[Federal Register Volume 60, Number 236 (Friday, December 8, 1995)]
[Notices]
[Pages 63090-63092]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29917]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36547; File No. SR-NSCC-95-15]


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

December 1, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 24, 1995, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-NSCC-95-15) 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.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
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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 Chicago Stock Exchange, Incorporated (``CHX'') to 
withdraw from the clearance and settlement, securities depository, and 
branch receive businesses. Parties to the proposed arrangements are The 
Depository Trust Company (``DTC''), CHX, Midwest Securities Trust 
Company (``MSTC''), NSCC, Midwest Clearing Corporation (``MCC'') and 
Securities Trust Company of New Jersey (``STC/NJ'').\2\

    \2\ STC/NJ is a subsidiary of CHX that currently provides 
certain services, including a securities custody service. STC/NJ is 
not a clearing agency as defined in the Act and therefore is not 
required to register with the Commission.
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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.\3\

    \3\ 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

    CHX has announced that it is closing its clearance and settlement 
and securities depository facilities in order to focus its resources on 
the operations of the exchange. CHX has determined to take this step in 
response to recommendations by industry users to eliminate redundant 
facilities and thereby reduce the costs of processing securities 
transactions. The proposed arrangements will assist in achieving these 
objectives while affording qualified sole MCC participants an 
opportunity to become NSCC participants and transfer their continuous 
net settlement positions to NSCC. NSCC's primary purpose for entering 
into the proposed arrangements at this time is to facilitate the 
industry's planned conversion to same-day funds 

[[Page 63091]]
settlement.\4\ Additionally, the proposal will result in substantial 
savings for NSCC participants and the securities industry as a whole.

    \4\ 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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    Currently, transactions in equities, corporate debt, and municipal 
debt are settled in next-day funds.\5\ Transactions in commercial paper 
and other money market instruments are settled in same-day funds. As 
the Commission is aware, DTC and NSCC have been working with the 
industry over the last few years to develop a system that will provide 
for the settlement of virtually all securities transactions in same-day 
funds. DTC's and NSCC's efforts have been encouraged by the Commission, 
the Board of Governors of the Federal Reserve System, and the Federal 
Reserve Bank of New York, and NSCC's plans have been monitored by the 
staffs of these regulatory bodies.\6\ Under the conversion plan, all 
issues currently settling in next-day funds will be converted to 
settlement in same-day funds settlement on a single day. Several months 
ago, a consensus was reached that the conversion date will be February 
22, 1996.

    \5\ The term ``next-day funds'' refers to payment by means of 
certified check that is for value on the following day.
    \6\ In approving certain modifications of DTC's existing system 
in order to accommodate the overall conversion to same-day funds 
settlement, the Commission stated that it believes that the overall 
conversion to a same-day funds settlement system will help reduce 
systemic risk by eliminating overnight credit risk. The same-day 
funds settlement system also will reduce risk by achieving closer 
conformity with the payment methods used in the derivatives markets, 
government securities markets, and other markets. Securities 
Exchange Act Release No. 35720 (May 16, 1995), 60 FR 27360 [File No. 
SR-DTC-95-06] (order granting accelerated approval to proposed rule 
change modifying the same-day funds settlement system).
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    Where there are interfaces among the securities clearing 
corporations, same-day funds settlement exposes each clearing 
corporations, same-day funds settlement exposes each clearing 
corporation to settle its net payment obligation because of a failure 
by one of the participants of such other clearing corporation to settle 
with it or because such other clearing corporation is experiencing a 
major systems problem. These risks cannot be entirely avoided with 
existing and available risk management controls. CHX's withdrawal from 
the securities clearing corporation business will eliminate the 
exposure of NSCC and its participants to the payment system risks 
associated with the NSCC-MCC interface. Also, the interests of MCC 
participants can be provided for in an orderly manner that will help 
assure their successful integration in the process of converting to 
same-day funds settlement.
    The proposed arrangement should result in substantial savings for 
NSCC participants and the securities industry. In connection with this 
proposal, former sole MCC participants may become NSCC participants if 
they qualify. 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 MCC in operating an 
interface would be eliminated.
    NSCC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder applicable to NSCC because the proposed arrangements will 
facilitate the industry's conversion to sameday funds settlement for 
virtually all securities transactions and thereby facilitate the prompt 
and accurate clearance and settlement of such transactions. The 
proposal will provide qualified sole MCC participants. The proposal 
will provide qualified sole MCC 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 believes the proposed arrangements would impose no burden on 
competition. Securities clearing corporations 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 business in which industry members compete with one 
another. Operating a securities clearing corporation 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 will 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, CHX's withdrawal participants and thereby remove 
impediments to competition. Finally, CHX'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.

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. 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 Room, 450 Fifth Street, N.W., 
Washington, D.C. 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 number SR-NSCC-95-

[[Page 63092]]
15 and should be submitted by December 29, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\

    \7\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29917 Filed 12-7-95; 8:45 am]
BILLING CODE 8010-01-M