[Federal Register Volume 75, Number 44 (Monday, March 8, 2010)]
[Notices]
[Pages 10542-10543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-4738]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61618; File No. SR-NSCC-2010-01]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change To Eliminate
Guarantee of Payment in Connection With the Envelope Settlement Service
March 1, 2010.
I. Introduction
On January 4, 2010, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2010-01 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 January 29, 2010.\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. 61415 (January 25,
2010), 75 FR 4896.
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II. Description
NSCC's the Envelope Settlement Service (``ESS'') allows an NSCC
member to physically deliver through the facilities of NSCC a sealed
envelope \3\ containing securities and such other items as NSCC may
permit from time to time to a specified receiving member. NSCC then
delivers the envelope to the receiving member. ESS is provided for
[[Page 10543]]
primarily pursuant to Rule 9 and Addendum D with related provisions in
Addendum D with related provisions in Addendum K and Procedure XV. The
primary substantive changes of this proposed rule change are in Rule 9,
Addendum D, and Addendum K with a conforming change to Procedure XV.
Technical clean-up changes are also being made in each.
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\3\ Rule 9 provides that except as NSCC may determine to be
appropriate or necessary, NSCC will not examine the contents of the
envelopes or verify the amounts of money shown on the credit list,
and it shall not be responsible with respect thereto except to
deliver the envelopes accepted by it to the authorized
representatives of the members to whom they are addressed.
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The delivering member must attach to each envelope, a credit list
(in duplicate), which reflects the total money value, if any, of the
envelope's contents. If after receipt of the envelope NSCC determines
that the envelope is properly listed on the accompanying credit list,
NSCC stamps the duplicate credit list and makes it immediately
available to the delivering member's representative. An envelope listed
on the credit list shall be deemed to have been accepted by NSCC when
the duplicate credit list is stamped.
As a related feature of ESS, the payment shown on the credit list
is processed as part of the members' daily end of day net money
settlement obligations in reliance on the agreement between the
delivering and receiving parties outside NSCC that the amount listed is
the contract amount.
In order to protect the NSCC against the risk of member non-payment
NSCC is amending Rule 9 and related provisions so that NSCC does not
guarantee the payment obligation to the receiving member in an ESS
delivery and so that the credits and debits of the payment amount of an
envelope may be reversed. The payment reversal may be effected by NSCC
even if the receiving member has taken possession of the envelope;
however, if the receiving member has not yet taken possession of the
envelope at the time of a payment reversal, NSCC will return the
envelope to the delivering member. Any dispute between the delivering
and receiving members must be resolved by them outside the facilities
of the NSCC.
Changes to Rule 9 affirmatively provide that NSCC does not
guarantee the payment obligation in ESS and that payment credits and
debits may be reversed. Technical and conforming changes clarify the
concepts of delivering and receiving members and that settlement
processing is subject not only to the rights of NSCC in Section 2 of
Rule 12 but also to the new reversal provision in Section 4 of Rule 9.
To conform to amended Rule 9, Addendum D is similarly being amended
to state that ESS is not guaranteed and that payment credits and debits
may be reversed as provided in Rule 9. Language making it clear that
settlement processing is subject to the rights of NSCC under new
Section 4 of Rule 9 and Section 2 of Rule 12, was also carried over to
Addendum D. Because Addendum D also covers other services for which no
change is made by this filing, certain of the revisions to Addendum D
clarify that the revisions are limited to ESS. Historical statements in
Addendum D are being eliminated.
The change to Addendum K is to delete the provision whereby NSCC
provided a guarantee for ESS and thereby deemed ESS to be a ``System''
within the meaning of Rule 4. Without the guarantee, ESS is not
considered to be a ``System.'' Consistent with the change, Procedure XV
is modified so that when the clearing fund component titled ``For Other
Transactions'' (that is, for other than CNS transactions and balance
order transactions) is computed, ESS will not be included.
In considering the elimination of the guarantee, NSCC surveyed
selected members and learned that they did not consider it vital that
NSCC be responsible for their ESS payment obligations and that they do
not rely on the NSCC to guarantee such payments. However, these members
expressed a strong desire for NSCC to maintain the centralized delivery
service. NSCC designed the proposed rule changes to meet the expressed
need of certain members while reducing risk to NSCC and its members
generally. NSCC believes that it is shifting the burden of risk to
those that should bear it and to outside NSCC's facilities.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act \4\ and the rules and regulations
thereunder applicable to NSCC. In particular, the Commission believes
that by amending its rules, NSCC's exposure to potential losses from
member defaults, insolvencies, mistakes, and fraud will be reduced and
the risk of such potential losses will be appropriately shifted to the
contracting members in an ESS transaction outside NSCC. The proposal is
therefore consistent with the requirements of Section 17A(b)(3)(F),\5\
which requires, among other things, that the rules of a clearing agency
are designed to promote the prompt and accurate clearance and
settlement of securities transactions.
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\4\ 15 U.S.C. 78q-1.
\5\ 15 U.S.C. 78q-1(b)(3)(F).
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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 \6\ and the
rules and regulations thereunder.
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\6\ 15 U.S.C. 78q-1.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (File No. SR-NSCC-2010-01) be,
and hereby is, approved.\8\
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\7\ 15 U.S.C. 78s(b)(2).
\8\ 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.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4738 Filed 3-5-10; 8:45 am]
BILLING CODE 8011-01-P