[Federal Register Volume 77, Number 163 (Wednesday, August 22, 2012)]
[Notices]
[Pages 50736-50738]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20576]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67673; File No. SR-NSCC-2012-06]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Enhance the
Default Pricing Methodology Used by NSCC's Automated Customer Account
Transfer Service
August 15, 2012.
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 August 7, 2012, 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 persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change involves Rule 50 of NSCC's Rules and
Procedures. NSCC proposes to amend this rule to eliminate the use of a
default pricing matrix to assign values to certain items transferred
through NSCC's Automated Customer Account Transfer Service (``ACATS'').
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 and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements and comments 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.\3\
---------------------------------------------------------------------------
\3\ The Commission has modified the text of the summaries
provided by NSCC.
---------------------------------------------------------------------------
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Background
ACATS enables NSCC Members to effect automated transfers of
customer accounts among themselves.\4\ Pursuant to Rule 50, an NSCC
Member to whom a customer's full account will be transferred
(``Receiving Member'') will initiate the transfer by submitting to NSCC
a transfer initiation request, which contains the customer detail
information that the NSCC Member in possession of the account
(``Delivering Member'') requires in order to transfer the account.
Delivering Members that have neither rejected the account transfer
request nor sought corrections to the request within the allotted time
must submit to NSCC certain detailed customer account asset data.
---------------------------------------------------------------------------
\4\ ACATS complements Financial Industry Regulatory Authority
(``FINRA'') Rule 11870 regarding Customer Account Transfers, which
requires FINRA members to use automated clearing agency customer
account transfer services, and to effect customer account transfers
within specified time frames.
---------------------------------------------------------------------------
For items transferred through ACATS that are not eligible to be
processed through NSCC's Continuous Net Settlement (``CNS'') system \5\
(and for CNS-eligible items that are designated to be delivered ex-
CNS), NSCC will produce ACATS Receive and Deliver Instructions. These
ACATS transfers then settle either outside of NSCC or through a
separate service at NSCC.\6\ In order to incentivize the timely
completion of ACATS transfers, at the start of the day on ACATS
settlement date, the Delivering Member's NSCC money settlement account
will include a debit, or an incentive charge (``Incentive Charge''),
equal to the aggregate market value of the items the Delivering Member
is transferring through ACATS; the Receiving Member's NSCC money
settlement account includes a credit in the same amount.\7\ Once
delivery of an item is complete, the Incentive Charge associated with
that item is effectively offset when the Receiving Member pays the
Delivering Member for the transferred items. This Incentive Charge is
intended to encourage the Delivering Member to make delivery of the
item in a timely manner.\8\
---------------------------------------------------------------------------
\5\ CNS is an ongoing accounting system that nets today's
Settling Trades with yesterday's Closing Positions, producing net
short or long positions per security issue for each Member. NSCC is
always contraside for all positions. The positions are then passed
against the Member's Designated Depository positions and available
securities are allocated by book entry. This allocation of
securities is accomplished through an evening cycle followed by a
day cycle. Positions that remain open after the evening cycle may be
changed as a result of trades accepted for settlement that day. To
allocate deliveries in both the night and day cycles, CNS uses an
algorithm based on priority groups in descending order, age of
position within a priority group, and random numbers within age
groups.
\6\ For example, non-CNS ACATS may settle at (i) The Depository
Trust Company (``DTC''), for DTC-eligible items; (ii) NSCC's
automated ACATS-Fund/SERV interface, for eligible mutual fund
assets; (iii) NSCC's ACATS-IPS interface, for eligible annuities;
and (iv) the Options Clearing Corporation, where transfers in
customer-options positions take place, for options.
\7\ Incentive Charges are not calculated for the transfer of
options or annuities.
\8\ It also allows the Receiving Member to record the customer
position on its books, regardless whether the item is actually
delivered on settlement date. This process supports the requirements
of FINRA Rule 11870.
---------------------------------------------------------------------------
Each item transferred through ACATS must be assigned a market value
in order to calculate the Incentive Charge. CNS-eligible items being
transferred through ACATS are assigned a market
[[Page 50737]]
value through the CNS system. Non-CNS eligible items, however, are
assigned a market value pursuant to NSCC Rule 50, which calls for a
market value based on either (i) the price obtained from a pricing
source, if available or, if a pricing source is not available, (ii) the
greater of (a) the price in U.S. dollars assigned by the Delivering
Member (``Submitter's Value''), which, in most cases, must be the
current market value of the item,\9\ or (b) the value ascribed to such
item pursuant to a default pricing matrix, as established from time to
time by NSCC. The current default pricing matrix assigns a value to an
item based on its ``asset category type,'' as classified by the
Delivering Member in the detailed customer account asset data submitted
to NSCC. For example, the current default pricing matrix assigns
equities a default price of $1 per share, with a cap of $20,000, and
assigns U.S. government securities and U.S. government agency
securities a default price of the face amount. The default pricing
matrix was developed in close coordination with industry participants
and the National Association of Securities Dealers shortly after the
initial development of ACATS.
---------------------------------------------------------------------------
\9\ See Section (d)(5)(A) of current FINRA Rule 11870, stating
that a customer statement delivered in connection with a transfer
instruction, ``must include a then-current market value for all
assets so indicated. If a then-current market value for an asset
cannot be determined (e.g., a limited partnership interest), the
asset must be valued at original cost.''
---------------------------------------------------------------------------
It has been observed that the default pricing matrix may, in some
cases, overvalue items being transferred through ACATS. When this
occurs, on ACATS settlement date the Delivering Member will be debited
an Incentive Charge based on a higher market value than the actual
value of the item being transferred. Delivering Members will not
receive the offset for this Incentive Charge until they deliver the
related ACATS item. Therefore, a Delivering Member that does not
deliver the ACATS item on ACATS settlement date will be required to pay
the Incentive Charge associated with that item. If the default pricing
matrix has overvalued an ACATS Incentive Charge, a Delivering Member
that has failed to deliver the item will be faced with an unexpected
inflated settlement charge on ACATS settlement date.
2. Proposed Rule Change
In order to reduce the risk of overcharging a Delivering Member,
NSCC is proposing a rule change that will require NSCC to assign the
Submitter's Value to items when the system cannot otherwise find a
price for the security, thereby eliminating the use of the ACATS
default pricing matrix altogether. Under the proposed rule change, in
the case of non-CNS eligible items transferred through ACATS, NSCC will
assign a market value to those items as either (i) the price obtained
from a pricing source, if available or, if a pricing source is not
available, the assigned market value will be (ii) the price in U.S.
dollars assigned by the Delivering Member (i.e., the Submitter's
Value), which, in most cases, must be the current market value of the
security.\10\
---------------------------------------------------------------------------
\10\ See note 9, supra.
---------------------------------------------------------------------------
According to NSCC, this proposed rule change will reduce the risk
that a non-CNS eligible item transferred through ACATS is assigned an
inflated value based on its asset category, as it will require that the
market value of these items be obtained either from a pricing source or
from the Delivering Member.
3. Statutory Basis for Proposed Rule Change
NSCC believes the proposed rule change will facilitate the prompt
and accurate clearance and settlement of securities transactions, a
policy underlying ACATS. As a result, it is NSCC's view that the
proposal is consistent with the requirements of the Act \11\ and the
rules and regulations thereunder applicable to NSCC.
---------------------------------------------------------------------------
\11\ 15 U.S.C. 78s(b)(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
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 45 days of the date of publication of this notice in the
Federal Register, or within such longer period up to 90 days (i) as the
Commission may designate 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 or disapprove the 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 may be submitted by using the
Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml), or by sending an email to [email protected]. Please
include File No. SR-NSCC-2012-06 on the subject line.
Paper comments should be sent in triplicate to Elizabeth
M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-0609.
All submissions should refer to File Number SR-NSCC-2012-06. To
help the Commission process and review your comments more efficiently,
please use only one method of submission. 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 filing 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-2012-06.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-2012-06 and
should be submitted on or before September 12, 2012.
[[Page 50738]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\12\
---------------------------------------------------------------------------
\12\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-20576 Filed 8-21-12; 8:45 am]
BILLING CODE 8011-01-P