Document ID: SEC-2008-0152-0001
Agency: sec
Document Type: Notice
Title: The Correspondent Clearing Service was not designed as a mechanism to permit a Special Representative, acting as a Qualified Special Representative (``QSR), to submit original locked-in trade data, and it should not be used as such. A QSR is a Member that either (i) operates an automated execution system where it is always the contra- side of every trade, (ii) is the parent or affiliate of an enti
Posted Date: 2008-01-30T05:00Z

[Federal Register: January 30, 2008 (Volume 73, Number 20)]
[Notices]               
[Page 5617-5618]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja08-130]                         

[[Page 5617]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57194; File No. SR-NSCC-2007-16]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change as Modified by Amendment Nos. 1 and 2 To Provide 
Clarification With Respect to the Correspondent Clearing Service and To 
Make Technical Changes to the Rules and Procedures Relative to Trade 
Recording and Special Representative Services

January 24, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 18, 2007, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on January 15, 
2008, and on January 22, 2008, amended 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.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the proposed rule change is to: (1) Clarify the 
appropriate use of NSCC's Correspondent Clearing Service and (2) make 
technical corrections, clarification, and organizational changes 
relative to its Trade Recording and Special Representative Services.

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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by NSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to: (1) Clarify the 
appropriate use of NSCC's Correspondent Clearing Service and (2) make 
technical corrections, clarification, and organizational changes 
relative to its Trade Recording and Special Representative Services.
1. Clarification of Correspondent Clearing Service
    NSCC is modifying its Procedure IV (Special Representative Service) 
to clarify the appropriate use of the Correspondent Clearing Service.
    The Correspondent Clearing Service is designed to provide an 
automated vehicle by which a Member, acting as a Special 
Representative, may move a position that it has in the process of 
clearance at NSCC to the account of another Member (its correspondent) 
on whose behalf the original trade was executed. The Correspondent 
Clearing Service is not a mechanism for original trade submission.\3\ 
For example, Member A that sold securities for Member B (its 
correspondent) on the NYSE would have the sell side of the transaction 
submitted by the NYSE in the normal Trade Recording Operation thereby 
incurring a CNS obligation to deliver the shares sold. Acting as 
Special Representative for its correspondent Member B, Member A would 
submit transaction data showing itself as the buyer of those securities 
and its correspondent Member B as the seller. As a result, Member A 
would net out in the CNS System (its sell side netting against its buy 
side) and its correspondent Member B would incur a CNS obligation to 
deliver. In other words, the service provides for the correspondent's 
obligation to be substituted for that of the Special Representative.
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    \3\ The term ``original trade'' is used here solely to 
distinguish between a trade executed in the marketplace by the 
Special Representative and a transaction booked for accounting 
purposes to accommodate the movement of positions between Members as 
permitted in Procedure IV (Special Representative Service).
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    The Correspondent Clearing Service was not designed as a mechanism 
to permit a Special Representative, acting as a Qualified Special 
Representative (``QSR''), to submit original locked-in trade data, and 
it should not be used as such. A QSR is a Member that either (i) 
operates an automated execution system where it is always the contra-
side of every trade, (ii) is the parent or affiliate of an entity 
operating such an automated system, where it is the contra-side of 
every trade, or (iii) clears for a broker-dealer that operates such a 
system, and the subscribers to the system acknowledge the clearing 
Member's role in the clearance and settlement of these trades.
    Accordingly, the proposed revisions provide that the Correspondent 
Clearing Service may only be used in the following situations: (1) To 
accommodate a Member with multiple affiliate accounts that wishes to 
move a position resulting from an ``original trade'' in the process of 
clearance from one affiliate account to another and (2) to accommodate 
a Member that relies on its Special Representative to execute a trade 
in a market that the Member is precluded from due either to membership 
requirements (e.g., membership requirement for access to markets) or 
applicable regulation, in order that the resulting position be moved 
from the Special Representative to that Member (including direct market 
access offsets).
2. Technical Corrections
     At this time, as part of updating its Rules and Procedures 
relative to the Trade Recording and Special Representative Services, 
NSCC is making certain technical corrections, clarifications, and 
organizational changes to:
    (1) Rule 7, including moving the definitions of ``Special 
Representative,'' ``Qualified Special Representative,'' and ``Index 
Receipt Agent'' from Rule 39 (where they currently appear) to Rule 7 
(where these terms are first used) and renumbering the rules 
accordingly; and
    (2) Procedure II (Trade Comparison and Recording Service) to (i) 
add clarifying language to the introductory paragraph to describe the 
procedure used by NSCC to confirm locked-in trade data and (ii) add 
back language relating to receipt of locked-in trade data from QSRs 
that was inadvertently deleted in error in rule change SR-NSCC SR-2003-
12.\4\
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    \4\ Securities Exchange Act Release No. 48141 (July 8, 2003), 68 
FR 42153 [File No. SR-NSCC-2003-12].
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     NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(A) of the Act \5\ and the rules and 
regulations thereunder applicable to NSCC because it should better 
enable NSCC to facilitate the prompt and accurate clearance and 
settlement of securities transactions by clarifying the purpose of its 
Correspondent Clearing Service and by making needed changes to its 
Trade

[[Page 5618]]

Recording and Special Representative Services.
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    \5\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition

     NSCC does not believe that the proposed rule change will have any 
impact on 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

     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)(i) of the Act \6\ and Rule 19b-4(f)(1) 
\7\ thereunder because the proposed rule change constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule. At any time within 
sixty days of the filing of the proposed rule changes, the Commission 
may summarily abrogate such rule changes 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.\8\
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    \6\ 15 U.S.C. 78s(b)(3)(A)(i).
    \7\ 17 CFR 240.19b-4(f)(1).
    \8\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
Section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on January 22, 2008, the date on which the last 
amendment to the proposed rule change was filed with the Commission. 
15 U.S.C. 78s(b)(3)(C).
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IV. Solicitation of Comments

     Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
changes are 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 rule-comments@sec.gov. Please include 

File Number SR-NSCC-2007-16 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NSCC-2007-16. 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 changes that are 
filed with the Commission, and all written communications relating to 
the proposed rule changes 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.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-2007-16 and should be submitted on 
or before February 20, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
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    \9\ 17 cfr 200.303(A)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-1597 Filed 1-29-08; 8:45 am]

BILLING CODE 8011-01-P