[Federal Register Volume 62, Number 200 (Thursday, October 16, 1997)]
[Notices]
[Pages 53848-53850]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27320]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39220; File No. SR-NSCC-97-08]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Relating to a 
Decision by the Philadelphia Stock Exchange, Incorporated To Withdraw 
From the Clearance and Settlement and Securities Depository Businesses

October 8, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 53849]]

``Act''),\1\ notice is hereby given that on August 6, 1997, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on August 28, 
1997, amended the proposed rule change (File No. SR-NSCC-97-08) as 
described in Items I, II, and III below, which items have been prepared 
primarily by NSCC. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change involves proposed arrangements relating to 
a decision by the Philadelphia Stock Exchange, Incorporated (``PHLX'') 
to withdraw from the securities clearance and settlement and securities 
depository businesses. Parties to the proposed arrangements are The 
Depository Trust Company (``DTC'') PHLX, Philadep Depository Trust 
Company (``PHILADEP''), NSCC, and Stock Clearing Corporation of 
Philadelphia (``SCCP'').\2\
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    \2\ These parties have entered into an agreement dated as of 
June 18, 1997.
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    The proposed arrangements as they relate to NSCC will provide for 
the following:
    (1) NSCC will offer sole SCCP participants an opportunity to become 
NSCC participants if they meet NSCC's qualifications;
    (2) NSCC and SCCP will cooperate to assure the orderly transfer of 
continuous net settlement securities positions of sole SCCP 
participants and dual NSCC/SCCP participants which authorize such 
transfer;
    (3) NSCC will make certain payments to PHLX and SCCP;
    (4) In general, for a period of five years PHLX, SCCP, and PHILADEP 
will not engage in the securities clearance and securities depository 
businesses. However, this prohibition will not apply to PHLX's equity 
ownership interest in The Options Clearing Corporation; and
    (5) SCCP will become a participant of NSCC and will provide limited 
clearing and margin services to PHLX equity specialists and certain 
other PHLX members.\3\
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    \3\ A more detailed description of these proposed arrangements 
is contained in Exhibit 2 to the filing. A copy of the filing and 
all exhibits are available for copying and inspection in the 
Commission's Public Reference Room.
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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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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    PHLX has announced that it is withdrawing from the clearance and 
settlement and securities depository businesses in order to focus its 
resources on the operations of the exchange. The proposed arrangements 
will assist in achieving these objectives while affording qualified 
sole SCCP participants an opportunity to become NSCC participants and 
to transfer their continuous net settlement positions to NSCC. NSCC 
believes that the proposed arrangements will result in substantial risk 
reduction and increased savings for NSCC participants and the 
securities industry as a whole.
    Where there are interfaces among the securities clearing agencies, 
same-day funds settlement \5\ exposes each clearing agency to certain 
risks, such as the failure of another clearing agency to settle its net 
payment obligation because of a failure by one of the participants of 
such other clearing agency to settle with it or because such other 
clearing agency is experiencing a major systems problem. These risks 
cannot be entirely avoided with existing and available risk management 
controls. PHLX's withdrawal from the securities clearing business will 
eliminate the exposure of NSCC and its participants to the payment 
system risks associated with the NSCC-SCCP interface.
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    \5\ The term ``same-day funds'' refers to payment in funds that 
are immediately available and generally are transferred by 
electronic means.
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    In addition, the proposed arrangements should result in substantial 
savings for NSCC participants and the securities industry. In 
connection with this proposal, former sole SCCP participants may become 
NSCC participants if they qualify under NSCC's participant standards. 
An increase in the number of NSCC participants will result in higher 
NSCC transaction volumes thereby reducing the per unit service costs 
that must be recovered through participant service fees. Moreover, 
interclearing corporation interfaces involve the maintenance of 
substantial facilities, communications networks, and account and 
inventory reconciliation mechanisms. As a result of the proposal, the 
substantial costs incurred by both NSCC and SCCP in operating an 
interface will be eliminated.
    NSCC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
promulgated thereunder because the rule proposal will facilitate the 
industry's conversion to same-day funds settlement for virtually all 
securities transactions and thereby facilitate the prompt and accurate 
clearance and settlement of such transactions. In addition, the 
proposal will provide qualified sole SCCP participants with access to 
NSCC's facilities and will be implemented consistently with the 
safeguarding of securities and funds in NSCC's custody and control.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC does not believe that the proposed arrangements will have an 
impact on or impose a burden on competition. Securities clearing 
agencies registered under Section 17A of the Act are utilities created 
to serve members of the securities industry for the purpose of 
providing certain services that are ancillary to the businesses in 
which industry members compete with one another. Operating a securities 
clearing agency requires a substantial and continuing investment in 
infrastructure, including telecommunications links with users, data 
centers, and disaster recovery facilities, in order to meet the 
increasing needs of participants and to respond to regulatory 
requirements.
    After consummation of the proposed arrangements, securities 
industry members will continue to have access to high quality, low cost 
clearance services provided under the mandate of the Act. The overall 
cost to the industry of having such services available should be 
reduced thereby permitting a more efficient and productive allocation 
of industry resources. Furthermore, because most interface costs must 
be mutualized, thereby requiring some participants to subsidize costs 
incurred by others, PHLX's withdrawal from maintaining clearing 
services should reduce costs to NSCC participants and thereby remove 
impediments to

[[Page 53850]]

competition. Finally, PHLX's ability to focus its resources on the 
operations of its exchange should help enhance competition among 
securities markets.

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

    No written comments have been solicited or received. NSCC will 
notify the Commission of any written comments received. However, the 
proposed arrangements are consistent with recommendations made to the 
boards of DTC and NSCC by the Vision 2000 Committee (``Committee''), a 
committee on industry representatives of the two boards. The 
Committee's Report dated September 1994 states:

    The industry currently owns a number of utilities that provide 
services related to the comparison, clearing, settlement and 
safekeeping of U.S. (and to a lesser degree, international) 
securities. These utilities overlap in two ways * * *. We believe 
that the industry's and, as important, the investors', overall costs 
can be reduced and safety and soundness can be enhanced by 
eliminating these overlaps where there is no clear advantage to 
having specialization or competing development.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five 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 ninety days of such date if it finds 
such longer period to be appropriate and publishes its reason for so 
finding, or (ii) as to which NSCC consents, the Commission will:
    (A) by order approve 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. 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 inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of NSCC. All submissions 
should refer to the File No. SR-NSCC-97-08 and should be submitted by 
November 6, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27320 Filed 10-15-97; 8:45 am]
BILLING CODE 8010-01-M