55836 Federal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Notices 

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

2Securities Exchange Act Release No. 62567 (July 

14, 2010), 75 FR 44828 (July 29, 2010) (SR–NSCC– 

2010–07). 

3 15 U.S.C. 78q–1. 

4 15 U.S.C. 78q–1(b)(3)(F). 

5 15 U.S.C. 78q–1. 

6 15 U.S.C. 78s(b)(2). 

7 In approving the proposed rule change, the 

Commission considered the proposal’s impact on 

efficiency, competition, and capital formation. 15 

U.S.C. 78c(f). 

8 17 CFR 200.30–3(a)(12). 

Other matters relating to enforcement 

proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

For further information and to 

ascertain what, if any, matters have been 

added, deleted or postponed, please 

contact: 

The Office of the Secretary at (202) 

551–5400. 

Dated: September 9, 2010. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–22900 Filed 9–10–10; 11:15 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–62849; File No. SR–NSCC– 

2010–07] 

Self-Regulatory Organizations; 

National Securities Clearing 

Corporation; Order Approving 

Proposed Rule Change To Amend 

Addendum C of its Rules and 

Procedures To Implement Risk 

Enhancements To its Stock Borrow 

Program 

September 3, 2010. 

I. Introduction 

On July 1, 2010, National Securities 

Clearing Corporation (‘‘NSCC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule change SR–NSCC–2010–07 

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

Securities Exchange Act of 1934 

(‘‘Act’’).1 The proposed rule change was 

published for comment in the Federal 

Register on July 29, 2010.2 No comment 

letters were received on the proposal. 

This order approves the proposal. 

II. Description 

NSCC is amending its Rules to 

implement risk enhancements whereby 

municipal and corporate bonds will be 

ineligible for lending through NSCC’s 

Stock Borrow Program (‘‘SBP’’) and 

Members will be prevented from 

lending through the SBP securities that 

were issued by that Member or any of 

its affiliates. 

1. SBP Background 

In the course of daily operations, for 

various reasons, NSCC’s Continuous Net 

Settlement (‘‘CNS’’) system often 

requires a number of shares for a 

particular security that exceeds the 

number of shares available to NSCC 

through Member deliveries. To improve 

the efficiency of the clearing system in 

such situations, NSCC’s has 

implemented automated stock borrow 

procedures to meet these needs for 

shares of a particular CNS security. 

Members wishing to participate in the 

SBP notify NSCC each day of the 

securities they have on deposit at The 

Depository Trust Company (‘‘DTC’’) that 

are available to be borrowed by NSCC. 

After NSCC’s nighttime processing of 

regular deliveries, NSCC borrows from 

its Members the securities that have 

been identified as available for the SBP 

and that are needed to fulfill deliveries. 

The daytime and nighttime SBP are 

separate processes. Members can choose 

to participate only in the nighttime SBP, 

only in the daytime SBP, or in both. 

Similarly, securities needed for 

unfulfilled delivery obligations during 

the daytime processing are borrowed 

from Members that have made securities 

available. NSCC place the borrowed 

securities in a special CNS subaccount, 

and the lending Member is advanced 

the full market value of the borrowed 

securities until they are returned. As 

securities become available, borrowed 

securities are returned through normal 

long allocations against the special 

subaccount. 

2. Proposed Amendment to Addendum 

C of the NSCC’s Rules 

After reviewing the SBP, NSCC 

determined that it faced increased risk 

when it borrows municipal or corporate 

bonds and when it borrows securities 

issued by the lending Member or any of 

its affiliates. First, if NSCC is unable to 

close out in a timely manner long 

positions in corporate or municipal 

bonds that were created by loans of such 

securities from a Member that becomes 

insolvent, then NSCC may possess high 

concentrations of corporate or 

municipal bonds that it cannot deliver 

to the insolvent Member. Consequently, 

NSCC bears an increased risk of loss 

because it would be forced to liquidate 

those corporate or municipal bond 

positions in thinly traded markets. 

Second, NSCC incurs credit exposure in 

instances where it borrows securities 

from a Member that is also the issuer of 

the securities or is an affiliate of the 

issuer. In the event that such a Member 

becomes insolvent, then NSCC incurs 

the additional risk that the securities 

loaned through the SBP issued by the 

Member or its affiliate and will likely 

decline in value. 

In both situations, NSCC believes that 

the risks posed by these SBP practices 

outweigh the benefits to NSCC and its 

Members. Accordingly, NSCC is 

amending its Rules so that municipal 

and corporate bonds will be ineligible 

for lending through the SBP and so that 

Members will be unable to lend 

securities through the SBP that are 

issued by the Member or any of its 

affiliates. Members will be advised of 

the implementation date for these 

changes through the issuance of NSCC 

Important Notices. 

III. Discussion 

The Commission finds that the 

proposed rule change is consistent with 

the requirements of the Act 3 and the 

rules and regulations thereunder 

applicable to NSCC. In particular, the 

Commission believes that the changes 

NSCC is making to the SBP to establish 

appropriate safeguards and enhanced 

efficiency to mitigate risks to NSCC 

from the SBP are consistent with 

NSCC’s obligations under Section 

17A(b)(3)(F).4 That section requires, 

among other things, that the rules of a 

clearing agency are designed to assure 

the safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible. 

IV. 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 the 

requirements of Section 17A of the Act 5

and the rules and regulations 

thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,6 that the 

proposed rule change (File No. SR– 

NSCC–2010–07) be, and hereby is, 

approved.7

For the Commission by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–22801 Filed 9–13–10; 8:45 am] 

BILLING CODE 8010–01–P 


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