Document ID: SEC-2011-0933-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2011-07-06T04:00Z

[Federal Register Volume 76, Number 129 (Wednesday, July 6, 2011)]
[Notices]
[Pages 39463-39465]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16822]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64769; File No. SR-NSCC-2011-04]

Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Amend Rules 
Relating to Discontinuing Dividend Settlement Service, Funds Only 
Settlement Service, Data Distribution Box Services, and Changes to the 
Envelope Settlement Service

June 29, 2011.
    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 June 15, 2011, National Securities Clearing Corporation (``NSCC'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared primarily by NSCC.\3\ 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).
    \2\ 17 CFR 240.19b-4.
    \3\ The text of the proposed rule change is attached as Exhibit 
5 to NSCC's filing, which is available at http://www.dtcc.com/downloads/legal/rule_filings/2011/nscc/2011-04.pdf.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The purpose of this proposed rule change is to amend NSCC's rules 
relating to NSCC's incorporation of its Dividend Settlement Service 
(``DSS'') and Funds Only Settlement Service (``FOSS'') into the 
Envelope Settlement Service (``ESS'') and NSCC's discontinuing of its 
Data Distribution Boxes Service (``DDBS''). The proposed rule change 
would also make certain changes to ESS processing.

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

    DSS, FOSS, and ESS operate similarly in that they are non-
guaranteed services of NSCC through which NSCC members exchange 
physical envelopes through a centralized location at NSCC. Pursuant to 
Rule 43 of NSCC's Rules and Procedures, DSS centralizes claims 
processing for collection and payment of dividends and interest between 
NSCC members through the exchange of envelopes through the facilities 
of NSCC. Pursuant to Rule 41 of NSCC's Rules and Procedures, FOSS 
centralizes money-only settlements for NSCC members through the 
exchange of paperwork delivered to and received by NSCC members through 
NSCC's facilities. Pursuant to Rule 9 and Addendum D of NSCC's Rules 
and Procedures, ESS allows an NSCC member to physically deliver a 
sealed envelope containing securities and such other items as NSCC may 
from time to time permit to a specified NSCC member. The money 
settlement associated with ESS, DSS, and FOSS transactions occurs 
through NSCC's end-of-day settlement process.
Discontinuing FOSS and DSS and Merging Functionality into ESS
    NSCC has offered DSS since its founding. FOSS was created in 1983 
to remove money-only settlement activity, which prior to that time was 
included in ESS, from ESS in order to facilitate what was then NSCC's 
guaranty of settlement of securities transactions processed through 
ESS.\5\ The use of each of these services has steadily declined in 
recent years due to increased dematerialization of securities and 
automation of transactions. In light of this decline and the 
elimination of the guaranty of ESS transactions, NSCC is proposing to 
amend its rules to discontinue the separate DSS and FOSS services and 
to allow members to

[[Page 39464]]

process dividends and funds-only settlement activities through ESS.\6\
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    \5\ The guaranty of ESS settlement was in effect from 1983 until 
2010. Securities Exchange Act Notice 34-61618 (March 1, 2010) [File 
No. SR-NSCC-2010-01], 75 FR 10542 (March 8, 2010).
    \6\ In order to distinguish securities transfers from other ESS 
activity, NSCC would add a required indicator for input by members 
to disclose whether or not a security is included in an envelope.
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Closing of DDBS
    DDBS was traditionally used to distribute hard copy Important 
Notices, clearing reports, and other informational documents to NSCC 
members. Today members: (a) receive Important Notices through the Web 
site of NSCC's parent, The Depository Trust & Clearing Corporation, at 
http://www.dtcc.com, (b) receive clearing reports through electronic 
communications, and (c) exchange other information that previously 
might have been transferred through DDBS, via email, facsimile, courier 
services, the U.S. Postal Service, and other delivery mechanisms. The 
DDBS service has become obsolete as a result of the use of these other 
more efficient means of distribution. Accordingly, NSCC is proposing to 
amend its rules to discontinue DDBS.
ESS Processing Changes

Increased Transparency

    NSCC performs certain regulatory tracking and reporting functions 
(e.g., OFAC screening) for securities transactions processed through 
NSCC. With respect to some NSCC services, such as Continuous Net 
Settlement (``CNS''),\7\ NSCC electronically receives information as to 
security identification and transaction size that facilitates such 
tracking and reporting. However, similar electronic information is not 
available for securities transferred through ESS. In order to 
facilitate transparency in this regard, NSCC is proposing (1) to 
require its members to provide a security identifier (i.e., CUSIP or 
ISIN) and include quantity delivered for all securities delivered 
through ESS, (2) to restrict members to one security issue per 
envelope, and (3) to prohibit the comingling of securities with other 
items. The proposed rule change would also allow NSCC to require its 
members provide it with additional information that NSCC from time to 
time deems necessary to facilitate ESS processing.
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    \7\ CNS is an on-going automated accounting system operated by 
NSCC which nets today's settling trades with yesterday's closing 
positions in eligible securities to produce new short or long 
positions per security issue for each NSCC member. Since NSCC is 
always the contraside for all transactions, NSCC is able to identify 
the securities for transactions submitted to CNS.
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    Separately, the proposed rule change would also allow for automatic 
updates to NSCC's Obligation Warehouse service with respect to 
securities transactions that settle though ESS where the delivering 
member includes an Obligation Warehouse control number with the 
respective envelope delivery to ESS. However, this feature will not be 
implemented concurrently with the other changes proposed by this 
filing, but rather it would be announced by Important Notice at a later 
date.\8\
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    \8\ For information on the Obligation Warehouse service, see 
Exchange Act Release 63588 (December 21, 2010), 75 FR 82112 
(December 29, 2010) [File No. SR-NSCC-2010-11].
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NSCC Facilities Used for ESS Deliveries

    Under the proposed rule change, NSCC's rules would be updated to 
change references to ESS deliveries and receives occurring through 
NSCC's New York City facility to use general language allowing NSCC to 
provide the service through any NSCC facility as announced by Important 
Notice.

Segregation of Activity Within ESS

    As mentioned above, the rule change proposes to require that 
members not comingle different issues of securities in the same 
envelope or with other activity conducted through ESS. Pursuant to the 
proposed rule changes, NSCC would also be allowed to prohibit 
comingling between funds-only and dividend settlement items.
Proposed Rule Changes
    With respect to the above, NSCC proposes to make changes to its 
rules and procedures as follows:

Rule 6--Distribution Facilities

    NSCC's Rule 6 presently provides for the establishment of DDBS. 
Under the proposed rule change, the text of this rule would be deleted 
to reflect the elimination of DDBS.

Rule 9--Delivery and Receipt of Securities

    Under the proposed rule change, NSCC's Rule 9 (currently entitled 
``Delivery and Receipt of Securities''), pursuant to which NSCC offers 
ESS, would be renamed as ``Envelope Settlement Service'' and would be 
amended to: (1) Reflect the incorporation of FOSS and DSS into ESS, (2) 
incorporate the ESS processing changes described above, (3) allow for 
automatic updates to NSCC's Obligation Warehouse service with respect 
to securities transactions that settle through ESS where the delivering 
member includes an Obligation Warehouse Control Number with the 
respective envelope delivery to ESS, and (4) make other conforming 
changes to integrate rule provisions relating to FOSS and DSS into Rule 
9.

Rule 41--Funds Only Settlement Service

    NSCC's Rule 41 provides for the establishment of and procedures for 
FOSS. Under the proposed rule change, the text of this rule will be 
deleted to reflect the elimination of FOSS as a separate service.

Rule 43--Dividend Settlement Service

    NSCC's Rule 43 provides for the establishment of and procedures for 
DSS. Under the proposed rule change, the text of this rule would be 
deleted to reflect the elimination of DSS as a separate service.

Addendum A--Fee Structure

    NSCC's Fee Schedule would be revised to delete charges for the 
discontinued services mentioned above. Under the proposed rule change, 
all services offered under the newly combined ESS would be subject to 
the existing ESS charge for deliveries and receives.\9\
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    \9\ In addition, two separate line items relating to ESS fees 
will be consolidated into one and reflect that the combined fee 
applies to all ESS deliveries and receives (including intercity). 
Also, as a technical change, fees relating to the New York Window 
Service would be deleted from the Fee Schedule as that service is no 
longer an offering of NSCC and certain other fees relating to 
physical processing functions that have become obsolete (which 
appear in the Fee Schedule as items A through F under the heading 
``Other Service Fees'') would also be deleted. For additional 
information on the discontinuation of the New York Window Service at 
NSCC, see Exchange Act Release No. 40179 (July 8, 1998), 63 FR 38221 
(July 15, 1998) (File Nos. SR-DTC-98-09, SR-NSCC-98-05).
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Addendum D--Statement of Policy--Envelope Settlement Service, Mutual 
Fund Services, Insurance and Retirement Processing and Other Services 
Offered by the Corporation

    Addendum D, a statement of policy with regard to ESS and other NSCC 
services, provides, among other things, that money-only settlement 
charges should not be processed through ESS. NSCC proposed to amend 
Addendum D to conform to the changes proposed above. The proposed 
revised Addendum D would also include a technical change that clarifies 
that NSCC may reverse a member's debits or credits that are related to 
the Commission Bill Service.
Implementation Date
    Upon Commission approval of this rule filing, the implementation 
date of the proposed changes described above will be announced by 
Important Notice; however, the elimination of DDBS will not take effect 
until approximately (but no less than) 30 days from the date of the 
Commission's approval.
    The proposed rule change is consistent with the requirements of the

[[Page 39465]]

Act, as amended, and the rules and regulations thereunder applicable to 
NSCC because it facilitates the prompt and accurate clearance and 
settlement of securities transactions by increasing processing 
efficiencies through the merger of several similar services for 
physical processing. In addition, the proposed rule change is 
consistent with Recommendation 12 of the CPSS/IOSCO Recommendations for 
Central Counterparties because it promotes efficiency in services 
offered to members by assimilating several modes of physical processing 
into a single service.

(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 relating to the proposed rule change have not been 
solicited NSCC.

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

    Within forty-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 or disapprove the 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2011-04 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 submission should refer to File Number SR-NSCC-2011-04. 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 Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549-1090, on official business days between the 
hours of 10 a.m. and 3 p.m. Copies of such filings will also 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/2011/nscc/2011-04.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-2011-04 and should be submitted on or before July 
27, 2011.

    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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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-16822 Filed 7-5-11; 8:45 am]
BILLING CODE 8011-01-P