[Federal Register Volume 75, Number 192 (Tuesday, October 5, 2010)]
[Notices]
[Pages 61536-61538]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-24884]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63005; File No. SR-NSCC-2010-10]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To clarify Its Rules & Procedures Regarding Its Alternative
Investment Product Service
September 29, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 20, 2010, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II, and III below, which Items have
been prepared primarily by NSCC. NSCC filed the proposed rule change
pursuant to Section 19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-
4(f)(4) thereunder \3\ 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 proposed rule change amends NSCC's rules to clarify that an
Alternative Investment Product (``AIP'') Service prospective member is
not required to designate a settling bank in order to become an AIP
member.
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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. AIP Service
In 2007, NSCC filed a rule change with the Commission that
established the AIP Service, which is a processing platform for
alternative investment products such as hedge funds, fund of hedge
funds, commodities pools, managed futures, and real estate investment
trusts.\4\ The AIP Service provides for settlement of related payments
(``AIP Payments'') such as subscriptions and redemptions, activity,
distributions, and commissions for AIPs. The AIP Service also supports
communication of information and settlement of AIP Payments between the
AIP Manufacturer \5\ and the AIP Distributor \6\ to facilitate
processing of subscriptions and purchases, tenders and redemptions,
dividends and distributions, commissions and fees, positions reporting,
product information, account maintenance, automated transmission of
imaged
[[Page 61537]]
documents, and such other services as NSCC may determine from time to
time. AIP Members may transmit data in connection with transactions for
which the payments are made outside of NSCC or are made through NSCC at
their option.
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\4\ Securities and Exchange Act Release No. 57813 (May 12,
2008), 73 FR 28539 (May 16, 2008).
\5\ NSCC Rule 53 defines an AIP Manufacturer as an AIP Member
acting on behalf of or under authority of the sponsor, general
partner, or any other party responsible for the creation or
manufacturing of an Eligible AIP Product.
\6\ NSCC Rule 53 defines an AIP Distributor as an AIP Member
acting on behalf of or under authority of a customer or other
investor in an Eligible AIP Product, or otherwise as the contra-side
to an AIP Manufacturer in a transaction (including information
processing) with an AIP Manufacturer.
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2. AIP Settlement
Prior to this rule change, NSCC Rule 53, Section 7, paragraph (h),
provided that unless ``otherwise permitted by [NSCC], each AIP Member
shall appoint an AIP Settling Bank for the purpose of settling with
[NSCC] on behalf of the AIP Member pursuant to an AIP Settling Bank
Agreement.'' This settlement bank provision was implemented in the
initial AIP Service rule filing to accommodate the stringent settlement
rules implemented for the AIP Service. AIP settlement is segregated
from all other NSCC settlement obligations and is settled on a gross
debit/gross credit basis. In other words, each AIP Service participant
must fully fund its debits before receiving its credit. In the event of
a failure, NSCC does not fund the credits but rather begins the AIP
reversal process. The AIP Service's prefunded settlement mitigates
NSCC's risk. This settling bank provision was also included in the
original AIP Service filing because participants were initially
required to settle all NSCC invoices with their settlement obligation.
3. Clarification of Settling Bank Provision in Rule 53
Since the implementation of the AIP Service, a significant number
of prospective participants view its reporting functionality as a key
first step in use of the AIP Service. These AIP prospects have
expressed their interest in becoming AIP members in order to
participate in the transmission of AIP Data but not the settling
functions of the AIP Service.\7\
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\7\ NSCC Rule 53 provides that ``AIP Data transmitted through
the AIP Service may include data relating to subscriptions and
purchases; redemptions, withdrawals and tender offers; commissions
and other fees; distributions; exchange transactions; transfers;
position reporting; product information; account maintenance,
valuation, and activity and such other data as may be established by
the Corporation from time to time.''
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In response to this feedback, NSCC has developed a functionality
that can designate AIP Service members as ``non-settling'' members that
use the AIP Service for messaging only. Position and Activity-
Distribution and Commission are typically ``non-settling,'' and
strictly reporting functions. Requiring these prospective participants
to designate a settling bank simply for payment of NSCC bills is a
hindrance to product adoption and is cost prohibitive. Additionally,
the current list of NSCC settling banks accepting new clients is
limited, and those settling banks willing to accept new settlement
business have requested large monthly fees from the AIP prospects.
The AIP Service has now been appropriately configured to allow for
prospective members to apply for membership without designating a
settling bank. If a participant is established by NSCC's Account
Administration department on the Entity Master File (``EMF'') without a
settling bank's ABA number, EMF notifies the AIP Service that the
participant is non-settling. The AIP Service retains a table of the
non-settling participants and validates all settlement files created by
the application against the table. If a participant without a settling
bank erroneously indicates settlement, no settlement file will be
created or sent to settlement. The transaction will continue through
normal AIP processing as non-settling.
AIP Service participants that do not intend to use its settling
function will no longer be required to settle their NSCC invoices in
their settlement obligations. Those participants that are designated
``non-settling'' members will be permitted to use alternative means of
payment as designated from time to time by NSCC. Current methods of
payment include DTCC ePayment for NSCC Invoices (which allows
participants without a settling bank to authorize payment of NSCC
Invoices through debit to an ACH-accessible commercial account at a
U.S. bank) or credit card.
4. Implementation Time Frame
NSCC will advise its members of the changes to the Rule 53
clarification that settling bank designation is not a requirement for
AIP Service membership through the issuance of an NSCC Important
Notice.
NSCC states that Section 17A(b)(3)(F) of the Act \8\ requires,
among other things, that the rules of a clearing agency be designed to
remove impediments to and perfect the mechanism of a national system
for prompt and accurate clearance and settlement of securities
transactions. NSCC believes that this proposed rule change, which seeks
to clarify NSCC Rule 53, will remove an impediment to the AIP Service
membership process.
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\8\ 15 U.S.C. 78-1(b)(3)(F).
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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
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
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(iii) of the Act \9\ and Rule 19b-4(f)(4) \10\ thereunder
because it effects a change in an existing service of a registered
clearing agency that does not adversely affect the safeguarding of
securities and funds in the custody or control of the clearing agency
or for which it is responsible and does not significantly affect the
respective rights or obligations of the clearing agency or persons
using the service. At any time within 60 days of the filing of the
proposed rule change, the Commission may summarily abrogate 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.
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\9\ Above note 2.
\10\ Above note 3.
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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
Use 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-2010-10 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission,
[[Page 61538]]
Station Place, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-NSCC-2010-10. 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 on NSCC's Web
site at 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-2010-10 and should be
submitted on or before October 26, 2010.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary .
[FR Doc. 2010-24884 Filed 10-4-10; 8:45 am]
BILLING CODE 8010-01-P