Document ID: SEC-2008-0559-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2008-04-11T04:00Z

[Federal Register: April 11, 2008 (Volume 73, Number 71)]
[Notices]               
[Page 19918-19919]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11ap08-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57609; File No. SR-NSCC-2008-01]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule To Amend the Rules With Regard to the Formula Used Within the 
Stock Borrow Program

April 3, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 18, 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. NSCC filed the proposal pursuant to Section 
19(b)(3)(A)(iii) of the Act \2\ and Rule 19b-4(f)(4) \3\ thereunder so 
that the proposal was effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the rule 
change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \3\ 17 CFR 240.19b-4(f)(4).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of the rule change is to modify Addendum C of NSCC's 
rules with respect to the formula used in NSCC's stock borrow program 
to determine the order of priority among members from whom NSCC will 
borrow securities made available by those members.

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.\4\
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    \4\ 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

    In the course of daily operations, NSCC's Continuous Net Settlement 
System (``CNS'') may need more shares of a security than shares made 
available by member deliveries. In order to improve the efficiency of 
the clearing system in dealing with these situations, NSCC implemented 
automated stock borrow procedures to satisfy the need for shares that 
are not filled through normal deliveries from members.
    NSCC members that wish to participate in the stock borrow program 
notify NSCC each day of the securities those members have on deposit at 
The Depository Trust Company (``DTC'') that they intend to make 
available to NSCC through the stock borrow program. The stock borrow 
program has two separate cycles: the daytime cycle and the nighttime 
cycle.\5\ Members choose whether to participate in the stock borrow 
program and whether to participate in one or both cycles.
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    \5\ The daytime and nighttime cycles are separate processes. 
Securities made available to be borrowed during the nighttime 
processing cycle are not borrowed during the daytime processing 
cycle and vice versa.
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    After NSCC processes regular deliveries, shares needed to satisfy 
CNS deliveries typically are borrowed from members who have made their 
securities available through the stock borrow program with the lending 
member's DTC position being debited for the number of shares loaned in 
the stock borrow program. Borrowed shares are recorded as a long 
position in the lending member's CNS subaccount until shares are 
delivered back to the lender.
    Prior to this rule change, NSCC had used a formula to determine the 
order of priority among members from which NSCC would borrow shares. 
First, NSCC assigned each member a random allocation number for each 
security the member made available for borrowing. Then a factor was 
developed for each member by dividing the percentage of the member's 
average loans as they related to total NSCC borrowings by the 
percentage of the member's average fees paid for trade comparison, 
trade recording, and clearance as they related to the total of these 
fees for all members. Each member's random allocation number was 
multiplied by the factor to produce an adjusted random number per 
security for each member. Each potential borrow was then sequenced 
using the adjusted random number with the lowest adjusted random number 
having the first priority for borrowing.
    NSCC is proposing to simplify the process by eliminating the 
formula and using a random allocation algorithm to determine the order 
of priority among members from which NSCC will borrow shares.\6\ Using 
a random allocation algorithm to determine the order of priority in 
which NSCC will borrow securities made available by members within the 
stock borrow program would make processing more consistent with other 
current processing routines already utilized by NSCC.
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    \6\ This random allocation algorithm is already used by NSCC to 
determine other priorities. NSCC uses random allocation algorithms 
routinely. For example, CNS uses a random allocation methodology 
whereby, after securities are received by NSCC from members making 
deliveries to CNS, they are then allocated to other members that are 
expecting receipt of those securities.
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    NSCC proposes to implement the changes set forth in this filing on 
March 28, 2008. Members will be advised of the implementation date 
through issuance of NSCC Important Notices.
    The proposed rule change is consistent with Section 17A of the 
Act,\7\ as amended, because it removes

[[Page 19919]]

impediments to and perfects the mechanism of a national system for 
prompt and accurate clearance and settlement of securities 
transactions.
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    \7\ 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 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

    The foregoing proposed 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 because the proposed rule change effects a 
change in an existing service of a registered clearing agency that: (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 the proposed 
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-2008-01 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-2008-01. 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 filings 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/2008/
nscc/2008-01.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 Number SR-
NSCC-2008-01 and should be submitted on or before May 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,
Deputy Secretary.
 [FR Doc. E8-7696 Filed 4-10-08; 8:45 am]

BILLING CODE 8011-01-P