Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Enhance Processing of Exchange-Traded Funds, 46958-46960 [E8-18549]

Download as PDF 46958 Federal Register / Vol. 73, No. 156 / Tuesday, August 12, 2008 / Notices of standardized information on a centralized communications platform. This will reduce processing errors, delays, and risks that are typically associated with manual processes. B. Self-Regulatory Organization’s Statement on Burden on Competition NSCC does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments relating to the proposed rule change have 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 and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(iii) of the Act 8 and Rule 19b–4(f)(4) 9 thereunder in that it: (i) Does not adversely affect the safeguarding of securities or funds in the custody or control of the clearing agency or for which it is responsible and (ii) does not significantly affect the respective rights or obligations of the clearing agency or persons using the service. At any time within sixty days of the filing of such rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 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: 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 Number SR-NSCC–2008–06. This file number should be included on the subject line if e-mail 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 inspection and copying in the Commission’s Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 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, http://www.nscc.com/ legal/. 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 Number SR–NSCC–2008–06 and should be submitted on or before September 2, 2008. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.10 Florence E. Harmon, Acting Secretary. [FR Doc. E8–18548 Filed 8–11–08; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–58314; File No. SR–NSCC– 2008–07] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Enhance Processing of Exchange-Traded Funds August 5, 2008. 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 July 22, 2008 the National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change 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 parties. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change seeks to: (i) Expand processing of shares in exchange-traded funds (‘‘Index Receipts’’) to allow for cash as a sole component of creations and redemptions and (ii) provide for an optional shortened processing cycle for creates and redeems of Index Receipts and their underlying components. 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 these statements.3 sroberts on PROD1PC70 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml) or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NSCC–2008–06 on the subject line. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change NSCC began processing Index Receipts with the launch of the first exchange-traded fund, the SPDR, in 1993. NSCC’s Index Receipt processing 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 The Commission has modified the text of the summaries prepared by NSCC. 2 17 8 15 9 17 U.S.C. 78s(b)(3)(A)(iii). CFR 240.19b–4(f)(4). VerDate Aug<31>2005 16:24 Aug 11, 2008 10 17 Jkt 214001 PO 00000 CFR 200.30–3(a)(12). Frm 00090 Fmt 4703 Sfmt 4703 E:\FR\FM\12AUN1.SGM 12AUN1 Federal Register / Vol. 73, No. 156 / Tuesday, August 12, 2008 / Notices supports: (i) The creation of Index Receipt units whereby a member will deliver the underlying component shares to the Index Receipt agent and receive Index Receipts and (ii) the redemption of Index Receipt units whereby a member will deliver the Index Receipts and receive the underlying components. 1. Current Process Currently, on the day before trade date (‘‘T–1’’), an Index Receipt agent transmits files to NSCC that contain information regarding the underlying composition of Index Receipts for creates and redeems occurring the next business day.4 NSCC compiles the information that evening and provides members with a portfolio composition report listing the composition of Index Receipts eligible for processing. The report displays the proportionate amount of underlying stocks that compose each Index Receipt and contains a cash component, which is an estimation of accrued dividends and any necessary balancing amount.5 The portfolio information contained in this report is used for creation and redemption processing the next day, which is the Trade Date. On Trade Date, by such time as established by NSCC, the Index Receipt agent, acting on behalf of each member placing an Index Receipt order, will report to NSCC the number of Index Receipts created and redeemed that day. Such a report constitutes locked-in transactions between the Index Receipt agent and the member. The Index Receipt agent also will report the final cash amount and a transaction amount that represents the Index Receipt agent’s transaction fee. On the night of Trade Date, NSCC transmits an Index Receipt instruction detail report to members that had activity on Trade Date. The report serves as the contract for the creation and redemption activity and lists the number of component shares that the member, depending upon the underlying shares’ CNS eligibility, will deliver to or receive from CNS on settlement date (‘‘T+3’’) or otherwise as an item as allotted through the Balance Order Accounting System. On the night of Trade Date, each Index Receipt instruction is separated into its underlying stock components, and these sroberts on PROD1PC70 with NOTICES 4 NSCC’s current processing functions are set forth in Procedure II, Section H of NSCC’s Rules. 5 The balancing amount is designed to compensate for any difference between the net asset value of the Index Receipt and the value of the underlying index. Among other reasons, a difference in value could result from the fact that an Index Receipt cannot contain fractional shares of a security. VerDate Aug<31>2005 16:24 Aug 11, 2008 Jkt 214001 components are processed through CNS or the Balance Order Accounting Operation and are incorporated into the normal equity clearance and settlement process. Unsettled positions in Index Receipts and their component securities are currently risk managed as ordinary activity and guaranteed pursuant to the provisions of Addendum K of NSCC’s rules. 2. Proposed Enhancements NSCC currently supports the creation and redemption of Index Receipts with underlying components that are CNS eligible securities scheduled to settle on a T+3 basis. The Index Receipts and the components themselves are processed through CNS. Index Receipts that are not eligible for processing through NSCC are routinely processed outside of NSCC. For the past two years, demand for NSCC’s create and redeem service has increased significantly per annum with activity for Index Receipts with non-U.S. equity components increasing the most. As more fully described below, the proposed enhancements will allow members to create Index Receipts that (i) have underlying securities other than domestic equity securities for cash as consideration and (ii) will allow an optional shortened settlement cycle for creates and redeems and their underlying components. A. Expand the Index Receipt Process To Allow for Cash as Sole Component for Creations and Redemptions Currently all component securities must be CNS eligible to qualify for NSCC’s create and redeem process. Cash is used as a component only for accrued dividends and any balancing amount but not as a separate underlying component. NSCC is proposing to expand its Index Receipt processing to allow for creates and redeems using cash as the sole underlying component. This enhancement would allow members and their agent banks to create and redeem Index Receipts whose underlying components are not currently eligible for processing at NSCC (for example, commodity Index Receipts). The Index Receipt agent would use the cash to purchase the components, the settlement of which would occur outside of NSCC. B. T+1 and T+2 Settlement of Creations and Redemptions NSCC currently supports the creation and redemption of Index Receipts with underlying components scheduled to settle on a T+3 basis. NSCC is proposing to expand its Index Receipt processing to allow a member to create and redeem PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 46959 Index Receipts on a shortened settlement cycle. NSCC also is proposing to revise its processing to address the timing of the NSCC trade guarantee as well as associated trade processing and Clearing Fund provisions for such shortened settlement Index Receipts. Currently, shortened settlement for standard equity CNS trades (e.g., next day settlement) are reported in the Consolidated Trade Summary and guaranteed on the night of T. NSCC then collects Clearing Fund payments at 10 a.m. on T+1. Because next day settling trades are effectively guaranteed in the CNS night cycle prior to margining, NSCC currently uses a process that takes that uncertainty into consideration by collecting a ‘‘look-back’’ premium in the Clearing Fund calculation.6 Leveraging this existing practice for next-day settlement of creates and redeems would be cost-prohibitive based on the large number of ‘‘in kind’’ shares 7 that are exchanged in this process. NSCC is therefore proposing to delay processing of next day settling creates and redeems and their underlying components until the CNS day cycle on T+1.8 These transactions would be reported on the Second Supplemental Consolidated Trade Summary that is generally released mid-day. Delayed processing would allow NSCC ample time to collect Clearing Fund payments prior to guaranteeing the transactions and thus obviate the need for the lookback Clearing Fund premium but still allow the trades to settle on T+1.9 In addition, NSCC plans to implement a new fee for shortened-cycle creates and redeems as more fully described below. Therefore, NSCC proposes to amend its Rules as follows to provide for settlement of index receipt transactions on T+1 or T+2 on an optional basis: (i) Amendment of Addendum K Regarding Guarantee of Next Day Settling Index Receipts NSCC proposes to amend Addendum K to provide that settlement of creates 6 In order to account for the risk of unknown positions, Risk Management performs a look-back calculation to estimate shortened settlement volumes and values. The shortened settlement component is added to a members’ Clearing Fund requirement for 21 days after each shortened settlement occurs. 7 Most Index Receipts are created and redeemed in units of 50,000. In other words, if a member were to create six units it would receive 300,000 shares of the Index Receipt securities. 8 The CNS day-cycle is typically run at 11:30 a.m. Component securities that are not CNS-eligible would be processed through the Balance Order Accounting Operation. 9 If margin is not timely collected on T+1, creates and redeems may not be processed. E:\FR\FM\12AUN1.SGM 12AUN1 46960 Federal Register / Vol. 73, No. 156 / Tuesday, August 12, 2008 / Notices and redeems, including the underlying components, on a T+1 basis (including T+2 settling as-of creates and redeems submitted on T+1) will be guaranteed on Settlement Date when NSCC determines to complete processing for those items in the day cycle (normally, 11:30 a.m.); provided, however, that the transaction is not removed from processing as described below.10 (ii) Amendment of Procedure II To Allow for Settlement on a Shorter Than T+3 Basis NSCC proposes to amend Procedure II, Section H to provide that: (i) The Index Receipt agent may elect for settlement of the creates and redeems on a T+1 or T+2 basis, (ii) as-of Index Receipt creates and redeems will only be accepted if submitted by the cut-off time designated by NSCC with submission of next-day settling creates and redeems required by such cut-off time on T, (iii) NSCC reserves the right to remove Index Receipt transactions from processing in the event that the applicable member has not met a margin call on settlement date, and (iv) next day settling creates and redeems (including T+2 settling as-of creates and redeems submitted on T+1) will be posted to the Second Supplemental Consolidated Trade Summary and processed in the day cycle of the CNS Accounting Operation. (iii) Amendment of Procedure XV (Clearing Fund Formula) NSCC proposes to amend Procedure XV to provide that creates and redeems of Index Receipts, as well as the underlying components, will not be subject to the ‘‘20-day look back provision,’’ which provides for a charge based on the average of the member’s three highest aggregate calculated charges for daily ‘‘Specified (shortened cycle) Activity’’ measured over the most recent 20 settlement days. sroberts on PROD1PC70 with NOTICES (iv) Amendment of Addendum A (Fee Structure) The current fee for regular-way (T+3) settlement of creates and redeems is $30 per create and redeem. To offset additional costs associated with shortened settlement processing, NSCC plans to implement a new fee of $50.00 per create and redeem with a shortened settlement cycle. 3. Implementation Timeframe NSCC proposes to implement the changes set forth in this filing in the 10 In addition, the transaction must be submitted for recording by an Index Receipt agent by such cutoff time as designated by the NSCC (pursuant to Procedure II). VerDate Aug<31>2005 16:24 Aug 11, 2008 Jkt 214001 third quarter of 2008. Members will be advised of the implementation date through issuance of NSCC Important Notices. NSCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 11 and the rules and regulations thereunder because accelerated settlement of creates and redeems of Index Receipts facilitates the prompt and accurate clearance and settlement of securities transactions. B. Self-Regulatory Organization’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. C. Self-Regulatory Organization’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 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 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 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: • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml) or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NSCC–2008–07 on the subject line. PO 00000 U.S.C. 78q–1. Frm 00092 Fmt 4703 • 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 Number SR–NSCC–2008–07. This file number should be included on the subject line if e-mail 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 inspection and copying in the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 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/downloads/legal/ rule_filings/2008/nscc/2008–07.pdf. 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 Number SR–NSCC–2008–07 and should be submitted on or before September 2, 2008. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.12 Florence E. Harmon, Acting Secretary. [FR Doc. E8–18549 Filed 8–11–08; 8:45 am] BILLING CODE 8010–01–P SMALL BUSINESS ADMINISTRATION Electronic Comments 11 15 Paper Comments [Disaster Declaration #11364 and #11365] Mississippi Disaster #MS–00023 U.S. Small Business Administration. ACTION: Notice. AGENCY: 12 17 Sfmt 4703 E:\FR\FM\12AUN1.SGM CFR 200.30–3(a)(12). 12AUN1

Agencies

[Federal Register Volume 73, Number 156 (Tuesday, August 12, 2008)]
[Notices]
[Pages 46958-46960]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-18549]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58314; File No. SR-NSCC-2008-07]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Enhance 
Processing of Exchange-Traded Funds

August 5, 2008.
    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 July 22, 2008 the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change 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 parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change seeks to: (i) Expand processing of shares 
in exchange-traded funds (``Index Receipts'') to allow for cash as a 
sole component of creations and redemptions and (ii) provide for an 
optional shortened processing cycle for creates and redeems of Index 
Receipts and their underlying components.

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 these 
statements.\3\
---------------------------------------------------------------------------

    \3\ The Commission has modified the text of the summaries 
prepared by NSCC.
---------------------------------------------------------------------------

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    NSCC began processing Index Receipts with the launch of the first 
exchange-traded fund, the SPDR, in 1993. NSCC's Index Receipt 
processing

[[Page 46959]]

supports: (i) The creation of Index Receipt units whereby a member will 
deliver the underlying component shares to the Index Receipt agent and 
receive Index Receipts and (ii) the redemption of Index Receipt units 
whereby a member will deliver the Index Receipts and receive the 
underlying components.
1. Current Process
    Currently, on the day before trade date (``T-1''), an Index Receipt 
agent transmits files to NSCC that contain information regarding the 
underlying composition of Index Receipts for creates and redeems 
occurring the next business day.\4\ NSCC compiles the information that 
evening and provides members with a portfolio composition report 
listing the composition of Index Receipts eligible for processing. The 
report displays the proportionate amount of underlying stocks that 
compose each Index Receipt and contains a cash component, which is an 
estimation of accrued dividends and any necessary balancing amount.\5\ 
The portfolio information contained in this report is used for creation 
and redemption processing the next day, which is the Trade Date. On 
Trade Date, by such time as established by NSCC, the Index Receipt 
agent, acting on behalf of each member placing an Index Receipt order, 
will report to NSCC the number of Index Receipts created and redeemed 
that day. Such a report constitutes locked-in transactions between the 
Index Receipt agent and the member. The Index Receipt agent also will 
report the final cash amount and a transaction amount that represents 
the Index Receipt agent's transaction fee. On the night of Trade Date, 
NSCC transmits an Index Receipt instruction detail report to members 
that had activity on Trade Date. The report serves as the contract for 
the creation and redemption activity and lists the number of component 
shares that the member, depending upon the underlying shares' CNS 
eligibility, will deliver to or receive from CNS on settlement date 
(``T+3'') or otherwise as an item as allotted through the Balance Order 
Accounting System. On the night of Trade Date, each Index Receipt 
instruction is separated into its underlying stock components, and 
these components are processed through CNS or the Balance Order 
Accounting Operation and are incorporated into the normal equity 
clearance and settlement process. Unsettled positions in Index Receipts 
and their component securities are currently risk managed as ordinary 
activity and guaranteed pursuant to the provisions of Addendum K of 
NSCC's rules.
---------------------------------------------------------------------------

    \4\ NSCC's current processing functions are set forth in 
Procedure II, Section H of NSCC's Rules.
    \5\ The balancing amount is designed to compensate for any 
difference between the net asset value of the Index Receipt and the 
value of the underlying index. Among other reasons, a difference in 
value could result from the fact that an Index Receipt cannot 
contain fractional shares of a security.
---------------------------------------------------------------------------

2. Proposed Enhancements
    NSCC currently supports the creation and redemption of Index 
Receipts with underlying components that are CNS eligible securities 
scheduled to settle on a T+3 basis. The Index Receipts and the 
components themselves are processed through CNS. Index Receipts that 
are not eligible for processing through NSCC are routinely processed 
outside of NSCC. For the past two years, demand for NSCC's create and 
redeem service has increased significantly per annum with activity for 
Index Receipts with non-U.S. equity components increasing the most. As 
more fully described below, the proposed enhancements will allow 
members to create Index Receipts that (i) have underlying securities 
other than domestic equity securities for cash as consideration and 
(ii) will allow an optional shortened settlement cycle for creates and 
redeems and their underlying components.

A. Expand the Index Receipt Process To Allow for Cash as Sole Component 
for Creations and Redemptions

    Currently all component securities must be CNS eligible to qualify 
for NSCC's create and redeem process. Cash is used as a component only 
for accrued dividends and any balancing amount but not as a separate 
underlying component.
    NSCC is proposing to expand its Index Receipt processing to allow 
for creates and redeems using cash as the sole underlying component. 
This enhancement would allow members and their agent banks to create 
and redeem Index Receipts whose underlying components are not currently 
eligible for processing at NSCC (for example, commodity Index 
Receipts). The Index Receipt agent would use the cash to purchase the 
components, the settlement of which would occur outside of NSCC.

B. T+1 and T+2 Settlement of Creations and Redemptions

    NSCC currently supports the creation and redemption of Index 
Receipts with underlying components scheduled to settle on a T+3 basis. 
NSCC is proposing to expand its Index Receipt processing to allow a 
member to create and redeem Index Receipts on a shortened settlement 
cycle. NSCC also is proposing to revise its processing to address the 
timing of the NSCC trade guarantee as well as associated trade 
processing and Clearing Fund provisions for such shortened settlement 
Index Receipts.
    Currently, shortened settlement for standard equity CNS trades 
(e.g., next day settlement) are reported in the Consolidated Trade 
Summary and guaranteed on the night of T. NSCC then collects Clearing 
Fund payments at 10 a.m. on T+1. Because next day settling trades are 
effectively guaranteed in the CNS night cycle prior to margining, NSCC 
currently uses a process that takes that uncertainty into consideration 
by collecting a ``look-back'' premium in the Clearing Fund 
calculation.\6\ Leveraging this existing practice for next-day 
settlement of creates and redeems would be cost-prohibitive based on 
the large number of ``in kind'' shares \7\ that are exchanged in this 
process.
---------------------------------------------------------------------------

    \6\ In order to account for the risk of unknown positions, Risk 
Management performs a look-back calculation to estimate shortened 
settlement volumes and values. The shortened settlement component is 
added to a members' Clearing Fund requirement for 21 days after each 
shortened settlement occurs.
    \7\ Most Index Receipts are created and redeemed in units of 
50,000. In other words, if a member were to create six units it 
would receive 300,000 shares of the Index Receipt securities.
---------------------------------------------------------------------------

    NSCC is therefore proposing to delay processing of next day 
settling creates and redeems and their underlying components until the 
CNS day cycle on T+1.\8\ These transactions would be reported on the 
Second Supplemental Consolidated Trade Summary that is generally 
released mid-day. Delayed processing would allow NSCC ample time to 
collect Clearing Fund payments prior to guaranteeing the transactions 
and thus obviate the need for the look-back Clearing Fund premium but 
still allow the trades to settle on T+1.\9\
---------------------------------------------------------------------------

    \8\ The CNS day-cycle is typically run at 11:30 a.m. Component 
securities that are not CNS-eligible would be processed through the 
Balance Order Accounting Operation.
    \9\ If margin is not timely collected on T+1, creates and 
redeems may not be processed.
---------------------------------------------------------------------------

    In addition, NSCC plans to implement a new fee for shortened-cycle 
creates and redeems as more fully described below.
    Therefore, NSCC proposes to amend its Rules as follows to provide 
for settlement of index receipt transactions on T+1 or T+2 on an 
optional basis:
(i) Amendment of Addendum K Regarding Guarantee of Next Day Settling 
Index Receipts
    NSCC proposes to amend Addendum K to provide that settlement of 
creates

[[Page 46960]]

and redeems, including the underlying components, on a T+1 basis 
(including T+2 settling as-of creates and redeems submitted on T+1) 
will be guaranteed on Settlement Date when NSCC determines to complete 
processing for those items in the day cycle (normally, 11:30 a.m.); 
provided, however, that the transaction is not removed from processing 
as described below.\10\
---------------------------------------------------------------------------

    \10\ In addition, the transaction must be submitted for 
recording by an Index Receipt agent by such cutoff time as 
designated by the NSCC (pursuant to Procedure II).
---------------------------------------------------------------------------

(ii) Amendment of Procedure II To Allow for Settlement on a Shorter 
Than T+3 Basis
    NSCC proposes to amend Procedure II, Section H to provide that: (i) 
The Index Receipt agent may elect for settlement of the creates and 
redeems on a T+1 or T+2 basis, (ii) as-of Index Receipt creates and 
redeems will only be accepted if submitted by the cut-off time 
designated by NSCC with submission of next-day settling creates and 
redeems required by such cut-off time on T, (iii) NSCC reserves the 
right to remove Index Receipt transactions from processing in the event 
that the applicable member has not met a margin call on settlement 
date, and (iv) next day settling creates and redeems (including T+2 
settling as-of creates and redeems submitted on T+1) will be posted to 
the Second Supplemental Consolidated Trade Summary and processed in the 
day cycle of the CNS Accounting Operation.
(iii) Amendment of Procedure XV (Clearing Fund Formula)
    NSCC proposes to amend Procedure XV to provide that creates and 
redeems of Index Receipts, as well as the underlying components, will 
not be subject to the ``20-day look back provision,'' which provides 
for a charge based on the average of the member's three highest 
aggregate calculated charges for daily ``Specified (shortened cycle) 
Activity'' measured over the most recent 20 settlement days.
(iv) Amendment of Addendum A (Fee Structure)
    The current fee for regular-way (T+3) settlement of creates and 
redeems is $30 per create and redeem. To offset additional costs 
associated with shortened settlement processing, NSCC plans to 
implement a new fee of $50.00 per create and redeem with a shortened 
settlement cycle.
3. Implementation Timeframe
    NSCC proposes to implement the changes set forth in this filing in 
the third quarter of 2008. Members will be advised of the 
implementation date through issuance of NSCC Important Notices.
    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \11\ and the rules and 
regulations thereunder because accelerated settlement of creates and 
redeems of Index Receipts facilitates the prompt and accurate clearance 
and settlement of securities transactions.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

B. Self-Regulatory Organization'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.

C. Self-Regulatory Organization'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 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 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 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NSCC-2008-07 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 Number SR-NSCC-2008-07. This file 
number should be included on the subject line if e-mail 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 inspection and 
copying in the Commission's Public Reference Section, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 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/downloads/legal/rule_filings/2008/
nscc/2008-07.pdf. 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 Number SR-
NSCC-2008-07 and should be submitted on or before September 2, 2008.
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    \12\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\12\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18549 Filed 8-11-08; 8:45 am]
BILLING CODE 8010-01-P