[Federal Register Volume 63, Number 106 (Wednesday, June 3, 1998)]
[Notices]
[Pages 30277-30279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-14675]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40034; File No. SR-NSCC-98-3)


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Order Granting Temporary Accelerated 
Approval of a Proposed Rule Change That Establishes Additional 
Procedures for Class A Surveillance of Certain Settling Members and 
Permits the Collection of Clearing Fund and Other Collateral Deposits 
From These Settling Members

May 27, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 23, 1998, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-NSCC-98-3) as described in Items I and II below, 
which items have been prepared primarily by NSCC. The Commission is 
publishing this notice and order to solicit comments from interested 
persons and to extend on an accelerated basis temporary approval of the 
proposed rule change through May 31, 1998.
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    \1\ 15 U.S.C. 78s(b)(1).

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[[Page 30278]]

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change seeks to extend the temporary approval of 
additional procedures which govern the placement of NSCC members on 
Class A surveillance and the clearing fund deposit and other collateral 
requirements for such members.

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.\2\
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    \2\ 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

    NSCC seeks to extend the temporary approval of a rule change 
governing the application of Class A surveillance procedures and the 
additional collateralization requirements to settling members that 
engage in certain over-the-counter (``OTC'') market making 
activities.\3\ To decrease the risks associated with OTC market makers, 
NSCC has added Addendum O to its rules and procedures. Addendum O 
permits NSCC to place settling members on Class A surveillance under 
certain conditions.
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    \3\ For a complete discussion of NSCC's Class A surveillance 
procedures and collateralization requirements, refer to Securities 
Exchange Act Release Nos. 37202 (May 10, 1996), 61 FR 24993 [File 
No. SR-NSCC-95-17] (temporary approval of proposed rule change) and 
38622 (May 19, 1997), 62 FR 27285 [File No. SR-NSCC-97-04] 
(temporary approval of proposed rule change).
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    NSCC has also adopted an interim collateralization policy which 
permits NSCC in its discretion to require settling members that clear 
for or are themselves OTC market makers and that are placed on Class A 
surveillance to deposit special collateral in amounts based upon the 
settling member's OTC activities relative to its amount of excess net 
capital.\4\
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    \4\ The temporary rule change also grants NSCC the discretion to 
compute the continuous net settlement component of the clearing fund 
requirements for any settling member on Class A surveillance 
according to an alternative formula based upon close-out risk.
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    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) \5\ of the Act and the rules and 
regulations thereunder because the surveillance procedures and 
additional collateralization will facilitate the prompt and accurate 
clearance and settlement of securities transactions and, in general, 
will protect investors and the public interest.
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    \5\ 15 U.S.C. 78q-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 impact or 
impose a burden on competition.

(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 by NSCC.

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

    Section 17A(b)(3)(F) \6\ of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency 
and generally to protect investors and the public interest. As the 
Commission previously stated, it believes that the proposed rule change 
is consistent with NSCC's obligations under the Act because it will 
help NSCC protect itself, its members, and investors from members that 
pose an increased risk because of their involvement in OTC market 
making. Supra, note 3.
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    \6\ Id.
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    Under the proposal, NSCC will continue to have the authority with 
respect to settling members which participate in OTC market making 
activities or clear for correspondents that engage in such activity (1) 
to place such members on Class A surveillance, (2) to require such 
members to post additional collateral with NSCC, and (3) to calculate 
an alternative clearing fund requirement for such members when 
additional risk factors are present. Collectively, the higher level of 
surveillance, the additional level of collateralization, and the 
alternative clearing fund requirements should help ameliorate NSCC's 
exposure which in turn should assist NSCC in fulfilling its obligations 
under the Act to safeguard securities and funds for which it has 
control of or is responsible for and to protect investors and the 
public interest.\7\
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    \7\ As noted in the May 1996 approval order, prior to filing a 
proposed rule change seeking permanent approval of the procedures 
set forth in this temporary approval order, NSCC shall present to 
the Commission a more detailed report on its findings regarding the 
adequacy of the controls and discussing any changes to be made to 
the procedures.
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing because accelerated approval will allow NSCC to 
continue to utilize its Class A surveillance procedures, the interim 
collateralization policy, and the alternative clearing fund formula 
without interruption until it makes a filing requesting permanent 
approval of the rule change, and therefore will allow NSCC to continue 
to protect itself and its participants from the potential risks of OTC 
market making activities.

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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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. Sec. 552, will be available for inspection and copying in 
the Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of NSCC. All 
submissions should refer to File No. SR-NSCC-98-3 and should be 
submitted by June 24, 1998.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-98-3) be, and hereby 
is, approved through May 31, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).

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[[Page 30279]]

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-14675 Filed 6-2-98; 8:45 am]
BILLING CODE 8010-01-M