Document ID: SEC-2009-0203-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed RuleChanges: National Securities Clearing Corp.
Posted Date: 2009-02-11T05:00Z

[Federal Register: February 11, 2009 (Volume 74, Number 27)]
[Notices]
[Page 6933-6934]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11fe09-99]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59321; File No. SR-NSCC-2008-08]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Granting Approval of a Proposed Rule Change To Amend
Rules To Add an Agreement From Fund Members That Submit Mutual Fund
Profile Information

January 30, 2009.

I. Introduction

    On September 30, 2008, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2008-08 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\
Notice of the proposal was published in the Federal Register on
December 29, 2008.\2\ For the reasons discussed below, the Commission
is granting approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 59105 (December 16,
2008), 73 FR 79530.
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II. Description

    The Mutual Fund Profile Service (``Profile'') is a central data
source for comprehensive fund prospectus and operational information
relating to mutual funds. The repository is a recognized industry
standard for information critical to the distribution of mutual funds
in the third-party market.
    Profile is organized into three databases: (1) Security Issue
Database (containing information such as Security ID number, security
name, fee structure, investment objectives, breakpoint schedule data,
and blue sky eligibility); (2) Participant Database (containing contact
information, NSCC processing capabilities and restrictions or
requirements); and (3) Distribution Database (containing projected or
actual distributions, capital gains and dividend amounts and details,
and commission information). NSCC fund members input data regarding
their mutual funds into the Security Issue and Participant Profile
databases. Profile is then accessed by the NSCC members that are mutual
fund distributors.
    NSCC has recently enhanced the Security Issue Database in Profile
to include new data fields needed by distributors and to re-engineer
the structure of the data hierarchy to be easier for fund members to
populate their data. Some of the enhancements to the Profile database
were initiated in response to a recommendation in the Report
(``Report'') of The Joint NASD/Industry Task Force on Breakpoints
(``Task Force'').\3\ NSCC has also adopted measures to assist funds
members in validating their data once it is in the Profile database by
developing reports that note probable inconsistencies among related
data fields, by arranging for free access by fund members to a vendor
tool that verifies Profile data, and by reaching out to fund members in
the form of personal contacts and an on-line web demonstration on
populating data into the Profile database.
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    \3\ The Task Force was formed in 2003 by the National
Association of Securities Dealers (``NASD'', now ``FINRA'') with the
participation of major fund companies, broker-dealers, NSCC, the
Securities Industries Association and the Investment Company
Institute, in response to the NASD examination findings in which it
was discovered that investors frequently failed to receive
appropriate breakpoint discounts in front-end sales load mutual fund
transactions. Recommendation (B) of the report stated that NSCC's
Profile database should be expanded to include breakpoint
aggregation terms and rules for all fund families and should include
identification of both link-eligible products (for example,
retirement plans, annuities, and insurance products and college
savings plans with mutual fund holdings). The Report also noted that
for this database to be effective, it must also be comprehensive.
Accordingly, mutual funds must fully and accurately populate the
database and must update the database on a timely basis.
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    Consistent with its efforts to expand Profile's capabilities as a
comprehensive and accurate source for the mutual fund distribution
industry, NSCC is now amending its rules to add an agreement that
requires NSCC fund members to have taken reasonable steps to validate
the accuracy of their data they submit to the Profile database. This
agreement is not intended to be either a basis for independent legal
rights against the fund member or is any third party intended or
permitted to rely upon it as a representation to a third party or upon
which a third-party can base any legal rights. NSCC requires similar
agreements from its members elsewhere in its rules and in its
membership agreement, such as the agreement required of a fund member
in Section 2 of Rule 51 to not submit a transaction through NSCC's
Mutual Fund Services in contravention of any applicable regulatory
requirements.

[[Page 6934]]

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions, assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, to
foster cooperation and coordination with persons engaged in the
clearance and settlement of securities transactions, to remove
impediments to and perfect the mechanism of a national system for the
prompt and accurate clearance and settlement of securities
transactions, and, in general, to protect investors and the public
interest.\4\ The rule change is consistent with the requirements of
Section 17A of the Act, because it should promote the prompt and
accurate clearance and settlement of securities transactions by
modifying an NSCC service in order to reduce the inherent risks
associated with securities certificates. Since NSCC's Profile database
is widely used by mutual fund distributors in processing the
distribution of mutual fund shares, the proposed rule change should
facilitate the prompt and accurate clearance and settlement of
securities transactions by assisting in the overall processing
efficiency of mutual fund transactions and reducing processing
difficulties resulting from incomplete or inaccurate information.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    Accordingly, for the reasons stated above the Commission believes
that the rule change is consistent with NSCC's obligation under Section
17A of the Act.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular with the requirements of Section 17A of the Act and the
rules and regulations thereunder.\5\
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    \5\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NSCC-2008-08) be and hereby
is approved.

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-2854 Filed 2-10-09; 8:45 am]

BILLING CODE 8011-01-P