Document ID: SEC-2005-0004-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Securities Clearing Corp.
Posted Date: 2005-09-21T04:00Z

[Federal Register: September 21, 2005 (Volume 70, Number 182)]
[Notices]               
[Page 55438-55440]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21se05-132]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52445; File No. SR-NSCC-2005-08]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Codify, Consolidate, and Clarify Financial 
Responsibility and Operational Capability Rules

September 15, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 2, 2005, 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. 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

    The purpose of the proposed rule change is to codify, consolidate, 
and clarify NSCC's financial responsibility and operational capability 
rules into NSCC Rule 15 (``Financial Responsibility and Operational 
Capability'').

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.\2\
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    \2\ 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

1. Clarification of ``Participants''
    Section 1 of Rule 15 sets forth NSCC's general authority to 
establish standards of membership and guidelines for the application of 
such standards. Section 1 is amended to make clear that it applies to a 
Member, Non-Clearing Member, Municipal Comparison Only Member, Fund 
Member, Insurance Carrier Member, TPA Member, or Data Services Only 
Member and that each such member is referred to as a ``participant'' in 
NSCC's rules.
2. Regular Reporting Required of Participants
    Section 2 of Rule 15 is amended to clearly set forth the list of 
reports and information, such as financial statements and copies of 
certain regulatory filings, which certain participants are routinely 
required to submit on a regular basis for NSCC's risk management 
purposes. The explicit list of reports and information includes all 
such reports and information currently required by NSCC under its 
general authority to monitor compliance with membership standards. The 
submission requirements applicable to certain categories of NSCC 
participants previously had been set forth on NSCC's Web site and were 
communicated to participants quarterly by NSCC Important Notice. 
Codifying the requirements in Section 2 of Rule 15 will further 
facilitate compliance with these reporting requirements.
    The codification of the list of reports and information which are 
required on a routine basis does not restrict NSCC's current general 
authority to require additional information in particular instances 
should NSCC's risk management procedures so require pursuant to new 
Section 2 of Rule 15.
    The timeframes by which participants are required to submit 
particular information is deleted from Section 2 of Rule 15 because 
these timeframes may vary according to external parameters such as, for 
example, regulatory requirements applicable to a certain class of 
participants. Section 2 now makes reference to the submission of 
reports and information within the time periods prescribed by NSCC from 
time to time. Section 2 also directs participants to provide the 
information in the form and to the person or department specified by 
NSCC from time to time. NSCC communicates these submission deadlines 
and requirements to participants by Important Notices which are 
reissued quarterly. In addition, the current submission schedule is 
posted on NSCC's Web site, and new participants are advised of the 
submission schedule in the NSCC acceptance letter. The reference to the 
timeframe by which reports are due is also deleted from Addendum B 
(including the version of Addendum B contained in Appendix 1) since it 
is now set forth clearly in Section 2 of Rule 15.
    Section 2 of Rule 15 is further revised to make specific reference 
to a participant's obligation to provide amendments and addenda to all 
reports and to inform NSCC of any extensions granted by its regulator 
regarding submission of a regulatory report for which NSCC also 
requires submission. To the extent NSCC's review includes copies of 
reports submitted by the participant to its regulator, this will 
facilitate NSCC's review process by making each participant responsible 
for notifying NSCC of an extension rather than requiring NSCC to make 
inquiries of the participant after NSCC fails to receive a report by 
the date on which it is otherwise required to be provided to NSCC.
    In addition, Section 2 is amended to make specific reference to a 
participant's obligation to provide annual financial statements of its 
guarantor consistent with NSCC's current risk management review 
procedures. Currently, these procedures are communicated to 
participants on NSCC's Web site, in Important Notices, and in 
correspondence. Codification of the requirement in Rule 15 will 
facilitate compliance.
3. Participant Reporting on Certain Changes
    Rule 15 is further amended by new Section 3 which codifies a 
participant's reporting obligations with respect to certain changes 
which could have a substantial impact on its business or financial 
condition, such as: (1) Material organizational changes including 
mergers, acquisitions, changes in corporate form, name changes, changes 
in the ownership of a participant or its affiliates, and material 
changes in management; (2) material changes in business lines, 
including new business lines undertaken; and (3) defendant status in 
litigation which could reasonably impact the participant's financial 
condition or ability to conduct business. Timely notification of such 
changes and events enables NSCC to analyze the implications of the 
event and determine an appropriate course of action for risk management 
purposes.

[[Page 55439]]

    These provisions are currently contained in Addendum T 
(``Interpretation of the Board of Directors, Continuing Responsibility 
of the Corporation''), which is being deleted. Including the Addendum T 
reporting obligations in Rule 15 will facilitate compliance by: (1) 
Consolidating the reporting requirements in one place; (2) clarifying 
the time by which notification is due; and (3) using language 
substantially similar to that used by the Government Securities 
Division and the Mortgage Backed Securities Divisions of the Fixed 
Income Clearing Corporation (``FICC''), an affiliated clearing agency 
to which some NSCC participants are also members.
    New Section 3 also clarifies that notice given in connection with 
such changes is not subject to the provisions in Rule 45 (``Notices'') 
that govern other types of participant notices. Instead, these notices 
must be given in the manner and to the persons specified by NSCC for 
this purpose. Currently, NSCC instructs its participants to communicate 
such notices to NSCC's Risk Management staff because this area is 
responsible for evaluating the impact of the change in the member's 
continued compliance with NSCC's membership requirements. These notice 
requirements are set forth in NSCC's Important Notices and on NSCC's 
Web site. In addition, Section 3 includes the time by which such 
notification must be given, which is consistent with the analogous 
reporting requirements adopted by FICC.
4. Authority To Further Examine Participants
    The provisions currently contained in Sections 2(a) and 2(c) of 
Rule 15 regarding NSCC's authority to further examine the financial 
condition and operational capability of a participant or applicant are 
consolidated in new Section 4.
    These provisions are essentially unchanged except that NSCC's 
authority to receive reports and information regarding NSCC's 
participants from other self-regulatory organizations is expanded to 
include other regulatory bodies having authority to examine, register, 
or license the participant. This change accommodates NSCC's review of 
regulated entities, such as insurance companies and trust companies, 
whose regulators are not self-regulatory organizations.
5. Additional Assurances From Participants
    The provisions regarding NSCC's authority to require additional 
assurances from its participants are currently set forth in Section 
2(b), Sections 3(a) and 3(b), and Sections 4(a) and 4(b) of NSCC's 
Rules. Rule 15 is revised to consolidate these provisions in new 
Section 5(b). Specific references regarding NSCC's authority to 
restrict the activities of Mutual Fund/Insurance Services Members and/
or to require them to enter into specific agreements regarding 
operational support are deleted because such authority is included in 
NSCC's general authority in Rule 15 to restrict activities of its 
participants or to impose specific conditions on their participation.
6. Technical Changes
    A new Section 6 is added to Rule 15 containing text that is 
currently contained in Section 2 of Rule 15. Section 6 clarifies that 
all information submitted to NSCC by a participant under any section of 
Rule 15 is subject to confidentiality requirements imposed by law or 
regulatory authority.
    A new Section 7 is added to Rule 15 cross-referencing NSCC's 
authority to take disciplinary action, impose fines, restrict access to 
services, or otherwise take action with respect to a participant's 
failure to comply with Rule 15. This will facilitate NSCC's enforcement 
of the requirements of Rule 15.
    An identical technical change regarding the requirement that an 
applicant shall provide such other reports and information as NSCC 
determines appropriate is made to each of the following rule 
provisions: Rule 2 (``Members''), Section 2; Rule 31 (``Data Services 
Only Member''), Section 2; Rule 51 (``Fund Member''), Section 2; Rule 
56 (``Insurance carrier Member''), Section 2; and Rule 60 (``TPA 
Member''), Section 2. The terminology is made consistent among these 
analogous provisions.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act \3\ and the rules and regulations thereunder 
applicable to NSCC because it assures the safeguarding of securities 
and funds in NSCC's custody or control or for which it is responsible 
by clarifying rules for applicants and members. As a result, NSCC's 
ability to maintain a financially and operationally sound participant 
base should be enhanced.
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    \3\ 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 on 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

    No written comments relating to the proposed rule change have 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 rule change has become effective upon filing pursuant 
to Section 19(b)(3)(A)(i) of the Act \4\ and Rule 19b-4(f)(1) \5\ 
thereunder because the proposed rule change constitutes a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule. At any time within 
sixty days of the filing of such 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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    \4\ 15 U.S.C. 78s(b)(3)(A)(i).
    \5\ 17 CFR 240.19b-4(f)(1).
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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-2005-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NSCC-2005-08. 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

[[Page 55440]]

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. 
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.nscc.com.
 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-2005-08 and should be submitted on or before October 12, 2005.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 05-18765 Filed 9-20-05; 8:45 am]

BILLING CODE 8010-01-P