46958 Federal Register / Vol. 73, No. 156 / Tuesday, August 12, 2008 / Notices 

8 15 U.S.C. 78s(b)(3)(A)(iii). 

9 17 CFR 240.19b–4(f)(4). 10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Commission has modified the text of the 

summaries prepared by NSCC. 

of standardized information on a 

centralized communications platform. 

This will reduce processing errors, 

delays, and risks that are typically 

associated with manual processes. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NSCC does not believe that the 

proposed rule change will impose any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments relating to the 

proposed rule change have been 

solicited or received. NSCC will notify 

the Commission of any written 

comments received by NSCC. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective upon filing pursuant to Section 

19(b)(3)(A)(iii) of the Act 8 and Rule 

19b–4(f)(4) 9 thereunder in that it: (i) 

Does not adversely affect the 

safeguarding of securities or funds in 

the custody or control of the clearing 

agency or for which it is responsible and 

(ii) does not significantly affect the 

respective rights or obligations of the 

clearing agency or persons using the 

service. At any time within sixty days 

of the filing of such rule change, the 

Commission may summarily abrogate 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml) or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NSCC–2008–06 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR-NSCC–2008–06. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filings also will be 

available for inspection and copying at 

the principal office of NSCC and on 

NSCC’s Web site, http://www.nscc.com/ 

legal/. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NSCC–2008–06 and should 

be submitted on or before September 2, 

2008. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–18548 Filed 8–11–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58314; File No. SR–NSCC–

2008–07] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Notice of Filing of 

Proposed Rule Change To Enhance 

Processing of Exchange-Traded Funds 

August 5, 2008. 

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

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on July 22, 

2008 the National Securities Clearing 

Corporation (‘‘NSCC’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change 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 parties. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The proposed rule change seeks to: (i) 

Expand processing of shares in 

exchange-traded funds (‘‘Index 

Receipts’’) to allow for cash as a sole 

component of creations and 

redemptions and (ii) provide for an 

optional shortened processing cycle for 

creates and redeems of Index Receipts 

and their underlying components. 

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 these statements.3

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

NSCC began processing Index 

Receipts with the launch of the first 

exchange-traded fund, the SPDR, in 

1993. NSCC’s Index Receipt processing 


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Federal Register / Vol. 73, No. 156 / Tuesday, August 12, 2008 / Notices 46959 

4NSCC’s current processing functions are set 

forth in Procedure II, Section H of NSCC’s Rules. 

5The balancing amount is designed to 

compensate for any difference between the net asset 

value of the Index Receipt and the value of the 

underlying index. Among other reasons, a 

difference in value could result from the fact that 

an Index Receipt cannot contain fractional shares of 

a security. 

6 In order to account for the risk of unknown 

positions, Risk Management performs a look-back 

calculation to estimate shortened settlement 

volumes and values. The shortened settlement 

component is added to a members’ Clearing Fund 

requirement for 21 days after each shortened 

settlement occurs. 

7Most Index Receipts are created and redeemed 

in units of 50,000. In other words, if a member were 

to create six units it would receive 300,000 shares 

of the Index Receipt securities. 

8The CNS day-cycle is typically run at 11:30 a.m. 

Component securities that are not CNS-eligible 

would be processed through the Balance Order 

Accounting Operation. 

9 If margin is not timely collected on T+1, creates 

and redeems may not be processed. 

supports: (i) The creation of Index 

Receipt units whereby a member will 

deliver the underlying component 

shares to the Index Receipt agent and 

receive Index Receipts and (ii) the 

redemption of Index Receipt units 

whereby a member will deliver the 

Index Receipts and receive the 

underlying components. 

1. Current Process 

Currently, on the day before trade 

date (‘‘T–1’’), an Index Receipt agent 

transmits files to NSCC that contain 

information regarding the underlying 

composition of Index Receipts for 

creates and redeems occurring the next 

business day.4 NSCC compiles the 

information that evening and provides 

members with a portfolio composition 

report listing the composition of Index 

Receipts eligible for processing. The 

report displays the proportionate 

amount of underlying stocks that 

compose each Index Receipt and 

contains a cash component, which is an 

estimation of accrued dividends and 

any necessary balancing amount.5 The 

portfolio information contained in this 

report is used for creation and 

redemption processing the next day, 

which is the Trade Date. On Trade Date, 

by such time as established by NSCC, 

the Index Receipt agent, acting on behalf 

of each member placing an Index 

Receipt order, will report to NSCC the 

number of Index Receipts created and 

redeemed that day. Such a report 

constitutes locked-in transactions 

between the Index Receipt agent and the 

member. The Index Receipt agent also 

will report the final cash amount and a 

transaction amount that represents the 

Index Receipt agent’s transaction fee. 

On the night of Trade Date, NSCC 

transmits an Index Receipt instruction 

detail report to members that had 

activity on Trade Date. The report serves 

as the contract for the creation and 

redemption activity and lists the 

number of component shares that the 

member, depending upon the 

underlying shares’ CNS eligibility, will 

deliver to or receive from CNS on 

settlement date (‘‘T+3’’) or otherwise as 

an item as allotted through the Balance 

Order Accounting System. On the night 

of Trade Date, each Index Receipt 

instruction is separated into its 

underlying stock components, and these 

components are processed through CNS 

or the Balance Order Accounting 

Operation and are incorporated into the 

normal equity clearance and settlement 

process. Unsettled positions in Index 

Receipts and their component securities 

are currently risk managed as ordinary 

activity and guaranteed pursuant to the 

provisions of Addendum K of NSCC’s 

rules. 

2. Proposed Enhancements 

NSCC currently supports the creation 

and redemption of Index Receipts with 

underlying components that are CNS 

eligible securities scheduled to settle on 

a T+3 basis. The Index Receipts and the 

components themselves are processed 

through CNS. Index Receipts that are 

not eligible for processing through 

NSCC are routinely processed outside of 

NSCC. For the past two years, demand 

for NSCC’s create and redeem service 

has increased significantly per annum 

with activity for Index Receipts with 

non-U.S. equity components increasing 

the most. As more fully described 

below, the proposed enhancements will 

allow members to create Index Receipts 

that (i) have underlying securities other 

than domestic equity securities for cash 

as consideration and (ii) will allow an 

optional shortened settlement cycle for 

creates and redeems and their 

underlying components. 

A. Expand the Index Receipt Process To 

Allow for Cash as Sole Component for 

Creations and Redemptions 

Currently all component securities 

must be CNS eligible to qualify for 

NSCC’s create and redeem process. Cash 

is used as a component only for accrued 

dividends and any balancing amount 

but not as a separate underlying 

component. 

NSCC is proposing to expand its 

Index Receipt processing to allow for 

creates and redeems using cash as the 

sole underlying component. This 

enhancement would allow members and 

their agent banks to create and redeem 

Index Receipts whose underlying 

components are not currently eligible 

for processing at NSCC (for example, 

commodity Index Receipts). The Index 

Receipt agent would use the cash to 

purchase the components, the 

settlement of which would occur 

outside of NSCC. 

B. T+1 and T+2 Settlement of Creations 

and Redemptions 

NSCC currently supports the creation 

and redemption of Index Receipts with 

underlying components scheduled to 

settle on a T+3 basis. NSCC is proposing 

to expand its Index Receipt processing 

to allow a member to create and redeem 

Index Receipts on a shortened 

settlement cycle. NSCC also is 

proposing to revise its processing to 

address the timing of the NSCC trade 

guarantee as well as associated trade 

processing and Clearing Fund 

provisions for such shortened 

settlement Index Receipts. 

Currently, shortened settlement for 

standard equity CNS trades (e.g., next 

day settlement) are reported in the 

Consolidated Trade Summary and 

guaranteed on the night of T. NSCC then 

collects Clearing Fund payments at 10 

a.m. on T+1. Because next day settling 

trades are effectively guaranteed in the 

CNS night cycle prior to margining, 

NSCC currently uses a process that takes 

that uncertainty into consideration by 

collecting a ‘‘look-back’’ premium in the 

Clearing Fund calculation.6 Leveraging 

this existing practice for next-day 

settlement of creates and redeems 

would be cost-prohibitive based on the 

large number of ‘‘in kind’’ shares 7 that 

are exchanged in this process. 

NSCC is therefore proposing to delay 

processing of next day settling creates 

and redeems and their underlying 

components until the CNS day cycle on 

T+1.8 These transactions would be 

reported on the Second Supplemental 

Consolidated Trade Summary that is 

generally released mid-day. Delayed 

processing would allow NSCC ample 

time to collect Clearing Fund payments 

prior to guaranteeing the transactions 

and thus obviate the need for the lookback Clearing Fund premium but still 

allow the trades to settle on T+1.9

In addition, NSCC plans to implement 

a new fee for shortened-cycle creates 

and redeems as more fully described 

below. 

Therefore, NSCC proposes to amend 

its Rules as follows to provide for 

settlement of index receipt transactions 

on T+1 or T+2 on an optional basis: 

(i) Amendment of Addendum K 

Regarding Guarantee of Next Day 

Settling Index Receipts 

NSCC proposes to amend Addendum 

K to provide that settlement of creates 


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46960 Federal Register / Vol. 73, No. 156 / Tuesday, August 12, 2008 / Notices 

10 In addition, the transaction must be submitted 

for recording by an Index Receipt agent by such 

cutoff time as designated by the NSCC (pursuant to 

Procedure II). 11 15 U.S.C. 78q–1. 12 17 CFR 200.30–3(a)(12). 

and redeems, including the underlying 

components, on a T+1 basis (including 

T+2 settling as-of creates and redeems 

submitted on T+1) will be guaranteed 

on Settlement Date when NSCC 

determines to complete processing for 

those items in the day cycle (normally, 

11:30 a.m.); provided, however, that the 

transaction is not removed from 

processing as described below.10

(ii) Amendment of Procedure II To 

Allow for Settlement on a Shorter Than 

T+3 Basis 

NSCC proposes to amend Procedure 

II, Section H to provide that: (i) The 

Index Receipt agent may elect for 

settlement of the creates and redeems on 

a T+1 or T+2 basis, (ii) as-of Index 

Receipt creates and redeems will only 

be accepted if submitted by the cut-off 

time designated by NSCC with 

submission of next-day settling creates 

and redeems required by such cut-off 

time on T, (iii) NSCC reserves the right 

to remove Index Receipt transactions 

from processing in the event that the 

applicable member has not met a margin 

call on settlement date, and (iv) next 

day settling creates and redeems 

(including T+2 settling as-of creates and 

redeems submitted on T+1) will be 

posted to the Second Supplemental 

Consolidated Trade Summary and 

processed in the day cycle of the CNS 

Accounting Operation. 

(iii) Amendment of Procedure XV 

(Clearing Fund Formula) 

NSCC proposes to amend Procedure 

XV to provide that creates and redeems 

of Index Receipts, as well as the 

underlying components, will not be 

subject to the ‘‘20-day look back 

provision,’’ which provides for a charge 

based on the average of the member’s 

three highest aggregate calculated 

charges for daily ‘‘Specified (shortened 

cycle) Activity’’ measured over the most 

recent 20 settlement days. 

(iv) Amendment of Addendum A (Fee 

Structure) 

The current fee for regular-way (T+3) 

settlement of creates and redeems is $30 

per create and redeem. To offset 

additional costs associated with 

shortened settlement processing, NSCC 

plans to implement a new fee of $50.00 

per create and redeem with a shortened 

settlement cycle. 

3. Implementation Timeframe 

NSCC proposes to implement the 

changes set forth in this filing in the 

third quarter of 2008. Members will be 

advised of the implementation date 

through issuance of NSCC Important 

Notices. 

NSCC believes that the proposed rule 

change is consistent with the 

requirements of Section 17A of the 

Act 11 and the rules and regulations 

thereunder because accelerated 

settlement of creates and redeems of 

Index Receipts facilitates the prompt 

and accurate clearance and settlement of 

securities transactions. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

NSCC does not believe that the 

proposed rule change will have any 

impact or impose any burden on 

competition. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments relating to the 

proposed rule change have not been 

solicited or received. NSCC will notify 

the Commission of any written 

comments received by NSCC. 

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 the self-regulatory 

organization 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, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml) or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NSCC–2008–07 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street, NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NSCC–2008–07. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filings also will be 

available for inspection and copying at 

the principal office of NSCC and on 

NSCC’s Web site at http:// 

www.dtcc.com/downloads/legal/ 

rule_filings/2008/nscc/2008–07.pdf. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NSCC–2008–07 and should 

be submitted on or before September 2, 

2008. 

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.12

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–18549 Filed 8–11–08; 8:45 am] 

BILLING CODE 8010–01–P 

SMALL BUSINESS ADMINISTRATION 

[Disaster Declaration #11364 and #11365] 

Mississippi Disaster #MS–00023 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice. 


sroberts on PROD1PC70 with NOTICES