[Federal Register Volume 63, Number 200 (Friday, October 16, 1998)]
[Notices]
[Pages 55664-55666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27759]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40536; File No. SR-NSCC-98-10]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Modifying
NSCC's Collateral Management Service
October 8, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 22, 1998, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-NSCC-98-10) as 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 from interested persons
on the proposed rule change.
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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 proposed rule change will add an interactive messaging feature
to NSCC's Collateral Management Service (``CMS'').\2\
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\2\ The complete text of the proposed amendments to NSCC's rules
and procedures is attached to NSCC's filing as Exhibit A, which is
available for inspection and copying at the Commission's Public
Reference Room and through NSCC.
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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 such
statements.\3\
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\3\ 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
CMS provides automated access to information on participants'
clearing fund, margin, and other deposits at NSCC and other
participating clearing entitles.\4\ The information available through
CMS includes excess and deficit collateral amounts and detailed data on
deposited collateral (i.e., cash, securities, and letters of credit).
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\4\ For a detailed description of CMS, refer to Securities
Exchange Act Release No. 36091 (August 10, 1995), 60 FR 42931 [File
No. SR-NSCC-95-06].
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CMS information is made available to NSCC participants that choose
to participate in the service, to participating clearing entities, and
if an entity requests, to participants of a participating clearing
entity. Each participating clearing entity may access only its own
participants' information through CMS. Similarly, a participant may
access only its own information through CMS. CMS enables participating
clearing entities to submit information and enables participating
clearing entities and participants to view their respective
information. However, CMS currently does not provide any additional
processing capabilities.
The participating clearing entities that currently provide
information to CMS include The Depository Trust Company (``DTC''),
Government Securities Clearing Corporation (``GSCC''), MBS Clearing
Corporation, NSCC, and The Options Clearing Corporation (``OCC'').
Information regarding the Mortgage-Backed Securities Division of DTC
(formerly Participants Trust Company) is expected to be provided to CMS
in the near future. In addition, NSCC has established an interface that
links CMS to the Pays and Collects System (``PCS'') of the Board of
Trade Clearing Corporation (``BOTCC'').\5\
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\5\ PCS is a database operated by BOTCC that contains
information regarding participants' collateral positions at futures
clearing entities.
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NSCC believes that CMS enables participants to manage their
collateral efficiently at participating clearing entities by providing
a single automated source of information. According to NSCC, CMS also
benefits participating
[[Page 55665]]
clearing entities by increasing cooperation and coordination of
information on common participants thereby helping them to better
monitor their participants' collateral positions. NSCC believes that
CMS is especially useful to identify excess collateral positions at
participating clearing entities in the event of a default of a common
participant.
The proposed rule change has the following specific objectives: (i)
to enable participating clearing entities and participants to send and
receive messages regarding collateral on an automated basis through
CMS, (ii) to enable participants that elect to participate in CMS to
request a withdrawal of excess collateral on a daily basis, including
an intraday withdrawal of excess cash collateral, and (iii) to address
the movement of collateral based on CMS messages. The modifications
primarily affect Rule 53 (Collateral Management Service) of NSCC's
Rules and Procedures.
NSCC intends to implement the modifications to CMS upon approval of
the proposed rule change. Participating clearing entities will be able
to make available the CMS modifications relating to clearing fund and
margin requirements and deposits on a phased-in basis at a time
determined by each clearing entity. NSCC believes that phased-in
implementation will afford participating clearing entities sufficient
time to address operational and regulatory considerations in connection
with their and their participants' participation in the CMS
modifications.
CMS Message Processing
The proposed rule change will modify NSCC Rule 53 to enable NSCC,
participating clearing entities, and participating participants to send
and receive interactive messages (``CMS messages'') regarding their
respective CMS information. CMS messages will include the following:
(i) a request by NSCC or a participating clearing entity to a
participant for additional collateral, (ii) a request by a participant
to NSCC or to a participating clearing entity to return excess
collateral, (iii) a request by a participant to NSCC or to a
participating clearing entity to use excess cash collateral to satisfy
a settlement deficit at the entity where there is such excess cash
collateral, (iv) a request by a participant to NSCC or to a
participating clearing entity to substitute collateral, and (v) a
request by a participant to use excess cash collateral at a
participating clearing entity or NSCC to satisfy a clearing fund or
margin deficit at another participating clearing entity or NSCC.
NSCC, participating clearing entities, and participating
participants will be able to send and receive CMS messages on an
automated basis by using CMS message screens. Generally, the CMS
message screens will contain fields to identify the requesting entity,
the entity or entities receiving the CMS message, the type of request,
the request amount, the type of collateral, and the date of the
request. CMS will transmit the request to the entity or entities
identified in the request. All requests by a participant to NSCC an to
participating clearing entities will require approval of the clearing
entity.
The proposed rule change will add Procedure XVI to NSCC's rules and
procedures to set forth procedures for processing each of the five
basic types of CMS messages. First, Procedure XVI will provide that
NSCC and participating clearing entities may submit a request for
additional collateral to a participant through CMS.\6\ The request will
be transmitted to the participant identified in the request. Second,
Procedure XVI provides that a participant may submit a request for the
return of excess collateral to NSCC or to a participating clearing
entity through CMS.\7\ The requesting participant will receive a
message from the clearing entity indicating the approval or rejection
of the request and in the case of a rejection the reason(s) for the
rejection.
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\6\ The request must include the identity of the requesting
clearing entity, the identity of the participant, the total amount
of the request, the type of collateral (i.e., cash, securities, and/
or letters of credit), the date of the request, and such other
information as may be required or permitted.
\7\ The request must include the identity of the requesting
participant, the identity of the appropriate clearing entity, the
total amount of the request, the type of collateral (i.e., cash,
securities, and/or letters of credit), the date of the request, and
such other information as may be required or permitted.
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Third, Procedure XVI will provide that a participant may submit a
request to NSCC or to a participating clearing entity to use excess
cash collateral to satisfy a settlement deficit at the clearing entity
where there is such excess cash collateral.\8\ The request will be
transmitted to the clearing entity identified in the request for
approval or rejection. The requesting participant will receive a
message indicating the approval or rejection of the request and in the
case of a rejection the reason(s) for the rejection.
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\8\ The request must include the identity of the requesting
participant, the identity of the appropriate clearing entity, the
total amount of the request, the date of the request, and such other
information as may be required or permitted.
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Fourth, Procedure XVI will provide that a participant may submit a
request to NSCC or to a participating clearing entity to substitute
collateral.\9\ The request will be transmitted to the clearing entity
identified in the request for approval or rejection. The requesting
participant will receive a message indicating the approval or rejection
of the request and, in the case of a rejection, the reason(s) for the
rejection.
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\9\ The request must include the identity of the requesting
participant, the identity of the appropriate clearing entity, the
total amount and type of the collateral (i.e., cash, securities,
and/or letters of credit) to be returned to the participant, the
total amount and type of collateral (i.e., cash, securities, and/or
letters of credit) to be substituted by the participant, the date of
the request, and such other information as may be required or
permitted.
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Fifth, Procedure XVI will provide that a participant may submit a
request to use excess cash collateral at one participating clearing
entity or NSCC to satisfy a clearing fund or margin deficit at another
participating clearing entity or NSCC.\10\ The request will be
transmitted to both clearing entities identified in the request for
approval or rejection. The requesting participant will receive a
message from each clearing entity indicating the approval or rejection
of the request and in the case of a rejection the reason(s) for the
rejection.
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\10\ The request must include the identity of the requesting
participant, the identity of the clearing entity from which the
excess cash collateral is to be sent, the identity of the clearing
entity to which the excess cash collateral is to be sent, the total
amount of the request, the date of the request, and such other
information as may be required or permitted.
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Procedure XVI also will provide that requests must be submitted by
such times on each processing day as may be established by NSCC and
participating clearing entities from time to time. A request by a
participant to NSCC or to a participating clearing entity that is not
fully approved on the day that it is submitted will not be carried
forward to the next processing day. However, CMS provides for ``today
for tomorrow'' requests that will pend and be incorporated into the
next day's processing if so designated.
Withdrawal of Excess Collateral on a Daily Basis
The proposed rule change also will modify Rule 53 to allow
participating participants to request a withdrawal of excess collateral
on a daily basis, including an intraday withdrawal of excess cash
collateral. This modification is an exception to NSCC's general rule
that permits a participant to request the return of excess collateral
no more frequently than monthly and is also an exception to the general
rule that permits certain participants on surveillance status to
request the return
[[Page 55666]]
of excess collateral no more frequently than quarterly. As a result,
the proposed rule change makes conforming changes to NSCC's rules and
procedures to provide for this exception.
Movement of Collateral Based on CMS Messages
The proposed rule change will modify Rule 53 to address the
movement of collateral based on CMS messages. The actual movement of
collateral based on a CMS message will be made between the appropriate
clearing entity and the participant pursuant to the rules and
procedures of the appropriate clearing entity. However, under the
proposed rule change the movement of collateral based on a
participant's request to use excess cash collateral at one clearing
entity to satisfy a clearing fund or margin deficit at another clearing
entity will be made directly between the clearing entities daily on a
bilateral net basis or as otherwise may be determined by the clearing
entities.
Currently, an agreement authorizing use of data for CMS (``CMS
Agreement'') addresses NSCC's authorization from participating clearing
entities to collect and provide clearing fund and margin requirement
and deposit information. Under an amendment to the CMS Agreement,\11\
NSCC and participating clearing entities will agree to make payments in
accordance with their respective rules and procedures based on approved
participant requests to use excess cash collateral at one clearing
entity to satisfy a clearing fund or margin deficit at another clearing
entity daily on a bilateral net basis or as otherwise may be determined
by the clearing entities.\12\ From the perspective of a participant,
excess cash collateral will be treated as moved at the time both
clearing entities approve the participant's request or at such other
time as the clearing entities may mutually agree.
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\11\ The text of the amendment to the CMS Agreement is attached
to NSCC's filing as Exhibit B, which is available for inspection and
copying at the Commission's Public Reference Room and through NSCC.
\12\ As an example of bilateral netting, assume participant A
requests to move $10 million excess cash collateral from NSCC to
GSCC, participant B requests to move $5 million excess cash
collateral from GSCC to NSCC, participant C requests to move $5
million excess cash collateral from DTC to OCC, and participant D
requests to move $1 million excess cash collateral from OCC to DTC.
In this example, NSCC would move the net amount of $5 million to
GSCC, and DTC would move the net amount of $4 million to OCC.
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The proposed rule change will provide that the movement of excess
cash collateral from NSCC to an NSCC participant based on a CMS message
will be included in NSCC's money settlement process unless the
participant requests an intraday wire transfer of funds. The proposed
rule change also will make a technical modification to Section 6 of
Rule 53 to add references to CMS messages.
NSCC believes that the modifications to CMS will create additional
efficiency in the processing of collateral. CMS will enable
communications regarding collateral to be processed on an automated
basis thereby streamlining the current manually intensive telephonic
and facsimile process. CMS will also facilitate the movement of
collateral by enabling participants to move excess cash collateral from
one clearing entity to satisfy a clearing fund or margin deficit at
another clearing entity directly through the clearing entities. The CMS
modifications will include additional information regarding
participants' collateral in CMS thereby helping participating clearing
entities to better monitor their participants' collateral positions.
NSCC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder. In
particular, NSCC believes that the proposed rule change is consistent
with Section 17A(b)(3)(f) of the Act \13\ because it is designed to
assure the safeguarding of securities and funds which are in the
custody or control of NSCC or for which it is responsible, foster
cooperation and coordination with persons engaged in the clearance and
settlement of securities transactions, and in general to protect
investors and the public interest.
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\13\ 15 U.S.C. 78-1(b)(3)(F).
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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 an
impact or impose a 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 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
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 NSCC 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549. Copies
of the submission, all subsequent amendments, all written statements
with respect to the proposed rule change that are filed with the
Commission, an 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, 450 Fifth Street, NW,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of NSCC. All submissions
should refer to File No. SR-NSCC-98-10 and should be submitted by
November 6, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-27759 Filed 10-15-98; 8:45 am]
BILLING CODE 8010-01-M