[Federal Register Volume 60, Number 94 (Tuesday, May 16, 1995)] [Notices] [Pages 26059-26060] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 95-11947] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-35696; File No. SR-NSCC-94-19] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change to Settle Certain Mutual Fund Services Transactions in Same Day Funds May 9, 1995. On November 8, 1994, the National Securities Clearing Corporation (``NSCC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-NSCC-94-19) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal was published in the Federal Register on January 3, 1994.\2\ One comment letter [[Page 26060]] was received in favor of the proposed rule change.\3\ For the reasons discussed below, the Commission is approving the proposed rule change. \1\ 15 U.S.C. 78s(b)(1) (1988). \2\ Securities Exchange Act Release No. 35148 (December 23, 1994), 60 FR 155. \3\ Letter from Kevin Farragher, Director of Operations, Distribution & Service, Investment Company Institute, to Jonathan G. Katz, Secretary, Commission (January 5, 1995). --------------------------------------------------------------------------- I. Description NSCC's rule change enables NSCC to offer same-day funds money settlement capabilities as part of its Fund/Serv service for certain mutual fund products. Currently, NSCC's Fund/Serv service processes mutual fund transactions in which money settlement with many settling members occurs in next-day funds.\4\ \4\ NSCC presently receives same-day funds payments from fund members and mutual fund processors for dividend amounts owed and processed through NSCC's Networking service and for commission amounts owed and processed through NSCC's Commission Settlement service. --------------------------------------------------------------------------- Money settlement for money market and no-load mutual fund transactions outside NSCC's facilities typically occurs in same-day funds. Accordingly, NSCC is proposing to make and receive same-day funds payments in connection with the settlement of money market and no-load mutual fund transactions. NSCC will not net a member's same-day funds debit or credit with the member's next-day funds debit or credit. Accordingly, NSCC Rule 12 is being modified to clarify that there will be more than one mutual funds settling trades summary which will reflect amounts payable to or payable by NSCC for the settlement of Mutual Fund Services transactions. NSCC will produce a mutual funds settling trades summary that will evidence the member's same-day funds mutual funds settlement obligation and a separate mutual funds settling trades summary that will evidence the member's mutual funds obligation settling in next-day funds. Technical changes also are being made to Sections B and C of NSCC's Rule 52 to conform the language regarding money settlement and the cross-references to NSCC's settlement rule. Generally, NSCC intends to credit Fund/Serv members' accounts with mutual fund transaction credits settling in same-day funds only after it has received same-day funds payments from members in a debit position.\5\ However, to maintain flexibility NSCC will have the ability to credit members' accounts in same-day funds before receiving same-day funds payments from members unless NSCC has concerns regarding the financial stability of the members and if the aggregate of same day funds payments for which NSCC has not received payment but is crediting members' accounts does not exceed $100 million per day.\6\ To protect against any possible losses incurred by NSCC if a member in a debit balance fails to pay NSCC, NSCC has the ability on the day following settlement date to reverse the credits paid to members. \5\ Members in a debit position with NSCC will be required to make payment to NSCC by 3:00 p.m. on the day of settlement while those members in a credit position will receive payment from NSCC beginning at 5:00 p.m. on the day of settlement. \6\ Letter from Robert A. Schultz, NSCC, to Jerry Carpenter, Assistant Director, Division of Market Regulation, Commission (May 5, 1995). If needed to fund same-day fund payments to members, NSCC has a liquidity resource comprised of a $300 million line of credit. This liquidity resource is not exclusively dedicated to Fund/Serv settlement but also is available to NSCC to protect against losses in all of NSCC's systems and services. --------------------------------------------------------------------------- II. Comments The Commission received one comment regarding the filing.\7\ The commenter strongly supported and recommended adoption of the proposed rule change. The commenter based its support on the efficiency, economy, and standardization of services produced by fund/Serv. The commenter noted the importance of same day funds settlement in the three business day settlement cycle that will be implemented on June 7, 1995,\8\ and noted the ease in which this transition will take place with same day funds settlement available for some mutual funds. \7\ Supra note 3. \8\ On October 6, 1993, the Commission adopted Rule 15c6-1 under the Act, which establishes three business days after the trade date instead of five business days as the standard settlement timeframe for most broker-dealer transactions. The rule becomes effective June 7, 1995. Securities Exchange Act Release Nos. 33023 (October 6, 1993), 58 FR 52891 (release adopting Rule 15c6-1); 34952 (November 9, 1994), 59 FR 59137 (release changing the effective date of the three day settlement cycle). Exchange Act Release Nos. 33023 (October 6, 1993), 58 FR 52891 (release adopting Rule 15c6-1); 34952 (November 9, 1994), 59 FR 59137 (release changing the effective date of the three day settlement cycle). --------------------------------------------------------------------------- III. Discussion The Commission believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder and particularly with the requirements of Section 17A(b)(3)(F).\9\ Section 17A(b)(3)(F) requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions. NSCC's proposed rule change to add same-day funds settlement capabilities to NSCC's Fund/Serv should help achieve the prompt and accurate clearance and settlement of mutual fund transactions by making money market and no- load funds eligible for settlement through Fund/Serv. Moreover, the proposal will centralize the settlement of these types of mutual funds in a registered clearing agency and will allow mutual fund processors and brokers to take advantage of the efficiencies inherent in Fund/ Serv. \9\ 15 U.S.C. 78q-1(b)(3)(F) (1988). --------------------------------------------------------------------------- IV. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with Section 17A(b)(3)(F) of the Act. It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-NSCC-94-19) be, and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\10\ \10\ 17 CFR 200.30-3(a)(12) (1994). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 95-11947 Filed 5-15-95; 8:45 am] BILLING CODE 8010-01-M