[Federal Register Volume 59, Number 191 (Tuesday, October 4, 1994)] [Unknown Section] [Page 0] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 94-24517] [[Page Unknown]] [Federal Register: October 4, 1994] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-34729; File No. SR-NSCC-94-16] Self Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change Modifying Comparison Procedures for Corporate Bond and Unit Investment Trust Transactions and Modifying the Fee Structure for Correction Fees September 27, 1994. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on August 9, 1994, the 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 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) (1988). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change will modify NSCC's trade comparison procedures for corporate bond and unit investment trust (``UIT'') transactions and corresponding correction fees. 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. (A) Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change Since 1993, NSCC has been redesigning its bond comparison system to accelerate the processing (i.e., submission and comparison) of bond transactions to achieve higher rates of trade comparison at earlier points in the comparison process. NSCC believes accelerated processing will help to increase certainty and reduce risk in the clearance and settlement of debt transactions. The first phase of this redesign process enhanced the processing of transactions in municipal securities and was implemented by NSCC on August 13, 1993.\2\ The primary purpose of the current proposed rule change is to expand the accelerated comparison system to include the processing of transactions in corporate bonds and UITs. the proposed rule change also will permit NSCC to provide comparison services for baby bonds (i.e., corporate bonds having a par value of less than $1,000) and new issue trading. The proposed rule change also will modify the fee structure for correction fees. --------------------------------------------------------------------------- \2\For a detailed description of the municipal securities phase of the bond comparison system, refer to Securities Exchange Act Release No. 32747 (August 13, 1993), 58 FR 44530 [File No. SR-NSCC- 93-2] (order approving a proposed rule change establishing a program relating to comparison procedures for municipal securities transactions). --------------------------------------------------------------------------- Under the proposed rule change, the cutoff time for submission of original trade input for all corporate bond and UIT transactions will be moved from 1:00 p.m. on the day following trade date (``T+1'') to 2:00 a.m. on T+1. These trades will be reported back to members by 8:00 a.m. on T+1. Adjustments to original trade input will have to be made prior to the time specified by NSCC on T+1, which will be 6:00 p.m. NSCC will accept trade input for trade-for-trade processing of corporate baby bonds. If transactions are submitted as a mixed lot (i.e., submissions including baby bonds and round lots), the baby bond and the round lot portions of the transaction will be separated by NSCC upon input. At the option of members, corporate bond and UIT transactions will be compared when the net buy side and sell side aggregate principal amounts can be matched for a particular security, even if the relevant principal amounts are specified in more than one buy side and/or more than one sell side submission, if the transactions would have been compared had such buy side and sell side principal amounts each been specified on a single submission. Because correction processing occurs at the New York and American Stock Exchanges and at the National Association of Securities Dealers before the trade input is transmitted to NSCC, Add-by-Seller tickets, as well as Delete-by-Seller, Delete Add-by-Seller and Delete-by-Buyer instructions, will no longer be accepted under the proposed rule.\3\ This change is being proposed in order to standardize correction processing. --------------------------------------------------------------------------- \3\For a complete description of the New York Stock Exchange, American Stock Exchange and National Association of Securities Dealers corrections processing systems, refer to Securities Exchange Act Release Nos. 26773 (May 1, 1989), 54 FR 20227 [File No. SR-NYSE- 89-03] (order approving the New York Stock Exchange's system for the resolution of uncompared transactions); 28069 (May 29, 1990), 55 FR 23324 [File No. SR-AMEX-90-01] (order approving the Intra-Day Comparison System for resolving uncompared transactions); and 28583 (November 1, 1990), 55 FR 46120 [File No. SR-NASD-89-25] (order granting accelerated approval of amendment to proposed rule change relating to the Automated Confirmation Transaction Service). --------------------------------------------------------------------------- NSCC will provide comparison services for corporate bond new issue transactions on the same basic terms and conditions as are currently provided for municipal securities transactions with the exception of syndicate takedown processing.\4\ Original trade input for new issue corporate bond transactions will be accepted until the third day prior to the initial settlement date for the issue. Original input may set forth either (1) A final settlement price and a settlement date that is either the initial settlement date or a specified number of days after the initial settlement date or (2) a dollar price. Original trade input that is submitted between three and five days prior to the initial settlement date but does not set forth a final settlement price and settlement date or does not set forth a dollar price will be treated as regular input. Any corporate bond new issue transactions that remain uncompared at the opening of business on the day prior to the initial settlement date will be deleted from NSCC's system.\5\ --------------------------------------------------------------------------- \4\NSCC defines ``new issue'' transactions in this context to mean transactions which are to settle on the initial settlement date for an issue or a specified number of days after the initial settlement date. \5\This means that some new issue transactions may not be able to be put through the entire range of available trade resolution procedures prior to being dropped. In the extreme case, new issue submissions made on the second day prior to the initial settlement date that do not compare will be dropped without any opportunity for resolution. These unresolved trades will be reported on a separate unresolved trade report, and any trade dropped without the opportunity for resolution may be resubmitted after the initial settlement date. --------------------------------------------------------------------------- NSCC's fee structure relating to correction fees will be amended to reflect that correction capabilities will be accelerated in conformity with comparison capabilities. These fee changes will conform all bond correction fees to the fees implemented in connection with municipal securities transaction processing in that participants will be charged for supplemental input on or after T+1.\6\ Currently, NSCC charges participants for supplemental input relating to corporate bond and UIT transactions on or after T+2. In addition, the bond system correction fees for ``don't know'' and ``questioned trade'' input will be deleted because NSCC no longer processes such transactions. The proposed rule change also makes certain conforming changes and deletions to NSCC's Procedures in order to reflect greater uniformity in NSCC's bond comparison system and to eliminate certain language which has become obsolete. --------------------------------------------------------------------------- \6\For a detailed description of NSCC's correction fees or municipal securities transactions, refer to Securities Exchange Act Release No. 34193 (June 10, 1994), 59 FR 31284 [File No. SR-NSCC-94- 08] (notice of filing and immediate effectiveness of a proposed rule change modifying NSCC's fee schedule for correction fees). --------------------------------------------------------------------------- The proposed changes to NSCC's comparison procedures should help achieve higher rates of trade comparison at earlier points in the comparison process and thus increase certainty and reduce risk in the clearance and settlement of corporate bond and UIT transactions. Moreover, the expansion of corporate bond processing to cover baby bond and new issue transactions will promote the prompt and accurate clearance and settlement of securities transactions. Therefore, NSCC believes the proposed rule change is consistent with Section 17A of the Act. B. Self-Regulatory Organization's Statement on Burden on Competition NSCC does not believe that the proposed rule 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 NSCC has not solicited or received any comments. 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 the self-regulatory organization consents, the Commission will: (A) by order approve such proposed rule, 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 20549. 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. Sec. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street N.W., Washington, D.C. 20549. Copies of such filing will also be available for inspection and copying at the principal office of NSCC. All submissions should refer to File No. SR-NSCC-94-16 and should be submitted by October 25, 1994. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\7\ --------------------------------------------------------------------------- \7\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- [FR Doc. 94-24517 Filed 10-3-94; 8:45 am] BILLING CODE 8010-01-M