Document ID: SEC-2012-1830-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: National Securities Clearing Corp.
Posted Date: 2012-11-09T05:00Z

[Federal Register Volume 77, Number 218 (Friday, November 9, 2012)]
[Notices]
[Pages 67410-67412]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-27357]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68159; File No. SR-NSCC-2012-08]

Self-Regulatory Organizations; The National Securities Clearing 
Corporation; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change To Modify Rule 52 (Mutual Fund Services) and Addendum A 
(NSCC's Fee Structure)

November 5, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 22, 2012, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change described in Items I and II below, which Items have been 
prepared primarily by NSCC. NSCC filed the proposal pursuant to Section 
19(b)(3)(A)(iii) \2\ of the Act, Rule 19b-4(f)(2),\3\ and Rule 19b-
4(f)(4)(i) \4\ 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)(2).
    \4\ 17 CFR 240.19b-4(f)(4)(i).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change modifies Rule 52 (Mutual Fund Services) 
and Addendum A (NSCC's Fee Structure) of NSCC's Rules.

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.\5\
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    \5\ The Commission has modified the text of the summaries 
prepared by NSCC.

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[[Page 67411]]

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

    Pursuant to the rule change proposal, NSCC will (i) rename the 
``Mutual Fund Commission Settlement'' service under Rule 52 (the 
``Service'') as the ``DTCC Payment aXis'' service in order to better 
align the name of the Service with the various commission and other fee 
data transmission and payment settlement functionalities available 
through the Service (i.e., not solely commission settlement), (ii) make 
clear that the Service permits for the transmission of commission and 
other fee related data, and the settlement of such payments, among 
users of the Service without regard to whether the flow of funds is 
from the fund company (``Fund'') to the retail broker-dealer 
(``Distributor''), from the Distributor to the Fund, from a Distributor 
to another Distributor, or otherwise, (iii) specify that commission and 
other fee data transmission, and the settlement of such payments, with 
regard to investor accounts held on an omnibus account basis at the 
Fund (``Omnibus'') may be made through the Service, (iv) specify the 
process for the payment of 12b-1 fees \6\ with regard to investor 
accounts held in Omnibus, and (v) establish the fees that NSCC will 
charge users of the Service with regard to investor accounts held in 
Omnibus.
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    \6\ This is a category of fees paid out by the Fund out of Fund 
assets to cover distribution expenses and sometimes shareholder 
service expenses.
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    Background. The Service was initially approved by the Commission on 
December 9, 1992 (``1992 Rule Filing'').\7\ In the 1992 Rule Filing, 
NSCC described that the new service would provide for the automation of 
payments of commissions owed in respect of mutual fund transactions, 
explaining that under the new service, Funds would be able to transmit 
commission debit data to NSCC on a daily basis. NSCC's role in this new 
commission service would be to transmit data between the Funds (i.e., 
the payers of commission payments) and the Distributors (i.e., the 
receivers of commission payments). In 2005 (``2005 Rule Filing''),\8\ 
NSCC expanded the scope of the Service to permit Distributors to submit 
fee data through NSCC to other Distributors and to settle the fee 
payments in respect thereof through NSCC, expanding the Service to 
allow for more than the exchange of commission-related information from 
the Funds to Distributors.
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    \7\ Securities Exchange Act Release No. 34-31579 (December 9, 
1992), 57 FR 60018 (December 17, 1992).
    \8\ Securities Exchange Act Release No. 34-52458 (September 16, 
2005), 70 FR 56200 (September 26, 2005).
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    The Proposed Rule Changes. There has been a growing trend in the 
mutual fund industry toward omnibus processing, a practice pursuant to 
which Distributors maintain a single account at a Fund, which account 
represents multiple investor positions of that Distributor in that 
Fund's securities. Where multiple investor positions are held in 
Omnibus, the Distributor maintains the individual investor account 
records on the Distributor's books and records. The trend toward 
omnibus processing is anticipated to continue growing into the 
foreseeable future; however, invoicing for the fees related to these 
investor accounts is not standardized. The current state of fee 
invoicing with regard to such investor accounts is manually intensive, 
involving the exchange of reports and spreadsheets via fax, email, and 
regular mail, and the settlement of payments thereof generally occurs 
by check or wire. Due to the lack of standardization and automation, 
the industry has sought NSCC's assistance to create a standardized file 
for omnibus invoicing. As a result, NSCC has enhanced the Service's 
functionality to permit for fee data transmission and settlement of 
payments with regard to investor accounts held in Omnibus. By this 
proposed rule change, NSCC seeks to do the following:
    a. Rename Service: The Service will be renamed ``DTCC Payment 
aXis'' to better represent the broadened functionality of fee data 
exchange and settlement capabilities offered by the Service today, as 
opposed to its capabilities at initial implementation in 1992.
    b. Clarify Scope of Commission and other Fee Data Transmission and 
Flow of Funds: Although the Service, as described in Rule 52, does not 
specify from whom and to whom the transmission of commission and fee 
related data, and settlement of such payments, may be made, the 
previous rule filing descriptions do identify a specific flow. In the 
1992 Rule Filing, the type of fee payment and the flow of data and 
payments were specified to be commission data and settlements by the 
Fund to the Distributors. The 2005 Rule Filing expanded the scope to 
permit the transmission of other fee payment data and settlement 
thereof by one Distributor to another Distributor. In the current rule 
filing, NSCC seeks to make clear that the Service permits for the 
transmission of commission and other fee related data, and the 
settlement of such payments, among users of the Service without regard 
to whether the flow of funds is from the Fund to the Distributor, from 
the Distributor to the Fund, from a Distributor to another Distributor, 
or otherwise.
    c. Specify Omnibus Invoicing within the Service: NSCC proposes to 
specify in Rule 52 that the transmission of commission and other fee 
data with regard to investor accounts held in Omnibus, and the 
settlement of payments thereof, shall be included within the suite of 
functionalities offered by the Service. In all events, the Fund or 
Distributor being debited will either be the initiator of the 
commission or other fee payment transaction, or will otherwise confirm 
the debit that will be charged against its account.
    d. Specify 12b-1 Fee Payment Process with regard to Omnibus 
Invoicing: NSCC will specify in Rule 52 the process for 12b-1 fee 
payments with regard to investor accounts held in Omnibus. Unlike the 
process applicable to all other commission and other fee payments 
within the Service, 12b-1 fee payment instructions with regard to 
investor accounts held in Omnibus in all events must be initiated by 
the Distributor. When NSCC receives the 12b-1 fee payment instruction 
with regard to these accounts, NSCC will transmit such instruction to 
the contra-side Fund. The contra-side Fund will then either (i) confirm 
or reject the payment instruction, or (ii) release settlement (either 
with or without a confirmation). If NSCC receives a confirmation or 
rejection instruction, NSCC will transmit such confirmation or 
rejection to the initiating Distributor.
    e. Establish Fees to be charged by NSCC: NSCC proposes to update 
Addendum A of its Rules and Procedures to incorporate the fees 
associated with omnibus invoicing. The NSCC fees for omnibus invoicing 
will be as follows:
    a. From 1 to 500,000 records $0.10 per 1 record.
    b. From 500,001 to 1,000,000 records $0.08 per 1 record.
    c. More than 1,000,000 records $0.06 per 1 record.
    d. Monthly Fee $500.
    As with all of NSCC's Mutual Fund Services, the Service is a non-
guaranteed service of NSCC and shall remain so after the effectiveness 
of this proposed rule change.
    The proposed rule change is consistent with the requirements of the 
Act and the rules and regulations issued thereunder applicable to NSCC 
because it will promote processing efficiencies between Funds and 
Distributors, thereby facilitating the prompt and accurate processing 
of commission and other fee related payment data

[[Page 67412]]

transmissions and settlement with respect to such payments.

(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. 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) \9\ of the Act, Rule 19b-
4(f)(2),\10\ and Rule 19b-4(f)(4)(i) \11\ thereunder because it effects 
changes in an existing service of NSCC that do not adversely affect the 
safeguarding of securities or funds in the custody or control of NSCC 
or for which NSCC is responsible and do not significantly affect the 
respective rights or obligations of NSCC or persons using the service. 
NSCC's Mutual Fund Services are non-guaranteed services, and therefore, 
the funds in NSCC's control are not adversely affected by the proposed 
rule change. Further, the proposed rule change does not provide any 
greater or lesser rights to or obligations on either NSCC or the users 
of the Service in comparison to the current rights and obligations of 
the respective parties with regard to the Service as it is currently 
offered. In addition, the proposed rule change establishes fees charged 
by NSCC applicable only to members. The implementation date for the 
proposals in this proposed rule change filing other than the change in 
the Service's name will be December 1, 2012.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \10\ 17 CFR 240.19b-4(f)(2).
    \11\ 17 CFR 240.19b-4(f)(4)(i).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend 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.

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 email to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2012-08 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 submissions should refer to File Number SR-NSCC-2012-08. This file 
number should be included on the subject line if email 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 Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 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/2012/nscc/SR-NSCC-2012-08.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-2012-08 
and should be submitted on or before November 30, 2012.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27357 Filed 11-8-12; 8:45 am]
BILLING CODE 8011-01-P