Document ID: SEC-2008-1011-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2008-07-21T04:00Z

[Federal Register: July 21, 2008 (Volume 73, Number 140)]
[Notices]
[Page 42390-42391]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy08-101]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58160; File No. SR-NSCC-2007-07]

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

July 15, 2008.

I. Introduction

    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 proposed rule change SR--NSCC-2007-07 pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ The
proposed rule change was published for comment in the Federal Register
on April 22, 2008.\2\ No comment letters were received on the proposal.
This order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 57667 (Apr. 15, 2008),
73 FR 21677.
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II. Description

    The proposed rule change restructures the NSCC rules related to
fines and where practicable or beneficial harmonizes them with similar
rules of NSCC's affiliates, The Depository Trust Company (``DTC'') and
the Fixed Income Clearing Corporation (``FICC'').\3\
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    \3\ DTC and FICC have filed similar proposed rule changes.
Securities Exchange Act Release No. 57665 (Apr. 15, 2008), 73 FR
21673 [SR-DTC-2007-05]. Securities Exchange Act Release No. 57666
(Apr. 15, 2008), 73 FR 21675 [SR-FICC-2007-05].
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A. 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 adopting the fine schedule currently used by
FICC for this purpose. Pursuant to its filing, members will 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 changing 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.\4\
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    \4\ 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.
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    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.\5\ 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.\6\
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    \5\ 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 adopting. Supra note 3.
    \6\ 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.
    The Clearing Agencies do not view the proposed rule changes as
fee reductions, because they never intended to charge a common
member multiple times for a single violation.

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[[Page 42391]]

B. General Continuance Standards

    NSCC's rules currently 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: (a) Requiring the member to make such a
notification within two business days; (b) requiring the member to
notify NSCC within the two-day time frame if it becomes subject to a
statutory disqualification; and (c) subjecting 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 amending 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 amending 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.\7\
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    \7\ 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.
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C. Fine Schedule for Late Clearing Fund Deficiency Payments

    NSCC members are subject to fines for late payments of Clearing
Fund deficiency calls. NSCC is amending 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.\8\ 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.\9\ 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.
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    \8\ Supra note 3.
    \9\ 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.
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D. Fine Schedule for Late Settlement Payments

    The Clearing Agencies currently have provisions for fines for late
payment of settlement obligations. NSCC is amending the footnote in
this section of its fine schedule to correspond with those of the other
Clearing Agencies. If the number of occasions of late settlement
payments within the rolling three-month period exceeds four, NSCC will
obtain the Board's concurrence for the fine amount.\10\ 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.
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    \10\ 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.
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III. Discussion

    The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a registered clearing agency. In particular,
the Commission believes the proposal is consistent with the
requirements of Section 17A(b)(3)(F),\11\ which, among other things,
requires that the rules of a clearing agency are designed to remove
impediments to and perfect the mechanisms of a national system for the
prompt and accurate clearance and settlement of securities transactions
and with the requirements of Section 17A(b)(3)(H) \12\ which, among
other things, requires that the rules of a clearing agency provide a
fair procedure with respect to the disciplining of participants and the
denial of participation to any person seeking to be a participant. The
Commission finds that the proposed rule change, which restructures and
harmonizes NSCC's fines with those of DTC and FICC, is consistent with
those statutory obligations.
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    \11\ 15 U.S.C. 78q-1(b)(3)(F).
    \12\ 15 U.S.C. 78q-1(b)(3)(H).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \13\ and the
rules and regulations thereunder.
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    \13\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (File No. SR-NSCC-2007-07) be,
and hereby is, approved.\15\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-16594 Filed 7-18-08; 8:45 am]

BILLING CODE 8010-01-P