Document ID: SEC-2008-1002-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2008-07-18T04:00Z

[Federal Register: July 18, 2008 (Volume 73, Number 139)]
[Notices]               
[Page 41390-41392]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jy08-126]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58123; File No. SR-NSCC-2007-08]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Amend 
Membership Disqualification Criteria Rules

July 9, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 30, 2007, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on February 7, 
2008, and on March 18, 2008, amended the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
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 is seeking to amend its membership disqualification criteria 
rules in an effort to create more uniformity with the rules of the 
Fixed Income Clearing Corporation (``FICC'') and The Depository Trust 
Company (``DTC'').\2\
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    \2\ DTC and FICC have filed proposed rule changes seeking to 
harmonize their membership disqualification criteria rules with each 
other and with NSCC.
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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 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 this filing is to amend the NSCC rules as they 
relate to

[[Page 41391]]

membership disqualification criteria in an effort to create more 
uniformity between the rules of NSCC and the rules of NSCC's 
affiliates, FICC and DTC.
    Currently, Addendum S of the rules sets forth NSCC's policy as to 
standards relating to competence for membership. The Addendum includes 
both objective and subjective factors that may be considered by NSCC in 
its evaluation of an applicant or the continued membership of a 
particular member. Going forward, NSCC is proposing to amend its rules 
to only include those disqualification criteria that can be objectively 
monitored by Risk Management staff. For example, NSCC proposes to 
delete from its rules specific references to criteria that may not be 
reported in a regulatory background check, such as an entity being 
subject to ``heightened supervision'' by a regulatory body. NSCC is 
proposing to include in its rules a general provision to permit 
consideration of events with respect to an applicant or member that may 
not be expressly mentioned but that may impact a member's suitability 
as a member.
    In addition, pursuant to NSCC's current disqualification criteria, 
NSCC can consider the criteria with respect to a person or entity that 
has ``significant managerial responsibility'' over the applicant or 
member. Because it is not easily ascertainable as to what entities or 
individuals have ``significant managerial responsibility'' over a 
particular entity, NSCC is proposing to amend these provisions in the 
rules so that they are consistent with internal surveillance 
procedures. Going forward, NSCC will extend the reach of certain 
disqualification criteria to persons and entities acting as 
``controlling management,'' which will include those officers of the 
entity that are currently screened by Risk Management staff pursuant to 
internal procedures.
    Specifically, NSCC's disqualification criteria will now include:
    (i) An applicant or member being subject to statutory 
disqualification as defined in Section 3(a)(39) of that Act.\4\ While 
this provision currently exists in the rules, it will be moved within 
the rules and will be grouped with all other disqualification criteria.
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    \4\ The NSCC rules will also provide that applicants and members 
must notify NSCC if any member of its controlling management is or 
becomes subject to a statutory disqualification, as defined in 
Section 3(a)(39) of the Act.
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    (ii) An applicant, member, or its controlling management making a 
misstatement of material facts; committing fraudulent acts; or being 
convicted of any of the crimes listed in the rule.
    (iii) An applicant, member, or its controlling management being 
permanently or temporarily enjoined from acting on behalf of a 
financial institution such as a broker-dealer.
    (iv) An applicant or member's suspension or termination from 
participation in a national securities association, exchange registered 
under the Exchange Act, a self-regulatory organization, clearing 
agency, or securities depository.
    Pursuant to the proposed change, NSCC would also continue to be 
able to cease to act for a member when any of the factors in sections 
(i) through (iv) above are present. Addendum S would be struck entirely 
from the rules, and the listed disqualification criteria would be 
included in NSCC's proposed Rule 2A ``Initial Membership 
Requirements.'' \5\
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    \5\ NSCC has also filed proposed rule change SR-NSCC-2006-17 
which seeks to reorganize NSCC's rules related to membership 
standards and membership requirements.
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    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \6\ and the rules and 
regulations thereunder applicable to NSCC because it will remove 
impediments to the perfection of a national system for the prompt and 
accurate clearance and settlement of securities transactions and is not 
designed to permit unfair discrimination in the admission of 
participants or among participants in the use of NSCC by refining 
NSCC's rules and procedures with regard to applicants and members, and 
in general will protect investors and the public interest.
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    \6\ 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 would impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule change, and none have been received. NSCC 
will notify the Commission of any written comments it receives.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the self-regulatory organization consents, 
the Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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-2007-08 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-2007-08. 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 Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 am and 3 pm. Copies of such filing also will be available for 
inspection and copying at the principal office of NSCC and on NSCC's 
Web site at http://www.dtcc.com/downloads/legal/rule_filings/2007/
nscc/2007-08.pdf . All comments received will be posted

[[Page 41392]]

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-2007-08 and should be submitted on or before August 
8, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-16400 Filed 7-17-08; 8:45 am]

BILLING CODE 8010-01-P