33280 Federal Register / Vol. 66, No. 120 / Thursday, June 21, 2001 / Notices

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 44276 (May

8, 2001), 66 FR 26895.

3NSCC’s main clearing fund formulas are found

in its Procedure XV.

4Securities Exchange Act Release Nos. 37202

(May 10, 1996), 61 FR 24993 [File No. SR–NSCC–

95–17]; 38622 (May 19, 1997), 62 FR 27285 [File

No. SR–NSCC–97–04]; 40034 (May 27, 1998), 63 FR

30277 [File No. SR–NSCC–98–03]; 41478 (June 4,

1999), 64 FR 31664 [File No. SR–NSCC–99–06];

42864 (May 30, 2000), 65 FR 36204 [File No. SR–

NSCC–99–09] (Commission approval date corrected

in Federal Register, 65 FR 42065); and 44277 (May

8, 2001) [File No. NSCC–2001–05].

out its responsibilities under the

Exchange Act.

It is estimated that 10 respondents

will utilize this application procedure

annually, with a total burden of 1,750

hours, upon past submissions. This

figure is based on 10 respondents,

spending approximately 275 hours each.

Each respondent submitted

approximately 110 responses. The staff

estimates that the average number of

hours necessary to comply with the

requirements of Rule 19d–1 for each

submission is 2.5 hours. The average

cost per hour, per each submission is

approximately $101. Therefore, the total

cost of compliance for all the

respondents is $277,750. (10

respondents × 110 responses per

respondent × 2.5 hrs per response ×

$101 per hour).

The filing of notices pursuant to the

Rule is mandatory for the SROs, but

does not involve the collection of

confidential information. Rule 19d–1

does not have a retention of records

requirement.

Rule 19d–3 under the Exchange Act

prescribes the form and content of

applications to the Commission for

review of final disciplinary sanctions,

denials of membership, participation or

association or prohibitions or

limitations of access to services that are

imposed by SROs. The Commission

uses the information provided in the

application filed pursuant to Rule 19d–

3 to review final actions taken by SROs

including: (1) Disciplinary sanctions; (2)

denials of membership, participation or

association; and (3) prohibitions on or

limitations of access to SRO services.

It is estimated that approximately 50

respondents will utilize this application

procedure annually, with a total burden

for all respondents of 900 hours, based

upon past submissions. The staff

estimates that the average number of

hours necessary to comply with the

requirements of Rule 19d–3 to complete

each submission is 18 hours. The

average cost per hour is approximately

$101, for completion of each

submission. Therefore, the total cost of

compliance for all respondents, per year

is $90,900. (50 submissions × 18 hours

× $101 per hour).

A respondent is not required to retain

the Rule 19d–3 submission for any

specified period of time. The filing of a

motion seeking review of a final action

is mandatory only if the respondent

wants Commission review. The

submission does not involve the

collection of confidential information.

Rule 19h–1 under the Exchange Act

prescribes the form and content of

notices and applications by SROs

regarding proposed admissions to, or

continuances in, membership,

participation or association with a

member of any person subject to a

statutory disqualification.

The Commission uses the information

provided in the submissions filed

pursuant to Rule 19h–1 to review

decisions of SROs to permit the entry

into or continuance in the securities

business of persons who have

committed serious misconduct. The

filings submitted pursuant to the Rule

also permit inclusion of an application

to the Commission for consent to

associate with a member of an SRO

notwithstanding a Commission order

barring such association.

The Commission reviews filings made

pursuant to the Rule to ascertain

whether it is in the pubic interest to

permit the employment in the securities

business of persons subject to statutory

disqualification. The filings contain

information that is essential to the staff’s

review and ultimate determination on

whether an association or employment

is in the public interest and consistent

with investor protection.

It is estimated that approximately 5

respondents will make submissions

pursuant to this Rule annually with a

total burden of 225 hours for all

respondents to complete all

submissions. The staff estimates that the

average number of hours necessary to

comply with the requirements of Rule

19h–1 is 4.5 hours per submission. The

average cost per hour is approximately

$101 for completion of each submission.

Therefore, the total cost of compliance

for all respondents is $22,725. (50

responses × 4.5 hours per response ×

$101 per hour).

A respondent is not required to retain

the Rule 19h–1 submission for any

specified period of time. The filing of

notices is mandatory but does not

involve the collection of confidential

information.

Please note that an agency may not

conduct or sponsor, and a person is not

required to respond to, a collection of

information unless it displays a

currently valid control number.

General comments regarding the

above information should be directed to

the following persons: (i) Desk Officer

for the Securities and Exchange

Commission, Office of Information and

Regulatory Affairs, Office of

Management and Budget, Room 10102,

New Executive Office Building,

Washington, D.C. 20503; and (ii)

Michael E. Bartell, Associate Executive

Director, Office of Information

Technology, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Comments must

be submitted to OMB within 30 days of

this notice.

Dated: June 15, 2001.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15625 Filed 6–20–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44431; File No. SR–NSCC–

2001–04]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving a

Proposed Rule Change To Modify and

Consolidate Clearing Fund Rules

June 15, 2001.

On April 24, 2001, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

and on April 30, 2001, amended a

proposed rule change (File No. SR–

NSCC–2001–04) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on May 15, 2001.2 No comment letters

were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

Under the proposal, NSCC will

consolidate its clearing fund rules and

standards of financial responsibility and

operational capacity, currently found in

various rules and procedures, into

Procedure XV 3 of its Rules and

Procedures.

Under Addendum O,4 NSCC collects

additional clearing fund deposits from

settling members on surveillance. The

additional clearing fund deposits are

based on a risk-based margining

(‘‘RBM’’) methodology that includes, but

is not limited to, calculations based on

portfolio volatility and, where

applicable, market maker domination.

The rule change extends these RBM

requirements to all NSCC members in

Federal Register / Vol. 66, No. 120 / Thursday, June 21, 2001 / Notices 33281

5Under NSCC rules, currently the only qualified

securities depository is DTC.

6 15 U.S.C. 78q–1(b)(3)(F).

7 17 CFR 200.30–3(a)(12).

lieu of NSCC’s current allocation and

liquidation clearing fund requirements.

Since the Commission’s approval of

Addendum O in 1996, NSCC has

studied the impact of RBM on member

firms. NSCC found that utilization of

RBM more accurately reflects NSCC’s

exposure than the allocation and

liquidation formulae being replaced

because it enables NSCC to more

precisely identify the risks posed by a

member’s unsettled portfolio and, as a

result, more quickly adjust and collect

additional clearing fund deposits. NSCC

management therefore recommended

and the Membership and Risk

Management Committee concurred that

RBM methodologies should be applied

to all NSCC members, not just those on

surveillance.

The rule change modifies NSCC’s

clearing fund requirements (Procedure

XV) as follows:

• With respect to clearing fund

requirements for CNS transactions,

Procedure XV’s allocation [current

Section A.I.(a)(i)(a)] and liquidation

[current Section A.I.(a)(i)(c)] formulae

will be replaced with RBM

methodology, specifically volatility

[new Section I.(A)(1)(a)] and market

maker domination [new Section

I.(A)(1)(c)] calculations, currently found

in Addendum O. The volatility formula

will continue to permit NSCC to utilize

any generally accepted portfolio

volatility model to calculate volatility.

• In addition, the clearing fund

requirements will continue to provide

that NSCC may exclude from volatility

calculations net unsettled positions in

classes of securities whose volatility is

(1) less amendable to statistical analysis,

such as OTC Bulletin Board or Pink

Sheet issues or issues trading below a

designated dollar threshold (e.g., five

dollars) or (2) amendable to generally

accepted statistical analysis only in a

complex manner, such as municipal or

corporate bonds. The amount of clearing

fund required with respect to these net

unsettled positions will be determined

by multiplying the absolute value of the

net unsettled positions by a percentage

designated by NSCC. This percentage

will not be less than 10% with respect

to the positions covered by item (1)

above and will not be less than 2% with

respect to the positions covered by item

(2) above.

• The clearing fund requirements for

all when-issued and when-distributed

transactions will be consolidated with

the calculations for regular way

transactions.

• The third prong of the CNS formula,

the calculation of the difference

between the contract price and the

current market price of compared

pending positions, will remain the same

[current Sections I.(A)(1)(b) and

I.(A)(2)(b)]; however, these calculations

will now be undertaken on a daily basis

instead of on a twenty day rolling basis.

• Members will be required to make

within one hour of demand all clearing

fund and other required deposits. To the

extent a member is meeting its

obligation with (1) a deposit of cash, the

cash deposit must be made by Federal

Funds wire transfer and must be

received no later than fifteen minutes

prior to the close of the Federal Funds

wire or (2) a delivery of eligible

securities, the delivery of eligible

securities must be received within the

deadlines established by a qualified

securities depository.5 The rule change

further provides that, at the discretion of

NSCC, these cash deposits may be

included as part of the member’s daily

settlement obligation.

• Addendum B, among other things,

currently specifies thresholds pursuant

to which NSCC will require additional

clearing fund deposits. Procedure XV

[new Section II.(C)] will now provide

that additional clearing fund deposits

shall not be requested where the amount

of the deficiency for a: (1) Member on

Class A or B Surveillance is equal to or

less than $5,000 and such amount is less

than 5% of such member’s actual

deposit; (2) member on Advisory

Surveillance is equal to or less than

$20,000 and such amount is less than

5% of such member’s actual deposit; or

(3) member not on any surveillance is

equal to or less than $50,000 and such

amount is less than 10% of the

member’s actual deposit.

• Other changes to Procedure XV

result from relabeling and/or moving the

placement of NSCC’s clearing fund

requirements without altering their

substantive nature.

As described below, NSCC intends to

begin implementing the revised clearing

fund methodologies on June 15, 2001,

and to have all members subject to them

by December 31, 2002. Members

currently subject to Addendum O will

be subject to these clearing fund

changes on June 15, 2001. Applicants

approved for NSCC membership from

and after April 24, 2001, the date of the

proposed rule change filing, will also be

subject to these rule changes on June 15,

2001. Members who have a position

which will subject them to a deposit

requirement based on the market maker

domination calculations will also be

subject to these rule changes on June 15,

2001. NSCC will place every remaining

member into deciles and will apply the

revised clearing fund methodologies

pursuant to a step-by-step, decile-bydecile plan based upon the volatility

classification of each such member’s

unsettled portfolio. Accordingly,

members with the most volatile

portfolios will be subject to these rule

changes first, on or shortly after June 15,

2001, provided, however, that to the

extent any such member has significant

CNS obligations resulting from options

exercises and assignments or is a

municipal securities brokers’ broker, it

will be subject to these rule changes in

conjunction with or after all other

members but in no event later than

December 31, 2002.

II. Discussion

Section 17A(b)(3)(F) 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 or for which it is

responsible.6 The Commission believes

that the approval of NSCC’s rule change

is consistent with this section because

utilization of RBM should enable NSCC

to more precisely identify the risks

posed by a member’s unsettled portfolio

and, as a result, more quickly adjust and

collect additional clearing fund

requirements than the current allocation

and liquidation formulae. As a result

NSCC is better protected from the

possibility of a member’s default

because the clearing fund deposits it

collects more accurately reflect NSCC’s

exposure.

III. 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

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

NSCC–2001–04) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15623 Filed 6–20–01; 8:45 am]

BILLING CODE 8010–01–M