Document ID: SEC-2007-0343-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Securities Clearing Corp.
Posted Date: 2007-03-08T05:00Z

[Federal Register: March 8, 2007 (Volume 72, Number 45)]
[Notices]               
[Page 10581]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08mr07-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55366; File No. SR-NSCC-2006-05]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change Relating 
to the Wind-Down of a Member

February 27, 2007.

I. Introduction

    On March 28, 2006, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') and on September 28, 2006, amended proposed rule 
change SR-NSCC-2006-05 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 20, 2006.\2\ No comment letters 
were received. For the reasons discussed below, the Commission is 
granting approval of the proposed rule change as modified by Amendment 
No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 54928 (December 13, 
2006), 71 FR 76414.
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II. Description

    The rule change adds a new Rule 42, Wind-Down of a Member, Fund 
Member, or Insurance Carrier Member, to NSCC's Rules to address a 
situation where a member notifies NSCC that it intends to wind down its 
activities, and NSCC determines in its discretion that it must take 
special action in order to protect itself and its participants.\3\
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    \3\ Similar proposed rule changes have been filed by The 
Depository Trust Company [File No. SR-DTC-2006-07] and the Fixed 
Income Clearing Corporation [File No. SR-FICC-2006-05].
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    The rule allows NSCC to determine that a member is a wind-down 
member and sets forth the conditions NSCC using its discretion may 
place on a wind-down member and the actions NSCC using its discretion 
may take with respect to a wind-down member to protect itself and its 
members. Such actions may include restricting or modifying the wind-
down member's use of any or all of NSCC's services and requiring the 
wind-down member to post increased clearing fund deposits. NSCC will 
retain all of its other rights set forth in its rules and membership 
agreements, including the right to declare the wind-down member 
insolvent, if applicable, and to cease to act for the member.
    The rule is designed to ensure that NSCC has the needed flexibility 
to appropriately manage the risks presented by an entity in crisis that 
remains a member of NSCC. This is particularly important to preserve 
orderly settlement in the marketplace and to minimize the risk of loss 
to NSCC and its members. The rule sets forth in a single rule NSCC's 
rights and the actions it may take in such a situation. Currently, 
these rights and actions are either permitted elsewhere in NSCC's rules 
or are permitted pursuant to NSCC's emergency authority. By placing 
NSCC's rights in a single rule, however, the rule change should provide 
clarity and a clear legal basis for NSCC's rights or actions taken with 
respect to a wind-down member. NSCC also believes that the proposed 
rule is designed to minimize the need for rule waivers.

III. Discussion

    Section 17A(b)(3)(F) of the Act provides that the rules of a 
clearing agency should be designed to safeguard securities and funds 
which are in the custody or control of the clearing agency or for which 
it is responsible.\4\ The sudden or unanticipated financial or 
operational difficulties of a clearing member or the termination of its 
trading activities may create uncertainty among industry participants 
about NSCC's ability to meet its settlement obligations on time and 
concern about the risk to the assets of the clearing agency or of its 
members. The proposed rule change clarifies that NSCC has discretionary 
power in a wind-down situation to take certain actions to assure the 
ongoing operations of itself and to protect the securities and funds of 
NSCC and of its members. By making clear in a single rule the authority 
NSCC has under its rules to facilitate the orderly wind down of a 
member's activities, the proposed rule change is designed to assure the 
safeguarding of securities or funds which are in NSCC's control or for 
which it is responsible.\5\
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
    \5\ 15 U.S.C. 78q-1(b)(3)(F).
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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 Section 17A of the Act and the rules and regulations 
thereunder.\6\
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    \6\ 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).
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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-2006-05), as modified 
by Amendment No. 1, be, and hereby is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-4054 Filed 3-7-07; 8:45 am]

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