
(b) Creation of an Automated Special Representative Facility
Historically, members participating in the Correspondent Clearing
Service and those utilizing the services of a QSR for the submission of
original, locked-in trade data have been required to complete and remit
to NSCC specific agreements for each relationship established. For
example, in Correspondent Clearing, one member completes documentation
(commonly referred to as Form 9a--Application for Status as a Special
Representative) by which it applies to NSCC for status as a Special
Representative to submit transactions on behalf of a specified member,
i.e., the Correspondent. The Correspondent must also complete and
submit to NSCC documentation (commonly referred to as a Form 9b--
Special Representative Consent) by which it consents to the
establishment of that relationship. For QSR relationships, members
submit Forms 9a and Form 9b along with an additional form that is
specific to the QSR system being utilized (commonly referred to as an
``Attachment 1''). NSCC then establishes these relationships on its
internal masterfile. NSCC subsequently terminates these relationships
at the direction of either party.
To assist members in controlling and monitoring their Special
Representative and Qualified Special Representative relationships, NSCC
proposes to create an automated, online, and secure facility by which
members themselves may establish, monitor, and maintain these
relationships. Both the Special Representative Member and the
Correspondent Member would have to submit matching instructions within
the facility in order for the relationship to be established. Either
party could submit a single entry to retire the relationship.
Members will be reminded, through formatting within the facility,
of their existing and unchanged obligations under NSCC's rules with
respect to utilizing these services--namely, that by establishing the
relationship within the facility both members continue to be bound by
NSCC's rules, the Correspondent is bound by the details of all
transactions submitted on their behalf by the Qualified Special
Representative (or Special Representative as the case may be), and any
errors or omissions or disputes relating to such relationships and
related transactions must be resolved directly between the parties.
The establishment of relationships through the automated facility
shall meet the written notice requirements for such services as
otherwise set forth within NSCC's rules and procedures. Members will no
longer be required to submit signed forms to NSCC for these processes.
3. Rule Modifications
As the UTC functionality will provide for processing of a common
input or output record from or to all marketplaces (validating the
transaction and providing for real-time message output to members and
SROs), NSCC proposes to modify its rules to make conforming changes to
reflect a single procedure or process for the submission and reporting
of transaction data to and from SROs and members. References and
provisions within the rules that pertained to the now obsolete RIO
Service will be eliminated. In addition, NSCC will modify its rules to
provide for an automated online functionality for the establishment and
retirement of Special Representative and Qualified Special
Representative relationships.
Accordingly, NSCC proposes to amend the following rules and
procedures as set forth in Exhibit 5 to its filing: Rule 7 (Comparison
and Trade Recording Operation); Rule 40 (Interregional Interface
Service); Procedure II (Trade Comparison and Recording Service);
Procedure III (Trade Recording Service--Interface Clearing Procedures);
and Procedure IV (Special Representative Service).\6\
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\6\ In addition, the following Rules and Procedures will be
generally modified to make conforming changes: Procedure VII (CNS
Accounting Operation)--modified to conform an existing rule cross
reference to a renamed Procedure; Procedure X (Execution of Buy-Ins)
modified to eliminate references to regional accounts; Procedure
XIII (Definitions), modified to remove a defined and now obsolete
term ``Qualified Non-Participant;'' Procedure V (Balance Order
Accounting Operation); Procedure VI (Foreign Security Accounting
Operation); Addendum A (Fee Schedule)--modified to delete obsolete
regional/inter-clearing corporation references; Addendum J
(Statement of Policy--Locked-In Data from Service Bureaus)--modified
to correct a preexisting erroneous reference to Section 5 of Rule 7
where it should have referenced Section 6 of that Rule; Addendum K
(Interpretation of the Board of Directors--Application of Clearing
Fund)- modified to reflect specific reference to T Contracts, and
Addendum N (Interpretation of the Board of Directors--Locked-In Data
from Qualified Special Representatives)--modified to conform an
existing rule cross reference to renumbered procedure subsection.
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4. Implementation Time Frame
Subject to Commission approval, NSCC will implement the above
changes by January 31, 2011.
With respect to UTC changes and to support the migration period,
NSCC will provide a conversation process to support those markets that
are not yet ready to submit transaction data in the new common input
format (i.e., NSCC will accept data in the old format and convert data
into the new UTC format). The conversion process will enable NSCC to
offer members and SROs the new output format regardless of whether the
market has converted to the new standard. UTC will continue to support
all existing interfaces with markets, members, and SROs with respect to
trade input and output.
To support maximum flexibility in allowing firms to migrate to the
new input and output formats according to their own schedules, NSCC
will continue to support all existing interfaces with markets,
Member's, SRO's and regulatory agencies for a period of time after UTC
is implemented.
NSCC will establish a plan for the retirement of all legacy input
and output formats and by the end of the first quarter of 2012 will
reassess the status of those firms utilizing legacy formats. At that
time, NSCC will work with any members, SROs, and regulatory agencies
that have not yet converted from legacy reporting, thereby affording
such firms sufficient lead time for migration.
NSCC states that the proposed rule change will provide for
additional efficiencies to NSCC and its participants while maintaining
safe and secure operation and that the proposed rule change facilitates
the prompt and
[[Page 57321]]
accurate clearance and settlement of securities. NSCC further states
that the proposal is consistent with the CPSS/IOSCO Recommendations for
Central Counterparties (specifically Recommendation 12) in that in
addition to the additional efficiencies noted above, the UTC will also
provide for cost-effectively meeting the requirements of NSCC's
members.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC believes that the proposed rule change will not impose any
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
NSCC has not solicited or received written comments relating to the
proposed rule change. NSCC will notify the Commission of any written
comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 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 90 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 or disapprove 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 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-2010-09 on the subject line.
Paper comments should be sent 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 No. SR-NSCC-2010-09. 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 Room, 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 filing also will be available for
inspection and copying at NSCC's principal office and NSCC's Web site
(http://www.dtcc.com/legal/rule_filings/nscc/2010.php). 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 No. SR-NSCC-2010-09 and should be
submitted October 12, 2010.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23372 Filed 9-17-10; 8:45 am]
BILLING CODE 8010-01-P