[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