Document ID: SEC-2008-0602-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2008-04-22T04:00Z

[Federal Register: April 22, 2008 (Volume 73, Number 78)]
[Notices]               
[Page 21677-21679]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22ap08-85]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57667; File No. SR-NSCC-2007-07]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Restructure 
Its Rules Relating to Fines and To Harmonize Them With Similar Rules of 
Its Affiliates

April 15, 2008.
    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 April 30, 2007, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') and on December 10, 2007, and February 12, 2008, 
amended the proposed rule change 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, as amended, from interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.

---------------------------------------------------------------------------

[[Page 21678]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change seeks to restructure the NSCC rules 
related to fines and where practicable or beneficial to harmonize them 
with similar rules of NSCC's affiliates, The Depository Trust Company 
(``DTC'') and the Fixed Income Clearing Corporation (``FICC''). DTC and 
FICC have filed similar proposed rule changes.\3\ NSCC's proposed 
revisions to its fine schedule are set forth in Exhibit 5 to its 
proposed rule change.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 57665 (April 15, 2008) 
[SR-DTC-2007-05]. Securities Exchange Act Release No. 57666 (April 
15, 2008) [SR-FICC-2007-05].
---------------------------------------------------------------------------

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\
---------------------------------------------------------------------------

    \4\ The Commission has modified the text of the summaries 
prepared by NSCC.
---------------------------------------------------------------------------

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

(1) Fines Scheduled for Failure To Submit Financial and Other 
Information
    NSCC members are assessed fines for failure to submit required 
financial, regulatory, and other information within the time frame 
established by NSCC. As part of the effort to harmonize its rules with 
its affiliates, NSCC is proposing to adopt the fine schedule currently 
utilized by FICC for this purpose. Pursuant to its filing, members 
would be fined $300, $600, and $1,500 for their first, second, and 
third occasion of failing to timely provide financial, regulatory, and 
other related information. NSCC is also proposing changes to the 
footnotes of this section of the applicable fine schedule to make 
certain clarifications, including that the determination of the fine 
amount after the fourth or more occasion of an offense within a twelve 
month rolling period will be made by the Board of Directors.\5\
---------------------------------------------------------------------------

    \5\ Under NSCC rules, the terms ``Board'' or ``Board of 
Directors'' mean the Board of Directors of NSCC or a committee 
thereof acting under delegated authority.
---------------------------------------------------------------------------

    Often a member that is fined is a common member of NSCC and FICC, 
NSCC and DTC, or NSCC, FICC, and DTC, (collectively the ``Clearing 
Agencies'') which would cause the member to incur multiple penalties 
for the same offense.\6\ NSCC is proposing that when a common member of 
the Clearing Agencies is late in providing the same information to more 
than one Clearing Agency, the fine amount will be divided equally among 
the Clearing Agencies, as appropriate.\7\
---------------------------------------------------------------------------

    \6\ DTC does not currently maintain a fine schedule with respect 
to late submission of required financial, regulatory, or other 
information. However, DTC has filed a proposal to adopt a fine 
schedule similar to the one NSCC is proposing to adopt. Supra note 
3.
    \7\ For example, if a firm is a member of NSCC and FICC, did not 
submit its annual audited financial statements within the required 
time frame, and this was the firm's first failure to meet the 
deadline, the $200 fine will be split equally between NSCC and FICC.
    Where the member is a participant of DTC and also a member of 
one or more of the other Clearing Agencies, the fine would be 
collected by DTC and allocated equally among the other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member of NSCC and FICC, NSCC will collect the fine 
and allocate the appropriate portion to FICC.
---------------------------------------------------------------------------

(2) General Continuance Standards
    NSCC's rules require a member to promptly notify NSCC of the 
member's non-compliance with general member continuance standards but 
do not set forth a specific time frame in which to do so and do not 
provide for the imposition of a fine for not promptly notifying NSCC. 
In the interest of harmonizing this provision with a similar FICC 
provision, NSCC is proposing to: (a) Require the member to make such a 
notification within two business days; (b) require the member to notify 
NSCC within the two-day time frame if it becomes subject to a statutory 
disqualification; and (c) subject the member to a $1,000 fine for 
failure to timely notify NSCC.
    NSCC also currently imposes a fine in the amount of $5,000 if an 
applicable member fails to notify NSCC of a material change to its 
business. Pursuant to NSCC's rules, a material change currently 
includes a merger or acquisition involving the member; a change in 
corporate form; a name change; a material change in ownership, control, 
or management; and participation as a defendant in litigation which 
reasonably could be anticipated to have a direct negative impact on the 
member's financial condition or ability to conduct its business. For 
uniformity with similar FICC provisions, NSCC is proposing to amend its 
rules so that notice of such events must be provided at least ninety 
calendar days prior to the effective date of such event unless the 
member demonstrates that it could not have reasonably given notice 
within that time frame.
    With respect to both fines, NSCC is proposing to amend its rules to 
reflect that when a common member of the Clearing Agencies is late in 
providing the same information to more than one Clearing Agency, the 
fine amount will be divided equally among the Clearing Agencies.\8\
---------------------------------------------------------------------------

    \8\ DTC does not currently maintain a fine in this regard. 
However, DTC has filed a proposal to adopt a fine schedule similar 
to the one NSCC is proposing to adopt. Supra note 3.
    Where the Member is a participant of DTC and is a common member 
of one or more of the other Clearing Agencies, the fine would be 
collected by DTC and allocated equally among other Clearing 
Agencies, as appropriate. If the member is not a DTC participant, 
but is a common member between NSCC and FICC, NSCC will collect the 
fine and allocate the appropriate portion to FICC.
---------------------------------------------------------------------------

(3) Fine Schedule for Late Clearing Fund Deficiency Payments
    NSCC members are subject to fines for late payments of Clearing 
Fund deficiency calls. NSCC is proposing to amend the footnote to this 
section of its fine schedule to correspond with that of FICC's fine 
schedule as proposed by FICC in a separate rule filing.\9\ As proposed, 
if the number of occasions of late Clearing Fund deficiency call 
payments within a three-month rolling period exceeds four, NSCC will 
obtain the Board's concurrence for the fine amount. Furthermore, a late 
payment of more than one hour will result in a fine equal to the amount 
applicable to the next highest occasion for the specific deficiency 
amount.\10\ If a member is late for more than one hour and it is the 
member's fourth occasion in the rolling period, NSCC will obtain the 
Board's concurrence for the fine amount.
---------------------------------------------------------------------------

    \9\ Supra note 3.
    \10\ For example, if a firm's deficiency amount is under 
$1,000,000, it is the firm's second occurrence of late satisfaction 
of a deficiency call in the rolling three-month period, and the firm 
is late by more than one hour, the firm would be fined $200 (i.e., 
the fine for a third occasion) instead of $100 (i.e., the fine for a 
second occasion) pursuant to the proposed fine schedule.
---------------------------------------------------------------------------

(4) Fine Schedule for Late Settlement Payments
    The Clearing Agencies currently have provisions for fines for late 
payment of settlement obligations. NSCC is proposing to amend the 
footnote in this section of its fine schedule to correspond with those 
of the other Clearing Agencies. As proposed, if the number of occasions 
of late settlement payments within the rolling three-month period 
exceeds four, NSCC will

[[Page 21679]]

obtain the Board's concurrence for the fine amount.\11\ Furthermore, a 
payment late by more than one hour will result in a fine equal to the 
amount applicable to the next highest occasion for the specific 
deficiency amount. If a member is late by more than one hour and it is 
the member's fourth occasion in the rolling three-month period, NSCC 
will obtain the Board's concurrence for the fine amount.
---------------------------------------------------------------------------

    \11\ This change requires the removal of language granting NSCC 
discretion over the fine amount upon consultation with the settling 
bank only member, member, mutual fund/insurance services member, or 
fund member.
---------------------------------------------------------------------------

    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act\12\ and the rules and 
regulations thereunder because the restructuring of existing rules and 
procedures will assist NSCC members in interpreting and understanding 
the rules with regard to fines. Members' enhanced ability to interpret 
and understand the rules with regard to fines will assist NSCC in 
meeting its Section 17A obligations to safeguard the funds and 
securities in its control or for which it is responsible.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(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 been 
solicited or received.

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 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-2007-07 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-2007-07. 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 a.m. and 3 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://www.dtcc.com/downloads/legal/rule_filings/2007/
nscc/2007-07-amendment.pdf and http://www.dtcc.com/downloads/legal/
rule_filings/2007/nscc/2007-07-amendment2.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-2007-07 and should be submitted on 
or before May 13, 2008.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\13 \
Florence E. Harmon,
Deputy Secretary.
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

 [FR Doc. E8-8600 Filed 4-21-08; 8:45 am]

BILLING CODE 8010-01-P