[Federal Register Volume 63, Number 118 (Friday, June 19, 1998)]
[Notices]
[Pages 33750-33753]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16350]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40086; File No. SR-NSCC-98-4]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Adopting an 
Interpretation of the Board of Directors Regarding NSCC's Obligation to 
Continuously Review Participants to Determine if Participants Are 
Required to Reapply for Membership Due to a Material Change in 
Conditions

June 12, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 24, 1998, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-NSCC-98-4) as described in Items I, II, and II 
below, which items have been prepare primarily by NSCC. The Commission 
is publishing this notice to solicit comments from interested persons 
on the proposed rule change.
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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 would add Addendum T to NSCC's Rules and 
Procedures regarding NSCC's obligation to continuously review 
participants to determine if they are required to reapply for 
membership due to a material change in conditions. A copy of proposed 
Addendum T is attached as Exhibit A to the rule filing.

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

    Under the proposed rule change, NSCC will be permitted to (i) 
reexamine a participant who has undergone a material change in 
circumstances,\3\ (ii) reconsider the participant's continuing status 
as a participant as if such entity was initially applying for 
membership when conditions originally in existence at the time a 
participant was accepted for membership have materially changed, and 
(iii) require the participant to satisfy any concerns NSCC may have as 
to the participant's ongoing membership in NSCC as part of such 
reevaluation. In addition, Addendum T explicitly states that 
participants have the affirmative obligation to advise NSCC if such 
material change occurs.
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    \3\ Proposed Addendum T sets forth three categories where 
changes may warrant reconsideration: (1) material changes in 
ownership, control of management, (2) material changes in business 
lines, including but not limited to, new business lines undertaken, 
or (3) participation as a defendant in litigation which could 
reasonably have a direct negative impact on the participant's 
business. Proposed Addendum T states that these categories are 
listed as examples and should not be viewed as exclusive in the 
process.
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    Under the Act and the rules and regulations thereunder, NSCC is 
obligated to safeguard securities and funds in the possession and 
control. NSCC believes that this obligation, coupled with the fact that 
NSCC is the guarantor of participants' transaction submitted to it for 
clearance and settlement, require that NSCC have flexibility to 
consider material changes pertaining to such participants and have the 
ability to take appropriate steps in light of such changes.
    When a material change occurs with respect to an existing 
participant's ownership, control or management, mix of business, use of 
third party service provides, or regulatory history, among other areas, 
NSCC is faced with a different risk perspective than that which it 
faced at the time it approved such participant's application for 
membership. The NSCC board has concluded that it is in the best 
interests of NSCC and its membership as a whole that NSCC address these 
types of changes, including the ability to require the participants to 
reapply for membership, as if the participant was not already a 
participant.
    NSCC believes that participants change their business mix as their 
focus in the financial industry change. According to NSCC, enter new 
businesses, discontinue old ones, change management, change risk 
policies, or take other actions or steps which could result in an 
entirely different entity (other than changing the corporate name of 
such entity) from the one which was approved for NSCC membership. NSCC 
believes that if it did not have the ability to continually reexamine 
participants' status, the purpose behind scrutinizing applications and 
the comfort level provided by such process, would be undermined.
    NSCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
because it will clarify the rules of NSCC relating to the continuing 
standards required for membership and NSCC's obligation to safeguard 
securities and fund within its control.

(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 that is

[[Page 33751]]

not necessary to appropriate in furtherance of the purposes of the Act.

(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

    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 reasons 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, 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 July 10, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.

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[FR Doc. 98-16350 Filed 6-18-98; 8:45 am]
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