63090 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

8On September 27, 1995, staff of the Division of

Market Regulation met with MBS to discuss the

disaster recovery program developed for the EPN

service. The staff also reviewed and assessed

documentation related to the management and

operation of the disaster recovery system and

conducted an examination of the primary data

center.

9 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2STC/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.

3The Commission has modified the text of the

summaries prepared by NSCC.

recovery program has operated

successfully during its testing, MBS has

decided to request permanent approval

of the EPN service.

Prior to the establishment of the EPN

service, participants in the mortgagebacked securities market had to

manually telephone or fax pool

information to other participants.

Historically, billions of dollars of fails

occurred because sellers were not able

to communicate with buyers because of

telephone and fax limitations (e.g., busy

signals preventing the exchange of

information). The Commission is

permanently approving the rules for the

EPN service because it believes that

replacing a manually intensive

communication system with an

electronic communication system

should help to significantly reduce the

number of fails in the mortgage-backed

securities market by making the

notification process more efficient and

more reliable. Furthermore, MBS has

demonstrated that the disaster recovery

program for the EPN service is capable

of ensuring the continuity of critical

EPN business operations in the event

the primary computer operations

become unavailable to EPN users.8

MBS has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. The

temporary approval period for the EPN

service will expire on November 30,

1995. The Commission finds good cause

to grant accelerated approval of the

proposal because the EPN service has

operated successfully since its

implementation and because the

Commission did not receive any

comment letters during the comment

period before it granted temporary

approval or during the temporary

approval period and because the

Commission does not expect to receive

any during the current comment period.

Furthermore, accelerated approval will

allow the EPN service to continue

operating without interruption.

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, 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. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street NW.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of MBS. All submissions should

refer to file number SR–MBS–95–09 and

should be submitted by December 29,

1995.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

MBS–95–09) be and hereby is approved

on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–29921 Filed 12–7–95; 8:45 am]

BILLING CODE 8010–01–M

[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.

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

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

(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
Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices 63091

4The term ‘‘same-day funds’’ refers to payment in

funds that are immediately available and generally

are transferred by electronic means.

5The 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).

settlement.4 Additionally, the proposal

will result in substantial savings for

NSCC participants and the securities

industry as a whole.

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 sameday 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.

Where there are interfaces among the

securities clearing corporations, sameday 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. § 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–
63092 Federal Register / Vol. 60, No. 236 / Friday, December 8, 1995 / Notices

7 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2Commission Note: The NASD’s use of the term

‘‘price improvement’’ in this proposal differs from

the use of the term in recent Commission releases.

Specifically, the Commission has used the term

when referring to the opportunity to receive a price

that is superior to best bid or offer. See, e.g., 17 CFR

11Ac1–3(a)(2); Securities Exchange Act Release No.

34902 (Oct. 27, 1994), 59 FR 55006 (Nov. 2, 1994)

at text accompanying n. 32. The NASD’s use of the

term in this proposal, on the other hand, refers to

the opportunity to receive a price that is better than

the best market maker quotation, which may not be

the best bid or offer to the extent NAqcess limit

orders are included. In its recent rule proposal

concerning the obligations of market makers

executing customer orders, the Commission asked

for comment on whether automated systems that

include the possibility of the interaction of market

orders with limit orders should be deemed to satisfy

the proposal’s requirement that market orders be

provided with an opportunity for price

improvement. Securities Exchange Act Release No.

36310 (Sept. 29, 1995), 60 FR 52792 (Oct. 10, 1995).

15 and should be submitted by

December 29, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–29917 Filed 12–7–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36548; File No. SR–NASD–

95–42]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to NAqcess

System and Accompanying Rules of

Fair Practice

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 9, 1995, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II and III below, which Items

have been prepared by the NASD. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Pursuant to Section 19(b)(1) of the

Act, attached as Exhibit A is the full text

of a series of proposed rule changes by

the NASD and The Nasdaq Stock

Market, Inc. (‘‘Nasdaq’’) regarding the

operation of The Nasdaq Stock Market’s

NAqcess system, a new system that

offers nationwide limit order protection

and price improvement 2 over the dealer

quotation of small-sized customer

orders. The ‘‘Rules of Operation and

Procedures for NAqcess’’ (‘‘NAqcess

Rules’’) will replace in its entirety the

‘‘Rules of Practice and Procedures for

the Small Order Execution System’’

(‘‘SOES Rules’’), which the NASD

proposes to withdraw simultaneously

with the new system becoming

operational. The NAqcess system rules

package attached in Exhibit A is new

and accordingly has not been italicized.

The NASD is also proposing several

new Interpretations and a new Rule in

its Rules of Fair Practice to afford

individual investors the opportunity to

determine whether their orders are to be

handled in NAqcess and to provide

customer limit orders held in NAqcess

or elsewhere with enhanced price

protection (Exhibit B). The NASD is also

proposing conforming modifications to

the NASD Manual, including the Rules

of Practice and Procedure for the

Automated Confirmation Transaction

Service (‘‘ACT Rules’’) and Schedule D

to the NASD By-Laws (and all other

places in the Manual that refer to SOES)

to delete references to SOES and/or the

SOES Rules and to replace those

references with NAqcess and/or the

NAqcess Rules, as appropriate. These

references may be found in the ACT

Rules, Section (c)(2); in Schedule D, Part

V, Section (1)(f), Section (7)(a), Section

(8)(c), and Section (9); and Schedule D,

Part XI, Section (2)(e)(1).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

NASD 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. The NASD has

prepared summaries, set forth in

Sections (A), (B), and (C) below, of the

most significant aspects of such

statements.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Introduction

The NASD and The Nasdaq Stock

Market, Inc. are proposing rules of

operation and procedure and

companion rules for a new service that

provides investors market-wide price

protection of their limit orders, the

opportunity to obtain price

improvement over the dealer quotation

in buying and selling Nasdaq stocks,

and increased access to the Nasdaq

market. The new facility, to be named

NAqcess and operated by The Nasdaq

Stock Market, will permit significant

opportunity for investors in Nasdaq

securities to enter limit orders inside the

Nasdaq dealer quotation and enhance

the opportunity for such investors to

receive executions between the best

dealer bid and offer without such orders

interacting with market makers. The

limit orders at the top of the NAqcess

limit order file that are the same as or

better than the best dealer quotations

will be included in the inside market for

The Nasdaq Stock Market, thereby

providing new levels of transparency,

increased price efficiency, and greater

investor protection. Further, the

companion rule and Interpretations

accompanying the new system will

provide retail customers with enhanced

price protection of their limit orders, a

significant expansion over current limit

order protection afforded to customers

in the Nasdaq market. Finally, NAqcess

will provide customers that choose to

enter market orders into the system with

the opportunity to obtain price

improvement over the dealer quotation

through interaction with customer limit

orders in the NAqcess file and will

provide a prompt, cost-effective

execution at the best price available in

the market at any particular point in

time.

NAqcess and the accompanying new

Rules of Fair Practice provide multiple

benefits to retail investors that were

heretofore unavailable to such investors.

A key feature of NAqcess that is a

significant enhancement over current

practices in Nasdaq is the ability of

investors to have limit orders placed in

a central file where they can interact

directly with other customer limit

orders and market orders entered into

the system. Under a proposed new

Interpretation to Article III, Section 1 of

the Rules of Fair Practice, a customer

may instruct its broker-dealer to enter

the customer’s limit order or market

order into NAqcess. Moreover, NAqcess

will provide increased transparency of

the best priced limit orders in NAqcess

because Nasdaq will incorporate into

the Nasdaq inside market limit orders

that are priced the same as or better than

the best dealer bid and offer displayed

in Nasdaq, and their aggregate sizes in

a particular security. This increased

transparency will enhance the Nasdaq

price discovery process. NAqcess will

match incoming limit and market orders

against limit orders resident in the