Document ID: SEC-2008-1129-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2008-08-12T04:00Z

[Federal Register: August 12, 2008 (Volume 73, Number 156)]
[Notices]               
[Page 46956-46958]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12au08-92]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58300; File No. SR-NSCC-2008-06]

 
Self-Regulatory Organizations; The National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Enhance the Equity Options Service To Include Bond 
Options

August 4, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 25, 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.
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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

    NSCC proposes to amend its rules in order to enhance the NSCC 
Equity Options Service by extending similar processing to bond options 
transactions. The enhanced service will be called the ``NSCC Equity 
Options and Bond Options Service.''\2\
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    \2\ Changes are to the rule text that appears in the electronic 
manual of NSCC found at http://www.nscc.com/legal/.

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[[Page 46957]]

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\
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    \3\ The Commission has modified the text of the summaries 
prepared by the NSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The proposed rule change amends Addendum M to NSCC's Rules and 
Procedures (``Addendum M''). Addendum M currently relates to a 
confirmation and matching service for over-the-counter (``OTC'') U.S. 
equity options transactions and their associated cash flows called the 
NSCC Equity Options Service. The proposed rule change enhances the NSCC 
Equity Options Service by extending similar processing to bond options 
transactions. The enhanced service will be called the ``NSCC Equity 
Options and Bond Options Service.''
    The Commission approved NSCC's filing on Form 19b-4, File No. SR-
NSCC-2005-04, which proposed adding, on a permanent basis, Addendum M 
to NSCC's Rules and Procedures to establish the NSCC Equity Options 
Service.\4\ This filing proposes a rule change to amend Addendum M to 
enhance the NSCC Equity Options Service by extending processing to bond 
option transactions. Because the bond options service to be provided by 
NSCC would be largely identical to the existing NSCC Equity Options 
Service, this filing substantially restates the information contained 
in the previous filings regarding equity options transactions.
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    \4\ The Commission approved NSCC's original filing on Form 19b-
4, File No. SR-NSCC-2004-04 (the ``Original Filing'') on a temporary 
basis through May 31, 2005, pending evaluation of the service. A 
subsequent filing, File No. SR-NSCC-2005-04 (the ``Subsequent 
Filing''), provided information regarding findings related to the 
evaluation of the service, restated the Original Filing, as amended, 
and sought permanent approval of the service. The Subsequent Filing 
was approved May 26, 2005.
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    In response to the need for automation of the trade confirmation 
process in the derivatives industry, the corporate parent of NSCC, The 
Depository Trust & Clearing Corporation (``DTCC''), in 2003 created a 
subsidiary, DTCC Deriv/SERV LLC (``Deriv/SERV''). Deriv/SERV currently 
offers a confirmation and matching service for OTC credit default swaps 
transactions, interest rate swap transactions and equity derivative 
transactions and their associated cash flows. This service is widely 
used, including by all of the largest OTC credit default swaps dealers.
    Deriv/SERV has developed a confirmation and matching service for 
OTC bond options transactions and their associated cash flows (the 
``Deriv/SERV Bond Options Service''). The Deriv/SERV Bond Options 
Service provides for confirmation and matching either between two OTC 
bond options dealers or between an OTC bond options dealer and its buy-
side customer. Where either the buyer or the seller of an equity option 
or a bond option is a U.S. person and the equity option or bond option 
is issued by a U.S. issuer (a ``U.S. Equity Option Transaction'' or 
``U.S. Bond Option Transaction''), NSCC will provide the NSCC Equity 
Options and Bond Options Service to Deriv/SERV pursuant to the NSCC/
DTCC Deriv/SERV Service Agreement (``Service Agreement'').\5\ Deriv/
SERV is a Data Services Only Member of NSCC.\6\
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    \5\ The host computer and other automated facilities associated 
with the NSCC Equity Options and Bond Options Service are provided 
by DTC pursuant to service agreements between NSCC and DTCC and 
between DTCC and DTC.
    \6\ NSCC Rules and Procedures, Rule 31.
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    The Deriv/SERV Bond Options Service is operated pursuant to the 
operating procedures of Deriv/SERV (the ``Deriv/SERV Operating 
Procedures''). U.S. Bond Option Transactions are also subject to NSCC's 
Addendum M. Therefore, each user of the Deriv/SERV Bond Options Service 
enters into an agreement with Deriv/SERV obligating the user to abide 
by the terms of the Deriv/SERV Operating Procedures and obligating it 
to abide by Addendum M for any U.S. Bond Option Transactions. Pursuant 
to the Service Agreement, NSCC has the right to require Deriv/SERV to 
cause Deriv/SERV's users to abide by the terms of Addendum M. In 
addition, pursuant to the Service Agreement, NSCC and Deriv/SERV have 
agreed that should the Commission request that NSCC provide to the 
Commission any information relating to the NSCC Equity Options and Bond 
Options Service, Deriv/SERV will provide any such information in its 
possession to NSCC so that NSCC may provide such information to the 
Commission.
    NSCC will neither be responsible for the content of the messages 
transmitted through the NSCC Equity Options and Bond Options Service 
nor be responsible for any errors, omissions, or delays that may occur 
relating to the NSCC Equity Options and Bond Options Service in the 
absence of gross negligence on NSCC's part. Both the Service Agreement 
and the Deriv/SERV Operating Procedures provide that NSCC has no 
liability in connection with the NSCC Equity Options and Bond Options 
Service in the absence of gross negligence on NSCC's part. Because the 
NSCC Equity Options and Bond Options Service does not involve money 
settlement, securities clearance, or netting through the facilities of 
NSCC, it is a nonguaranteed service of NSCC.\7\
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    \7\ NSCC offers certain ``guaranteed'' services through its CNS 
system, in which NSCC as a central counterparty provides settlement-
related guarantees regarding certain trades cleared and netted at 
NSCC. NSCC also offers ``nonguaranteed'' services, such as NSCC's 
Mutual Fund and Insurance Processing Services, in which members do 
not receive the protections of the NSCC guarantee. Some of NSCC's 
nonguaranteed services entail settlement of funds through NSCC on a 
nonguaranteed basis (e.g., NSCC's FundSERV(r) service); other 
nonguaranteed services involve the communication of information only 
without settlement of transactions or funds through the facilities 
of NSCC (e.g., NSCC's Profile service in NSCC's Mutual Fund 
Services). The NSCC Equity Options and Bond Options Service is of 
this latter type; i.e., a nonguaranteed service limited to the 
communication of information only, which does not involve settlement 
of securities transactions or funds through the facilities of NSCC. 
In its Matching Release, the Commission concluded that matching 
constitutes a clearing agency function, specifically the 
``comparison of data respecting the terms of settlement of 
securities transactions,'' within the meaning of Section 3(a)(23)(A) 
of the Act. Securities Exchange Act Release No. 39829 (April 6, 
1998), 63 FR 17943 (File No. S7-10-98).
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    Deriv/SERV will charge its users fees in connection with the Deriv/
Serv Bond Options Service and pursuant to the Service Agreement will 
make payments to NSCC for the services that NSCC is providing. NSCC 
will file proposed rule changes under Section 19(b) of the Act for fees 
that NSCC charges to Deriv/SERV for the NSCC Equity Options and Bond 
Options Service and for any changes made by NSCC to the NSCC Equity 
Options and Bond Options Service.
    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because the implementation of the proposal will provide for 
the prompt and accurate clearance and settlement of U.S. OTC equity 
option transactions processed through the NSCC Equity Options and Bond 
Options Service by facilitating the transmission

[[Page 46958]]

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.
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    \8\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \9\ 17 CFR 240.19b-4(f)(4).
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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 
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 rule-comments@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\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-18548 Filed 8-11-08; 8:45 am]

BILLING CODE 8010-01-P