[Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
[Notices]
[Page 8477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4606]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38309; File No. SR-NASD-96-54]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Granting Approval of a Proposed Rule Change
Relating to Reconfirmation and Pricing Services
February 19, 1997.
On December 20, 1996, the NASD Regulation, Inc. (``NASD
Regulation'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change (File No. SR-NASD-96-54)
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 9, 1997.\2\ No comment letters were received. For
the reasons discussed below, the Commission is granting approval of the
proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 38115 (January 3, 1997),
62 FR 1351.
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I. Description
Several years ago, the National Securities Clearing Corporation
(``NSCC'') began operating its Reconfirmation and Pricing Service
(``RECAPS'') that permits NSCC participants to submit their fail
transactions for reconfirmation and repricing on a quarterly basis.
Rule 11190 (formerly Section 69) of the Uniform Practice Code
(``Code'') of the National Association of Securities Dealers, Inc.
(``NASD'') mandates that a member which is a participant in a
registered clearing agency participate in the clearing agency's fail
reconfirmation and pricing service.
Even after a transaction is compared, fails can occur for many
reasons (e.g., because the securities fail to be received or delivered
or payment is not received or delivered). RECAPS provides a means for
parties with open fails on their books to send them to NSCC for
matching on a quarterly basis. The RECAPS process allows members to
reconfirm outstanding fails by establishing a new settlement date and
to reprice such fails by marking the contract to the current market
price. It also identifies a submitting member's fails that may have
been settled or for which the contraparty has no record.
Prior to this amendment, when one of the parties did not respond to
a RECAPS submission, the submitting party could either leave the fail
open for three more months and try again for resolution through RECAPS
or could buy in or sell out the transaction pursuant to NASD's Code.
The submitting member was required by Rule 11810 of NASD's Code to send
another notification to the contraparty and wait another two days prior
to effecting a buy in. No prior notice is or was required before
effecting a sell out pursuant to Rule 11820 of NASD's Code.
As amended, Rule 11190(b)(1) permits a contract that has been
submitted to a reconfirmation and repricing service and that has been
DK'ed by the contraparty or is otherwise deemed a DK under the rules of
the service \3\ to be closed out by the submitting party without notice
during normal trading hours promptly after the completion of the
reconfirmation and pricing cycle for the account and liability of the
nonconfirming member.\4\ New paragraph (b)(2) of Rule 11190 requires
that the submitting member notify the nonresponding member of any
execution to close the contract on the day of execution and the action
of the member to buy in or sell out in accordance with the provisions
of Rules 11810 and 11820, respectively. However, if the submitting
member determines not to close out a DK, the fail continues to remain
open on the submitting member's books until the next RECAPS cycle.
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\3\ Recently, NSCC amended its Procedure II(G) to provide that
failure to respond to a RECAPS reconfirmation attempt shall result
in the transaction being DK'ed. Treating a failure to respond to a
RECAPS reconfirmation attempt as a DK under NSCC's rules
extinguishes any rights of the nonresponding member with respect to
the transaction.
\4\ The word ``promptly'' in paragraph (b)(1) is intended to be
interpreted in accordance with the nature and liquidity of the
securities.
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II. Discussion
Section 15A(b)(6) provides that the rules of an association must be
designed to foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities.\5\ The Commission believes
that the proposed rule change is consistent with the NASD's obligations
under the Act. The proposals provides an expedited mechanism to reduce
long outstanding fails that have been submitted to RECAPS. When a
selling member DKs a transaction or fails to respond to a RECAPS
advisory, Rule 11190(b) of the Code allows the buying member to
immediately execute a buy in transaction and notify the nonresponding
selling member of its liability for the transaction. The proposal
provides an incentive to parties to resolve RECAPS transactions
submitted against them in a timely fashion. By encouraging and
assisting parties to resolve their trade disputes, the proposal helps
foster cooperation and coordination with persons engaged in clearing,
settling, and facilitating transactions in securities.
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\5\ 15 U.S.C. 78o-3(b)(6).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular Section 15A of the Act 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-NASD-96-54) be and hereby is
approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4606 Filed 2-24-97; 8:45 am]
BILLING CODE 8010-01-M