Document ID: SEC-2013-2040-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2013-11-29T05:00Z

[Federal Register Volume 78, Number 230 (Friday, November 29, 2013)]
[Notices]
[Pages 71686-71688]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28723]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70937; File No. SR-NSCC-2013-11]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Add a New 
Service to the National Securities Clearing Corporation's Obligation 
Warehouse (``OW'') Which Would Pair Off and Close Certain Open 
Obligations, Reducing the Number of Open Obligations in OW

November 25, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 14, 2013, National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as 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 persons.
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    \1\ 15 U.S.C. 78s(b)(1). Defined terms that are not defined in 
this notice are defined in Exhibit 5 of the proposed rule change 
filing, available at http://www.sec.gov/rules/sro/nscc.shtml under 
File No. SR-NSCC-2013-02, Additional Materials.
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NSCC is proposing to modify its Rules & Procedures (``Rules'') to 
add a new service to NSCC's Obligation Warehouse (``OW'') which would 
pair off and close certain open obligations, reducing the number of 
open obligations in OW, as more fully described below.

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 such statements.

[[Page 71687]]

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is for NSCC to modify its 
Rules to add a new service to NSCC's Obligation Warehouse (``OW'') 
which would pair off and close certain open obligations, reducing the 
number of open obligations in OW. NSCC's Obligation Warehouse, or 
``OW'', implemented in 2011, is a non-guaranteed, automated service 
that tracks, stores, and maintains unsettled ex-clearing and failed 
obligations, as well as obligations exited from NSCC's Continuous Net 
Settlement (``CNS'') system, non-CNS Automated Customer Account 
Transfer Service (``ACATS'') Receive and Deliver Instructions, Balance 
Orders, and Special Trades, as defined in NSCC's Rules (collectively 
``OW Obligations''). The service provides transparency, serves as a 
central storage of open (i.e. failed or unsettled) broker-to-broker 
obligations, and allows users to manage and resolve exceptions in an 
efficient and timely manner.
    Simultaneously, OW provides on-going maintenance and servicing of 
matched obligations that have not been marked by a Member as subject to 
upcoming delivery, closure, or cancellation. Examples of this on-going 
maintenance and servicing include adjustments for certain corporate 
actions, daily review for CNS eligibility, and regular processing of 
the Reconfirmation and Pricing Service (``RECAPS'') in the OW on days 
announced by Important Notices. During the daily review for CNS 
eligibility, OW Obligations that are eligible for CNS are exited from 
the OW and forwarded to CNS. On days when RECAPS is run in the OW, OW 
Obligations that are eligible for RECAPS \3\ are re-netted and, if 
appropriate, are marked to the current market price,\4\ and are 
provided with an updated settlement date of the next business day. NSCC 
is proposing to add a new service to OW, the Pair Off function, which 
would pair off and close certain open obligations, reducing the number 
of open obligations in OW. The Pair Off function would run once a day, 
immediately following the completion of the review for CNS 
eligibility.\5\
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    \3\ Obligations that are matched and have a settlement date of 
at least two days prior to the date on which the RECAPS process 
commences will be considered for inclusion in the RECAPS process, 
and therefore, fail items not already in the OW and eligible for 
RECAPS processing must be submitted by the Member prior to RECAPS 
processing.
    \4\ In the event that the current market price for a security is 
not available, the obligation's price details will be unchanged from 
when it was previously matched.
    \5\ NSCC will announce by Important Notice days on which Pair 
Off function will not run, which may include days on which the 
RECAPS process is run in the OW.
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    OW stores and maintains OW Obligations until they are settled, 
closed, or cancelled. Today, in order to reduce the number of 
obligations that remain on their books and records, Members may take 
actions away from NSCC to close out these open obligations. Those 
Members would then close the obligations in OW. The proposed Pair Off 
function would facilitate the close out of any OW Obligations that 
Members designate as eligible for the service. By facilitating the 
close out of these obligations in an automated manner within the OW, 
the Pair Off function would add transparency to the life cycle of these 
obligations that may otherwise be closed out away from NSCC. With 
respect to obligations that are removed from the OW as a result of a 
pair off, the function would also help Members to remove these 
obligations from their books and records, and would reduce those 
Members' administrative costs associated with maintaining these 
obligations in OW.
    Under the proposed rule change, NSCC Members would have the 
opportunity to designate certain OW Obligations that are in ``Open'' 
status in the OW to which they are a party to be eligible to be paired 
off with other OW Obligations in the same CUSIP and ultimately 
closed.\6\ NSCC may, in its discretion, exclude certain obligations 
from the Pair Off function, and will announce by Important Notice which 
obligations are excluded. Initially, the following obligations may be 
excluded: (1) OW Obligations in which the underlying security is a 
mutual fund, a when-issued security,\7\ or is part of a syndicate; (2) 
OW Obligations that are identified in OW as an ACATS Receive and 
Deliver Instruction; (3) obligations that, as of the time the Pair Off 
function runs, are identified in the OW as being subject to a corporate 
action; and (4) an obligation that is marked in the OW as being in 
``Open'' status but has already been sent to The Depository Trust 
Company's Inventory Management System (IMS) as a pending delivery.
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    \6\ Members may either participate in the Pair Off function on 
an account level, designating all OW Obligations in an ``Open'' 
status in the OW to which they are a party as eligible for the Pair 
Off function, and then opt out of the function with respect to 
certain OW Obligations; or they may designate only certain OW 
Obligations as eligible for pair off.
    \7\ A transaction in a ``when issued'' security is made 
conditionally because the underlying security has been authorized 
but not yet issued, and will only settle after the security has been 
issued.
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    The Pair Off function would use a matching methodology that would 
pair off eligible OW Obligations based on the quantity of underlying 
securities, the final money amount, and the settlement dates of the 
underlying obligations. The Pair Off function would only match OW 
Obligations that have been designated as eligible for pair off by both 
Members that are party thereto, and that are in the same CUSIP and have 
the same counterparties, where the counterparties have offsetting long 
and short obligations. The methodology would pair off eligible OW 
Obligations in order by first pairing off those obligations that have 
the most criteria in common. For example, the methodology would first 
pair off eligible OW Obligations where the quantity of underlying 
securities, the settlement dates of the obligations, and the final 
money amounts are identical. The methodology would continue to review 
eligible OW Obligations subject to certain rules, beginning with 
eligible OW Obligations with the oldest settlement date, and eligible 
OW Obligations with the smallest number of underlying securities.
    Under the proposal, eligible OW Obligations would be paired off 
where the quantity of underlying securities, the final money amount, or 
the settlement dates of the underlying obligations may not be 
identical, and, in certain cases, one OW Obligation would be paired off 
against multiple OW Obligations. However, a pair off would never occur 
if it would result in (1) a negative quantity of underlying securities 
in either of the original obligations, (2) it [sic] a negative final 
money amount, or (3) at least one of the obligations subject to the 
pair off to remain open, with a reduced quantity of underlying 
securities and have a final money amount of zero or less than zero. 
Additionally, OW Obligations in municipal bonds would only be eligible 
for pair off where the quantity of the underlying securities in the 
obligations subject to the pair off is identical and no underlying 
securities remain.
    Where the pair off criteria are met, the OW Obligations would 
either be closed or, where the quantities of underlying securities are 
not exactly matched between obligations being paired off, the pair off 
would result in one or more of the obligations being reduced by the 
quantity of securities that were paired off. Those obligations would 
remain in ``Open'' status in OW and would be adjusted to reflect the 
reduced number

[[Page 71688]]

of underlying securities. Where the underlying final money amounts are 
not exactly matched between obligations being paired off, the pair off 
would result in a cash adjustment, which would be reflected in the 
Members' money settlement with NSCC on the following business day.
Implementation Timeframe
    Subject to approval of this filing, NSCC proposes to implement the 
Pair Off function during the first quarter of 2014. Pending Commission 
approval, Members will be advised of the implementation date through 
issuance of an NSCC Important Notice.
Proposed Rule Changes
    NSCC is proposing to amend Rule 51 (Obligation Warehouse) and add a 
new Section E to the existing Procedure IIA (Obligation Warehouse) 
describing the Pair Off function.
2. Statutory Basis
    NSCC believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to NSCC, in particular Section 17A(b)(3)(F) of the Act,\8\ 
which requires that NSCC's Rules be designed to promote the prompt and 
accurate clearance and settlement of securities transactions. By 
providing for greater efficiency and transparency with respect to 
obligations processed through the OW, the proposed rule change promotes 
the prompt and accurate clearance and settlement of securities 
transactions.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F).
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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, 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

    Written comments relating to the proposed rule change have not yet 
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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate 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 or disapprove such a 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 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 email to rule-comments@sec.gov. Please include 
File No. SR-NSCC-2013-11 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-NSCC-2013-11. This file 
number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 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://dtcc.com/downloads/legal/rule_filings/2013/nscc/SR-NSCC-2013-02.pdf.
    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 No. SR-NSCC-2013-11 and 
should be submitted on or before December 20, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\9\
Kevin M. O'Neill,
Deputy Secretary.
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    \9\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-28723 Filed 11-27-13; 8:45 am]
BILLING CODE 8011-01-P