[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Notices]
[Pages 30265-30266]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15182]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37290; File No. SR-NSCC-96-05]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change Modifying the 
Automated Customer Account Transfer Service To Facilitate the Transfer 
of Shares Being Tracked in the Initial Public Offering Tracking System

June 7, 1996.
    On February 27, 1996, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-NSCC-96-05) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') which modifies NSCC's Automated Customer Account Transfer 
(``ACAT'') service.\1\ Notice of the proposal was published on March 
12, 1996, in the Federal Register to solicit comments on the proposed 
rule change.\2\ 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\ Securities Exchange Act Release No. 36931 (March 6, 1996), 
61 FR 10050.
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I. Description

    NSCC's proposed rule change modifies NSCC's rules relating to its 
ACAT service to facilitate the transfer of shares which are purchased 
in an initial public offering (``IPO'') and which are being tracked in 
The Depository Trust Company's (``DTC'') IPO Tracking System.\3\
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    \3\ This filing is made in conjunction with DTC's proposed rule 
change seeking to implement the IPO Tracking System. The IPO 
Tracking System will allow lead managers and syndicate members of 
equity underwritings to monitor flipping of new issues in an 
automated book-entry environment. For a complete description of the 
IPO Tracking System, refer to Securities Exchange Act Release No. 
37208 (May 13, 1996), 61 FR 25253 (order approving a proposed rule 
change seeking to implement the IPO Tracking System).
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    NSCC, through its ACAT service, currently provides an automated and 
standardized service for the transfer of assets in a customer account 
from one brokerage firm to another. The proposed rule change modifies 
NSCC's Rule 50 to state that shares to be transferred through the ACAT 
system that are being tracked through DTC's IPO Tracking System will 
not be entered into NSCC's Continuous Net Settlement (``CNS'') 
accounting operation even if such shares are CNS eligible.\4\ Rule 50 
also states that NSCC will prepare ACAT receive and deliver orders for 
such shares.
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    \4\ CNS Eligible securities are those securities that are 
eligible for transfer on the books of a securities depository 
registered with the Commission under Section 17A of the Act and that 
are contained in a list maintained by NSCC as subject to clearance 
and settlement in its CNS system.
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    Under DTC's IPO Tracking System, broker-dealers will have IPO 
control accounts at DTC for IPO shares and free accounts for shares 
purchased in the secondary market. The segregated accounts aid in 
tracking the movement of IPO shares. In NSCC's CNS system, deliver 
obligations must be made from the free account. If IPO shares for which 
there is an ACAT deliver obligation were to settle in NSCC's CNS 
system, the shares would have to be moved out of the DTC member's 
segregated IPO control account and into the DTC member's free account. 
The IPO Tracking System would register the movement from the IPO 
control account into the free account as a flip \5\ and would no longer 
be able to track the shares.
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    \5\ Flipping occurs when a syndicate's lead manager is 
supporting the IPO with a stabilization bid (i.e., the lead manager 
is purchasing shares in the secondary market in order to keep the 
price of the issue from dropping its initial offering price) and 
when securities that had been distributed to investors are resold by 
those investors in the secondary market back to the syndicate. The 
lead manager may wish to identify flipped transactions so that 
underwriting concessions (the discount from the offering price 
received by the syndicate member) can be recovered from the 
appropriate syndicate members.
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    NSCC's proposed rule change requires IPO shares transferred through 
the ACAT service to be delivered ex-CNS (i.e., outside of the CNS 
system). The shares will be delivered pursuant to DTC's new IPO 
customer account transfer function where the shares will continue to be 
tracked and will not register as flipped even though they are subject 
to an ACAT deliver obligation.

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).\6\ 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. The Commission 
believes that NSCC's rule change meets this standard because by 
implementing these changes to its ACAT service, NSCC will make it 
easier and more efficient to transfer IPO securities held in customer 
accounts at one broker-dealer to another broker-dealer. Without this 
enhancement, IPO shares transferred through NSCC's ACAT service from 
one brokerage account to another would register as a flip in DTC's IPO 
Tracking System. When shares register as a flip, syndicate members may 
forfeit the concession they earn from the initial sale to the retail 
customer. As a result, retail customers could be discouraged from 
transferring their accounts during the tracking period. As a result of 
this rule change, transfers of customer IPO securities through DTC's 
IPO Tracking System will be accurately recorded thereby enhancing 
retail investors' ability to transfer their accounts.
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    \6\ 15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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    The proposed rule change is an important component in creating an 
accurate tracking system. The tracking system is intended to reduce the 
number of IPO transactions that settle through delivery of physical 
certificates and to increase the number of IMP transactions settled 
through book entry. By enhancing the IPO Tracking System as described 
above, the proposal will further promote the prompt and

[[Page 30266]]

accurate clearance and settlement of securities transactions.

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-96-05) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-15182 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-M