[Federal Register Volume 61, Number 227 (Friday, November 22, 1996)]
[Notices]
[Pages 59478-59479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29860]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37959; File No. SR-NSCC-96-16]
November 15, 1996.


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Accelerated Approval of a Proposed Rule 
Change Relating to the Fund/Serv Service

    On August 15, 1996, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-NSCC-96-16) under 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
seeking to allow members to transfer assets within an individual 
retirement account (``IRA'') to another mutual fund through NSCC's 
Fund/Serv.\2\ On September 10, 1996, and on September 30, 1996, NSCC 
filed amendments to the proposed rule change.\3\ Notice of the proposal 
was published in the Federal Register on October 24, 1996.\4\ The 
Commission received one comment letter in response to the filing.\5\ On 
November 13, 1996, NSCC filed a third amendment to the proposed rule 
change.\6\ For the reasons discussed below, the Commission is approving 
the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. Sec. 78(b)(1) (1988).
    \2\ Fund/Serv, which is part of NSCC's Mutual Fund Services, is 
an NSCC service that permits NSCC members to process and to settle 
on an automated basis mutual fund purchase and redemption orders and 
to transmit registration instructions.
    \3\ Letters from Anthony H. Davidson, Associate Counsel, NSCC, 
to Christine Sibille, Special Counsel, Division of Market 
Regulation, Commission (September 6, 1996, and September 27, 1996).
    \4\ Securities Exchange Act Release No. 37841 (October 18, 
1996), 61 FR 55178.
    \5\ Letter from Donald J. Boteler, Vice President, Operations 
and Training, Investment Company Institute, to Jonathan G. Katz, 
Secretary, Commission (November 1, 1996).
    \6\ Letter from Anthony H. Davidson, Associate Counsel, NSCC, to 
Christine Sibille, Special Counsel, Division of Market Regulation, 
Commission (November 8, 1996). This amendment was a technical 
amendment that did not require republication of notice.
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I. Description

    The proposed rule change will enable NSCC settling members and fund 
members to transfer between each other the value of mutual fund shares 
held in IRAs on an automated basis.\7\ Pursuant to this rule change, 
the member to whom the value of IRA mutual funds shares is to be 
transferred (``Receiving Fund Member'') will initiate a transfer by 
submitting a transfer request to NSCC indicating the member from whom 
the value of IRA mutual fund shares is to be transferred (``Delivering 
Fund Member''). The transfer request should contain the CUSIP number, 
the customer Tax I.D. number, the customer account number, the customer 
account registration, and the plan type (e.g., IRA, IRA rollover, or 
Simplified Employee Pension IRA) as established at the Receiving Fund 
Member.
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    \7\ Currently, the mutual fund industry relies on telephonic and 
paper communications to process these transfers.
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    Upon receipt of the information from NSCC, the Delivering Fund 
Member

[[Page 59479]]

must either acknowledge or reject the transfer within two days. An 
acknowledgment must contain the customer account information as the 
information appears on the records of the Delivering Fund Member. The 
acknowledgment must also contain the customer's current dollar and 
share balance at the time of the acknowledgment. A rejection must 
indicate the reason(s) (e.g., stop code on account, invalid plan type, 
or invalid percentage rate) why the Delivering Fund Member is rejecting 
the transfer request. A transfer request that is not responded to 
within two days by a Delivering Fund Member will be deleted from Fund/
Serv.
    In order for a transfer to be scheduled for settlement after a 
transfer request has been acknowledged, the Delivering Fund Member must 
submit a confirmation to NSCC no earlier than two days and no later 
than sixty days after the submission of the acknowledgment. Such 
confirmation will provide information on the price at which the 
position is liquidated. An acknowledged transfer request that is not 
confirmed by a Delivering Fund Member within sixty days from the 
submission of the acknowledgment will be deleted from Fund/Serv. If a 
Delivering Fund Member wants to change any information contained in the 
confirmation it will be permitted to submit a reconfirmation prior to 
11 a.m. on the day of settlement. Similarly, a Receiving Fund Member 
may cancel a transfer request by submitting an exit instruction to NSCC 
prior to 11 a.m. on the day of settlement.
    A transfer request that has been confirmed or reconfirmed and not 
exited will settle on the next settlement cycle after such confirmation 
or reconfirmation.\8\ On the settlement date, NSCC will debit the 
Delivering Fund Member's account and credit the Receiving Fund Member's 
account for the dollar value of the liquidated mutual fund shares.
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    \8\ The settlement cycle occurs at 11:00 a.m. each business day.
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    Members may also need to make adjustments after the transfer to 
account for items such as dividend and commission payments. A member 
may make such adjustments with another member in the same fashion as 
with other Fund/Serv orders. NSCC will charge members the same fee for 
these transfer requests as it charges for other Fund/Serv orders.\9\
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    \9\ The proposed rule change modifies Addendum A of NSCC's rules 
to reflect a fee of $.35 per side per transfer request.
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II. Comment Letter

    The Commission received one comment letter in response to the 
proposed rule change.\10\ The commenter believes that the proposal 
provides for a timelier and more efficient processing of IRA account 
transfers through the exchange of electronic records. The commenter 
notes that such electronic transfers should result in a streamlined 
processing cycle during which customer proceeds should be uninvested 
for a maximum of one night. The commenter compares this electronic 
efficiency with the current, cumbersome manual transfer procedure which 
is subject to varied, idiosyncratic processing requirements and 
practices as well as a reliance on the U.S. Postal Service. The 
commenter believes that the movement of this transfer process to a 
paperless, automated system can only improve the timeliness and 
accuracy of IRA account transfers.
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    \10\ Supra note 5.
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III. Discussion

    The Commission believes that NSCC's proposal is consistent with 
Section 17A of the Act \11\ and specifically with Sections 17A(b)(3) 
(A) and (F) thereunder \12\ Sections 17A(b)(3) (A) and (F) require that 
a clearing agency be organized and its rules be designed to facilitate 
and to promote the prompt and accurate clearance and settlement of 
securities transactions and to assure the safeguarding of securities 
and funds which are in the custody or control of NSCC or for which it 
is responsible.
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    \11\ 15 U.S.C. Sec. 78q-1 (1988).
    \12\ 15 U.S.C. Secs. 78q-1(b)(3) (A) and (F) (1988).
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    Under NSCC's proposed rule change, an electronic transfer of the 
value of mutual fund shares held in IRAs can be used in place of a 
manual transfer.\13\ The proposal should help alleviate the 
inefficiencies associated with the physical exchange of hardcopy 
documentation and should make account transfers more efficient and 
expeditious. By processing the transfers of IRAs in a more efficient 
manner, the proposal should promote the prompt and accurate clearance 
and settlement of securities transactions. Furthermore, the Commission 
believes that by requiring the Delivering Fund Member to acknowledge 
and to confirm the transfer request and by providing the Delivering 
Firm Member with the ability to edit information contained in the 
confirmation and the Receiving Fund Member with the ability to cancel a 
request, the proposal reduces the possibility of errors. This system 
provides more safeguards than the current system where the delivering 
firm delivers funds after the receipt of the transfer request. Thus, it 
is consistent with the goal of safeguarding securities and funds 
contained in Section 17A.
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    \13\ Currently, the transfer of an IRA account from one mutual 
fund company to another requires the exchange of hardcopy 
documentation. Specifically, the receiving fund mails the letter of 
acceptance to the delivering fund. If the delivering fund finds the 
letter of acceptance in good order, it sends the proceeds, typically 
via U.S. mail to the receiving fund. However, if the letter of 
acceptance is not in good order, the delivering fund sends a letter 
to the receiving fund with a description of the elements required to 
bring the letter of acceptance in accordance with good order 
standards.
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    NSCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after publication because this will allow NSCC to begin implementing 
the Fund/Serv IRA transfer service in order that NSCC and its members 
can take advantage in a more timely fashion of the benefits of the 
service.

IV. Conclusion

    The Commission finds that NSCC's proposal is consistent with the 
requirements of the Act and particularly with Section 17A and the rules 
and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-96-16) be and hereby is 
approved on an accelerated basis.

    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) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29860 Filed 11-21-96; 8:45 am]
BILLING CODE 8010-01-M