[Federal Register Volume 61, Number 91 (Thursday, May 9, 1996)]
[Notices]
[Pages 21217-21218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11537]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37162; File No. SR-NSCC-96-01]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving a Proposed Rule Change Establishing 
Standard Prices for Transfers of Non-Continuous Net Settlement Assets 
through the Automated Customer Account Transfer Service

May 2, 1996.
    On January 5, 1996, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-NSCC-96-01) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ to establish standard prices for certain assets 
transferred through NSCC's Automated Customer Account Transfer 
(``ACAT'') service. On February 8 and 20, 1996, NSCC filed amendments 
to the proposed rule change.\2\ Notice of the proposal was published on 
March 6, 1996, in the Federal Register to solicit comments on the 
proposed rule change.\3\ No comment letters were received. For the 
reasons discussed below, the Commission is approving the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Letters from Julie Beyers, Associate Counsel, NSCC, to 
Christine Sibille, Division of Market Regulation, Commission 
(February 7 and 15, 1996).
    \3\ Securities Exchange Act Release No. 36907 (February 29, 
1996), 61 FR 8997.
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I. Description

    NSCC's proposed rule change modifies NSCC's rules to coincide with 
its practice of establishing systemized, standard default prices based 
on asset type for assets which are not eligible for NSCC's Continuous 
Net Settlement (``CNS'') \4\ system and which are

[[Page 21218]]

submitted by members for transfer through NSCC's ACAT service.\5\ 
Through its ACAT service, NSCC provides an automated and standardized 
service for the transfer of assets in a customer account from one 
brokerage firm to another.
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    \4\ A CNS security is a cleared security eligible for transfer 
on the books of each qualified securities depository (e.g., The 
Depository Trust Company, or the Philadelphia Depository Trust 
Company), and identified as such on a list of such securities at 
NSCC.
    \5\ For a complete description of the ACAT service, refer to 
NSCC Rule 50 and to Securities Exchange Act Release No. 34879 
(October 21, 1994), 59 FR 54229 [File No. SR-NSCC-94-13] (order 
approving a proposed rule change modifying the ACAT service).
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    When a customer wants to transfer her account to a new broker-
dealer (``receiving broker-dealer''), the receiving broker-dealer 
submits through NSCC a transfer initiation request form to the broker-
dealer holding the customer's assets (``delivering broker-dealer''). 
Within three business days, the delivering broker-dealer must submit to 
NSCC a list of the customer's assets it holds. The list must include 
prices assigned to the assets not eligible for CNS. Unless there are 
discrepancies between the receiving broker-dealer's list of the 
customer's assets and the delivering broker-dealer's list, transfer of 
the account generally takes place four business days later.
    On settlement date, NSCC automatically debits the delivering 
broker's settlement account at NSCC with the market value of the assets 
being transferred through the ACAT service and credits the receiving 
broker's settlement account with the same amount. The resulting 
settlement obligations appear on the members' initial settlement 
statements issued in the afternoon. When the assets which are not CNS 
eligible assets are delivered through NSCC's envelope delivery service, 
NSCC credits the delivering broker's settlement account with the value 
of those assets and debits a corresponding amount from the receiving 
broker's settlement account. Because assets delivered through NSCC's 
envelope delivery service must be submitted by 11:30 a.m., the 
delivering broker's initial settlement statement will reflect both the 
debit from the initial ACAT request and the corresponding credit from 
the delivery of assets resulting in no change to such member's overall 
settlement obligations. If the assets are not delivered, the delivering 
broker's settlement bank would be debited the assigned value of the 
assets at the end-of-day settlement. These funds will be credited to 
the delivering broker when it delivers the customer's assets.
    CNS assets submitted for transfer through the ACAT system are 
systematically priced. Because assets not eligible for CNS (e.g., 
limited partnerships, mortgaged backed securities, zero coupon bonds, 
foreign securities, U.S. government and U.S. agency securities, and 
thinly traded municipal bonds) typically do not have a system price, 
NSCC must assign an asset value to any such assets submitted for 
transfer through the ACAT service. NSCC ascribes assets not eligible 
for CNS a value by using a pricing service.\6\ If there is no price 
available from a pricing service, NSCC assigns a value based on the 
higher of (i) the price submitted by the delivering broker or (ii) the 
price indicated by an industry defined default price matrix.\7\ The 
default price matrix employs security category indicators and specifies 
a default price for each identified security category. For example, 
domestic stocks are valued at $1.00 per share and domestic corporate 
bonds and municipal bonds are valued at $85 per $100 principle amount. 
Once the default value is established, changes by participants are not 
permitted.
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    \6\ NSCC will use the following pricing services (listed in 
order of preference). Equities: The New York Stock Exchange, the 
American Stock Exchange, NASDAQ, Vancouver Stock Exchange, average 
OTC comparison system price, Interactive Data Financial Times 
information, previous day's system price, or last available price in 
system. Bonds: Average Price in the Bond Comparison System for 
trades compared on T or T+1, average price in the Bond Comparison 
System for trades compared on T+2, average price in the Bond 
Comparison System for trades compared on T+3 or older, Interactive 
Data Financial Times information, previous day's system price, last 
available price in system, or for municipal bonds only the price 
obtained from J.J. Kenny S&P if the last available system price is 
five days old or older.
    \7\ The default matrix was developed in conjunction with the New 
York Stock Exchange, the Securities Industry Association Account 
Transfer Division, and the National Association of Securities 
Dealers.
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II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of Sections 17A(b)(3) 
(A) and (F).\8\ Sections 17A(b)(3) (A) and (F) require that the rules 
of a clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and to foster 
cooperation and coordination with person engaged in the clearance and 
settlement of securities transactions. The Commission believes that 
NSCC's rule change meets these standards because establishment of 
systemized standard default prices for assets not eligible for CNS 
which are transferred through the ACAT service provides an incentive 
for broker-dealers holding customer assets to promptly deliver such 
securities. The proposed rule change also should foster cooperation and 
coordination between brokerage firms and NSCC by establishing a 
standard method by which such assets are priced in the ACAT service. 
This method of pricing should decrease discrepancies with respect to 
asset valuation and should reduce the delivering broker's exposure from 
overvaluation of assets and the receiving broker's exposure from 
undervaluation of assets.
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    \8\ 15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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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 Sections 17A(b)(3) (A) and (F) 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-96-01) be and hereby is 
approved.


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-11537 Filed 5-8-96; 8:45 am]
BILLING CODE 8010-01-M