[Federal Register Volume 79, Number 55 (Friday, March 21, 2014)]
[Notices]
[Pages 15780-15782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-06187]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71725; File No. SR-NSCC-2014-03]
Self-Regulatory Organizations; National Securities Clearing
Corporation (``NSCC''); Notice of Filing of Proposed Rule Change To
Enhance the System That Processes Corporate Actions Within NSCC's
Continuous Net Settlement (``CNS'') System
March 14, 2014.
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 March 6, 2014, National Securities Clearing Corporation (``NSCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by NSCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consist [sic] of amendments to the Rules &
Procedures (``Rules'') of NSCC to enhance the system that processes
corporate actions within NSCC's Continuous Net Settlement (``CNS'')
system, as more fully described below.
II. Clearing Agency'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.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
NSCC has recently enhanced the system that applies corporate
actions to Members' open failed positions within CNS. While the
enhancements to corporate action processing would not require NSCC
Members to make any coding changes, NSCC is proposing to update
Procedure VII of its Rules in order to reflect these enhancements.
One of NSCC's core service as a central counterparty is trade
clearance and settlement through CNS, where compared and recorded
transactions in eligible securities \3\ for a particular settlement
date are netted by issue into one net long (buy) or net short (sell)
position. As a continuous net system, those positions are further
netted with positions of the same issue that remain open after their
originally scheduled settlement date (usually T+3), so that trades
scheduled to settle on any day are netted with fail positions to result
in a single deliver or receive obligation for each Member for each
issue in which it has activity. As part of the services offered to NSCC
Members, certain corporate actions, including cash dividends, stock
dividends, bond interest, and other mandatory corporate actions (which
include redemptions, stock and cash mergers, and name changes) are
automatically debited or credited to Member's CNS accounts with open
fail positions in CNS. Members are also permitted to take part in
certain voluntary corporate actions, which include tender or exchange
offers, with respect to open fail positions in CNS.
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\3\ To be CNS-eligible, a security must be eligible for book-
entry transfer on the books of The Depository Trust Company
(``DTC''), an NSCC affiliate, and must be capable of being processed
in the CNS system; for example, securities may be ineligible for CNS
processing due to certain transfer restrictions (i.e., 144A
securities) or due to the pendency of certain corporate actions.
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Enhancements to the processing of corporate actions within CNS,
described below, would provide Members with more timely and detailed
information regarding applicable corporate action events, would support
additional corporate action events, and would provide short Members
(i.e. Members that have failed to deliver securities to CNS) with
information on their final liability on the same day that liability is
applied to their CNS account. The proposed enhancements would also
provide NSCC staff with an improved ability to monitor and process
voluntary corporate action events. These enhancements are reflected in
the proposed rule changes on Exhibit 5 \4\ hereto and are described
below.
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\4\ See Exhibit 5 of the Proposed Rule Change Filing, available
at http://www.sec.gov/rules/sro/nscc.shtml under File No. SR-NSCC-
2014-04, Additional Materials.
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Optional Dividends
When a fail position in CNS is subject to a dividend payment, the
issuer will specify the form in which that dividend will be paid (i.e.
in securities or cash), called the ``default option''. NSCC long
Members (i.e. Members that have failed to receive securities from CNS)
may elect a form of payment that differs from the default option by
submitting an instruction to NSCC no later than a pre-set date and cut-
off time. While these elections are submitted manually today, under the
enhancements to the processing of corporate actions, these elections
would be submitted to NSCC electronically.
Today, NSCC sets a cut-off time that is based on the cut-off time
set by DTC for the submission of these instructions.
[[Page 15781]]
Going forward, NSCC would set the date and cut-off time that is earlier
than the DTC cut-off time, to provide the short Member with additional
time to communicate that election to their counterparty.
NSCC's Procedure VII, Section G.4 would be updated as marked in
Exhibit 5 hereto to reflect these changes.
Support ``Offer To Consent'' Tender/Exchange Offers
Today, if a fail position in CNS is subject to a tender or exchange
offer that includes an ``offer to consent'', in order to participate in
that tender or exchange offer the open fail position would be closed
and exited out of CNS, and would settle directly between counterparties
outside of CNS. The proposed enhancements would permit NSCC Members
with fail positions in CNS to participate in tender or exchange offers
that include an ``offer to consent'' within CNS.
Under the proposed Rule changes, CNS would support tender/exchange
offers that include an ``an offer to consent''. These corporate actions
were not previously processed by NSCC in CNS. NSCC's Procedure VII,
Section H.4 would be updated as marked in Exhibit 5 hereto to reflect
this change.\5\
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\5\ Id.
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Protect Submission and Liability Notification
Currently, the cut-off time for a long Member to place a
``protect'' on an open fail position in CNS in order to participate in
an upcoming corporate action, or to add shares to a voluntary corporate
action, is either on the business day prior to ``protect'' expiration
date or, when there is no ``protect'' for that corporate action, on the
business day prior to the expiration date of the corporate action.
Today, because long Members may incur additional costs for failing to
meet these deadlines, NSCC staff today may, in its discretion and on a
best efforts basis, may accept and process these instructions either on
the ``protect'' expiration or on the expiration date of the corporate
action.
Under the proposed enhancements, NSCC Members would submit these
instructions to NSCC electronically, and, for a fee of US $500.00, NSCC
Members would be permitted to submit instructions to place a
``protect'' on an open fail position in CNS in order to participate in
an upcoming corporate action, or to add shares to a voluntary corporate
action either on ``protect'' expiration date or, when there is no
``protect'' for that corporate action, on the expiration date of the
corporate action.
NSCC's Procedure VII, Section H.4 (b), including the table in that
Section, would be updated as marked in Exhibit 5 \6\ hereto to reflect
this change.
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\6\ Id.
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Final Liability and Final Protection Notification
Today, CNS will alert a short Member of their final assigned
liability with respect to voluntary corporate actions either on the
business day after ``protect'' expiration date for that corporate
action or, when there is no ``protect'' for that corporate action, on
the business day after the expiration date of the corporate action.
Under the proposed Rule changes, CNS would alert the short Member
of their assigned final liability no later than the close of business
on the same business day the final liability is assigned to that Member
by CNS. The proposed Rule change would also make clear that long
Members would be notified that their fail positions in CNS would be
subject to the protection for that corporate action no later than the
close of business on the same business day the final protection is
assigned to that Member by CNS.
NSCC's Procedure VII, Section H.4(b), including the table in that
Section, would be updated as marked in Exhibit 5 \7\ hereto to reflect
this change.
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\7\ Id.
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SMART/Track for CNS Corporate Actions
Under the proposed Rule changes, Members would submit instructions
to participate in a voluntary reorganization and would access all
corporate action processing output data through SMART/Track for CNS
Corporate Actions, which is available within the SMART/Track for
Corporate Action Liability Notification Service. The output data, which
today is delivered to Members through files and reports, would be
visible through on-line screens with search options and filters.
NSCC's Procedure VII, Section H.4 would be updated as marked in
Exhibit 5 \8\ hereto to remove reference to the existing files and
reports.
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\8\ Id.
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Restriction on Movement of Positions Between CNS Sub-Accounts
Under the proposed enhancements, when a voluntary reorganization is
being processed on a security, CNS would no longer permit the movement
of positions for that security between non-reorganization sub-accounts
(which include, for example, the CNS General Account and the CNS Fully-
Paid-For Account) either on the ``protect'' expiration date, or, when
there is no ``protect'' for that voluntary reorganization, on the
expiration date of the voluntary reorganization.
In order to make this change, NSCC's Procedure VII, Section H.4(b)
would be updated as marked in Exhibit 5.\9\
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\9\ Id.
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Additional Rule Changes
In addition to the enhancements described above, NSCC is proposing
to amend Procedure VII, Section H.4(b) to make clear that the Rules are
drafted assuming the processing of subject securities with a protect
period of three days, and the table included in that section sets forth
the time frames for processing of subject securities with a protect
period of two days or less. As such, NSCC would amend Sections G and H
of Procedure VII (CNS Accounting Operation), as described above and as
reflected in Exhibit 5 hereto.
Implementation Timeframe
Subject to approval of this filing, NSCC proposes to implement the
proposed rule changes in multiple phases during 2014. Pending
Commission approval, Members will be advised of the implementation
dates of the proposed rule changes through issuance of an NSCC
Important Notice.
2. Statutory Basis
NSCC believes the proposed rule change is consistent with the
requirements of the Securities Exchange Act of 1934 (``Act'') and the
rules and regulations thereunder applicable to NSCC, in particular
Section 17A(b)(3)(F) of the Act,\10\ which requires that NSCC's Rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions. By providing for greater efficiency and
automation with respect to processing corporate actions applicable to
open failed positions within CNS, the proposed rule change promotes the
prompt and accurate clearance and settlement of securities
transactions.
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\10\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Clearing Agency'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.
[[Page 15782]]
(C) Clearing Agency'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 yet
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, [sic] 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 such a 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
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-NSCC-2014-03 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File No. SR-NSCC-2014-03. 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/).
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 No. SR-NSCC-2014-03 and
should be submitted on or before April 11, 2014.
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\11\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\11\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06187 Filed 3-20-14; 8:45 am]
BILLING CODE 8011-01-P