Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change Regarding the Creation of a Universal Trade Capture Application and Automated Special Representative Facility, 57318-57321 [2010-23372]

Download as PDF 57318 Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices jdjones on DSK8KYBLC1PROD with NOTICES to attract order flow. NASDAQ believes, however, that evidence not before the court clearly demonstrates that availability of data attracts order flow. For example, as of July 2010, 92 of the top 100 broker-dealers by shares executed on NASDAQ consumed NQDS and 80 of the top 100 broker-dealers consumed TotalView. During that month, the NQDS-users were responsible for 94.44% of the orders entered into NASDAQ and TotalView users were responsible for 92.98%. Competition among platforms has driven NASDAQ continually to improve its platform data offerings and to cater to customers’ data needs. For example, NASDAQ has developed and maintained multiple delivery mechanisms (IP, multi-cast, and compression) that enable customers to receive data in the form and manner they prefer and at the lowest cost to them. NASDAQ offers front end applications such as its ‘‘Bookviewer’’ to help customers utilize data. NASDAQ has created new products like TotalView Aggregate to complement TotalView ITCH and Level 2, because offering data in multiple formatting allows NASDAQ to better fit customer needs. NASDAQ offers data via multiple extranet providers, thereby helping to reduce network and total cost for its data products. NASDAQ has developed an online administrative system to provide customers transparency into their data feed requests and streamline data usage reporting. NASDAQ has also expanded its Enterprise License options that reduce the administrative burden and costs to firms that purchase market data. Despite these enhancements and a dramatic increase in message traffic, NASDAQ’s fees for market data have remained flat. In fact, as a percent of total customer costs, NASDAQ data fees have fallen relative to other data usage costs—including bandwidth, programming, and infrastructure—that have risen. The same holds true for execution services; despite numerous enhancements to NASDAQ’s trading platform, absolute and relative trading costs have declined. Platform competition has intensified as new entrants have emerged, constraining prices for both executions and for data. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. VerDate Mar<15>2010 15:00 Sep 17, 2010 Jkt 220001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.7 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend 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. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NASDAQ–2010–110 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NASDAQ–2010–110. 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 (https://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 Web site viewing and printing in the Commission’s Public Reference Room, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. 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–NASDAQ–2010–110 and should be submitted on or before October 12, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–23385 Filed 9–17–10; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62882; File No. SR–NSCC– 2010–09] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change Regarding the Creation of a Universal Trade Capture Application and Automated Special Representative Facility September 10, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 notice is hereby given that on August 30, 2010, the National Securities Clearing Corporation (‘‘NSCC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) and on September 9, 2010, amended the proposed rule change described in Items I and II below, which Items have been prepared primarily by NSCC. The Commission is publishing this notice to solicit comments on the 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 would modify NSCC’s rules and procedures regarding the creation of a Universal Trade Capture application and an automated Special Representative facility. 8 17 7 15 PO 00000 U.S.C. 78s(b)(3)(a)(ii). Frm 00068 Fmt 4703 Sfmt 4703 1 15 E:\FR\FM\20SEN1.SGM CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 20SEN1 Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices 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. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Universal Trade Capture (‘‘UTC’’) i. Background Since the 1970s, NSCC has provided a framework for the clearance and settlement of transactions executed on national securities exchanges and in the over-the-counter (‘‘OTC’’) market through its ‘‘Comparison and Trade Recording Operation.’’ 2 A Regional Interface Operation (the ‘‘Interregional Interface Service’’ or ‘‘RIO’’) was established in 1974 through National Clearing Corporation (one of NSCC’s predecessor organizations) that permitted participating registered clearing corporations to provide for settlement of transactions in listed securities in the OTC market.3 Due to efforts to promote straight-through processing, markets have assumed responsibility for trade comparison (i.e., matching the buy and sell side of a securities transaction) at the point of trade and submit the compared transaction to NSCC for trade recording purposes (i.e., the transaction details have already been compared and the transaction is submitted to NSCC on a ‘‘locked-in’’ basis). jdjones on DSK8KYBLC1PROD with NOTICES ii. Trade Comparison and Recording Operation Transaction data is for the compared trades submitted to NSCC on a lockedin basis by self-regulatory organizations (‘‘SROs’’) and Qualified Special Representatives (‘‘QSRs’’) on behalf of their members for the purpose of trade recording with purchaser and seller trade details compared by the SRO or 2 On separate platforms, NSCC also provides services supporting mutual funds, alternative investments, and insurance products in addition to providing various other services. 3 In 1983, the service was further expanded to facilitate the settlement of transactions that had been confirmed and affirmed through the facilities of a registered securities depository. VerDate Mar<15>2010 15:00 Sep 17, 2010 Jkt 220001 QSR prior to submitting the information to NSCC. NSCC validates and records the transaction and reports the details back to the SRO, QSR, and member, as appropriate. NSCC also provides a Comparison Operation for its members whereby the purchasering and selling members may submit transactions that NSCC validates, compares, and reports back to the members. Compared and recorded trades are subsequently routed to the Continuous Net Settlement (‘‘CNS’’) Accounting Operation, the Balance Order Accounting Operation, or the Foreign Security Accounting Operation, as applicable. NSCC makes transaction details available to members, SROs, and QSRs on either a real-time, intra-day, or end-of-day basis. As NSCC’s systems for receipt of input and generation of output have developed, depending upon the transaction and the originating entity, different reporting formats for both input and output may be utilized. There is currently no standard common record that is utilized by all market places or members. iii. Regional Interface Operation Originally, each participating clearing corporation had the opportunity to provide its own system for comparison. Inter-clearing corporation (‘‘RIO’’) trades had to be compared by one of the two clearing corporations involved in the RIO transaction, and an inter-clearing corporation had to be one side to each RIO trade. Over time, as organizations discontinued providing clearance and settlement services for their members and as those members ultimately became direct NSCC members or entered into clearing arrangements with other NSCC members, the reporting and settlement of trades submitted to NSCC changed. With the discontinuance of the RIO service, NSCC nevertheless continued to accept trade input from regional exchanges and other marketplaces using the RIO formats. The formats used by regional exchanges for the submission of transaction data to NSCC are generally the same as the formats that had been used for information processed through the interface operation and continue to commonly be referred to as ‘‘RIO.’’ Consequently, references today to ‘‘RIO’’ are not in reference to services previously provided under the interface service but rather to information received by NSCC in connection with NSCC’s trade recording and trade reporting. iv. Proposed Changes The proposed rule change will amend NSCC’s rules to accommodate the UTC PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 57319 application, which will standardize, streamline, consolidate, and modernize NSCC’s existing legacy trade capture applications (specifically, with respect to trade recording applications within NSCC’s Trade Comparison and Recording Operation) to create a more efficient and centralized process. The UTC application will accept and process a common input record from all marketplaces and will provide for receipt and reporting of data in both real-time and intraday-batch submissions to and from members and SROs. UTC will replace all current locked-in OTC and listed trade capture applications with one central real-time validation and reporting process. UTC will have the capability to accept or reject, validate, process, and send contract output to members in real-time. Members will only have to support one standardized input and output format. As further described below, trade data will be received from markets in realtime and in batch. NSCC will convert the existing input format to the new UTC input record format, which will enable the UTC to provide members and SROs with their trade output in the format of their choice (new or old).4 As part of this effort, NSCC will also provide for enhancements to its Correspondent Clearing Service and QSR processing as further described below. 2. Automated Special Representative Facility for Special Representatives and Qualified Special Representatives i. Background NSCC’s Correspondent Clearing Service is designed to provide an automated method by which a member acting as a Special Representative may move an obligation (a position) that is in the process of clearance at NSCC to the account of another member (its correspondent) on whose behalf the original trade was executed.5 ii. Proposed Changes (a) Expanding Permitted Use of Service Currently, NSCC’s rules provide the Correspondent Clearing Service may only be used in the following situations: (a) To accommodate a member with 4 See below, Section II.A.4. ‘‘Implementation Timeframe.’’ 5 The term ‘‘original trade’’ is used within Correspondent Clearing solely to distinguish between trades executed in the marketplace by the Special Representative and transactions booked for accounting purposes to accommodate the movement of positions between members as provided for in NSCC Procedure IV. Correspondent Clearing is not a mechanism for original trade submission. E:\FR\FM\20SEN1.SGM 20SEN1 57320 Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices jdjones on DSK8KYBLC1PROD with NOTICES multiple affiliate accounts that wishes to move a position resulting from an ‘‘original trade’’ in the process of clearance from one affiliate account to another and (b) to accommodate a member that relies on its Special Representative to execute a trade in a market that the member is precluded due to membership requirements (e.g., membership requirement for access to markets) or applicable regulation in order to enable the resulting position to be moved from the Special Representative to that member. Since it is not uncommon that members utilize the services of other broker-dealers to execute trades in markets where they are members in order to facilitate their trading strategies, NSCC proposes to modify its rules to provide that the Correspondent Clearing Service may be utilized by members to accommodate a member that relies on its Special Representative to execute a trade in any market regardless of whether that member maintains direct access to that market to enable the resulting position to be moved from the Special Representative to that member. (b) Creation of an Automated Special Representative Facility Historically, members participating in the Correspondent Clearing Service and those utilizing the services of a QSR for the submission of original, locked-in trade data have been required to complete and remit to NSCC specific agreements for each relationship established. For example, in Correspondent Clearing, one member completes documentation (commonly referred to as Form 9a—Application for Status as a Special Representative) by which it applies to NSCC for status as a Special Representative to submit transactions on behalf of a specified member, i.e., the Correspondent. The Correspondent must also complete and submit to NSCC documentation (commonly referred to as a Form 9b— Special Representative Consent) by which it consents to the establishment of that relationship. For QSR relationships, members submit Forms 9a and Form 9b along with an additional form that is specific to the QSR system being utilized (commonly referred to as an ‘‘Attachment 1’’). NSCC then establishes these relationships on its internal masterfile. NSCC subsequently terminates these relationships at the direction of either party. To assist members in controlling and monitoring their Special Representative and Qualified Special Representative relationships, NSCC proposes to create an automated, online, and secure VerDate Mar<15>2010 15:00 Sep 17, 2010 Jkt 220001 facility by which members themselves may establish, monitor, and maintain these relationships. Both the Special Representative Member and the Correspondent Member would have to submit matching instructions within the facility in order for the relationship to be established. Either party could submit a single entry to retire the relationship. Members will be reminded, through formatting within the facility, of their existing and unchanged obligations under NSCC’s rules with respect to utilizing these services—namely, that by establishing the relationship within the facility both members continue to be bound by NSCC’s rules, the Correspondent is bound by the details of all transactions submitted on their behalf by the Qualified Special Representative (or Special Representative as the case may be), and any errors or omissions or disputes relating to such relationships and related transactions must be resolved directly between the parties. The establishment of relationships through the automated facility shall meet the written notice requirements for such services as otherwise set forth within NSCC’s rules and procedures. Members will no longer be required to submit signed forms to NSCC for these processes. 3. Rule Modifications As the UTC functionality will provide for processing of a common input or output record from or to all marketplaces (validating the transaction and providing for real-time message output to members and SROs), NSCC proposes to modify its rules to make conforming changes to reflect a single procedure or process for the submission and reporting of transaction data to and from SROs and members. References and provisions within the rules that pertained to the now obsolete RIO Service will be eliminated. In addition, NSCC will modify its rules to provide for an automated online functionality for the establishment and retirement of Special Representative and Qualified Special Representative relationships. Accordingly, NSCC proposes to amend the following rules and procedures as set forth in Exhibit 5 to its filing: Rule 7 (Comparison and Trade Recording Operation); Rule 40 (Interregional Interface Service); Procedure II (Trade Comparison and Recording Service); Procedure III (Trade Recording Service—Interface Clearing PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 Procedures); and Procedure IV (Special Representative Service).6 4. Implementation Time Frame Subject to Commission approval, NSCC will implement the above changes by January 31, 2011. With respect to UTC changes and to support the migration period, NSCC will provide a conversation process to support those markets that are not yet ready to submit transaction data in the new common input format (i.e., NSCC will accept data in the old format and convert data into the new UTC format). The conversion process will enable NSCC to offer members and SROs the new output format regardless of whether the market has converted to the new standard. UTC will continue to support all existing interfaces with markets, members, and SROs with respect to trade input and output. To support maximum flexibility in allowing firms to migrate to the new input and output formats according to their own schedules, NSCC will continue to support all existing interfaces with markets, Member’s, SRO’s and regulatory agencies for a period of time after UTC is implemented. NSCC will establish a plan for the retirement of all legacy input and output formats and by the end of the first quarter of 2012 will reassess the status of those firms utilizing legacy formats. At that time, NSCC will work with any members, SROs, and regulatory agencies that have not yet converted from legacy reporting, thereby affording such firms sufficient lead time for migration. NSCC states that the proposed rule change will provide for additional efficiencies to NSCC and its participants while maintaining safe and secure operation and that the proposed rule change facilitates the prompt and 6 In addition, the following Rules and Procedures will be generally modified to make conforming changes: Procedure VII (CNS Accounting Operation)—modified to conform an existing rule cross reference to a renamed Procedure; Procedure X (Execution of Buy-Ins) modified to eliminate references to regional accounts; Procedure XIII (Definitions), modified to remove a defined and now obsolete term ‘‘Qualified Non-Participant;’’ Procedure V (Balance Order Accounting Operation); Procedure VI (Foreign Security Accounting Operation); Addendum A (Fee Schedule)— modified to delete obsolete regional/inter-clearing corporation references; Addendum J (Statement of Policy—Locked-In Data from Service Bureaus)— modified to correct a preexisting erroneous reference to Section 5 of Rule 7 where it should have referenced Section 6 of that Rule; Addendum K (Interpretation of the Board of Directors— Application of Clearing Fund)- modified to reflect specific reference to T Contracts, and Addendum N (Interpretation of the Board of Directors—Locked-In Data from Qualified Special Representatives)— modified to conform an existing rule cross reference to renumbered procedure subsection. E:\FR\FM\20SEN1.SGM 20SEN1 Federal Register / Vol. 75, No. 181 / Monday, September 20, 2010 / Notices accurate clearance and settlement of securities. NSCC further states that the proposal is consistent with the CPSS/ IOSCO Recommendations for Central Counterparties (specifically Recommendation 12) in that in addition to the additional efficiencies noted above, the UTC will also provide for cost-effectively meeting the requirements of NSCC’s members. (B) Self-Regulatory Organization’s Statement on Burden on Competition NSCC believes that the proposed rule change will not impose any burden on competition 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 NSCC has not solicited or received written comments relating to the proposed rule change. NSCC will notify the Commission of any written comments it receives. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 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 90 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 or disapprove such proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change should be disapproved. All submissions should refer to File No. SR–NSCC–2010–09. 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 (https://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 Web site viewing and printing 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 filing also will be available for inspection and copying at NSCC’s principal office and NSCC’s Web site (https://www.dtcc.com/ legal/rule_filings/nscc/2010.php). 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 No. SR–NSCC–2010–09 and should be submitted October 12, 2010. For the Commission by the Division of Trading and Markets, pursuant to delegated authority.7 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–23372 Filed 9–17–10; 8:45 am] BILLING CODE 8010–01–P jdjones on DSK8KYBLC1PROD with NOTICES 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 may be submitted by using the Commission’s Internet comment form (https:// www.sec.gov/rules/sro.shtml), or send an e-mail to rule-comment@sec.gov. Please include File No. SR–NSCC– 2010–09 on the subject line. • Paper comments should be sent in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington DC 20549–1090. VerDate Mar<15>2010 15:00 Sep 17, 2010 Jkt 220001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–62908; File No. SR– NASDAQ–2010–111] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Establish an Optional Depth Data Enterprise License Fee September 14, 2010. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 7 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. Frm 00071 Fmt 4703 notice is hereby given that on September 7, 2010, The NASDAQ Stock Market LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change NASDAQ proposes to establish an optional Depth Data Enterprise License Fee for external distribution of depth-ofbook data to non-professional users. The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets.3 * * * * * 7023. NASDAQ TotalView (a) TotalView Entitlement The TotalView entitlement allows a subscriber to see all individual NASDAQ Market Center participant orders and quotes displayed in the system as well as the aggregate size of such orders and quotes at each price level in the execution functionality of the NASDAQ Market Center, including the NQDS feed. (1) (A) Except as provided in (a)(1)(B) and (C), for the TotalView entitlement there shall be a $70 monthly charge for each controlled device. (B) Except as provided in (a)(1)(C), a non-professional subscriber, as defined in Rule 7011(b), shall pay $14 per month for each controlled device. (C) As an alternative to (a)(1)(A) and (B), a broker-dealer distributor may purchase an enterprise license at a rate of $25,000 for non-professional subscribers or $100,000 per month for both professional and non-professional subscribers. The enterprise license entitles a distributor to provide TotalView and OpenView to an unlimited number of internal users, whether such users receive the data directly or through third-party vendors, and external users with whom the firm has a brokerage relationship. The enterprise license shall not apply to relevant Level 1 and NQDS fees. (D) As an alternative to (a)(1)(A), (B) and (C), a market participant may purchase an enterprise license at a rate 3 Changes are marked to the rule text that appears in the electronic manual of Nasdaq found at https://nasdaqomx.cchwallstreet.com. 1 15 PO 00000 57321 Sfmt 4703 E:\FR\FM\20SEN1.SGM 20SEN1

Agencies

[Federal Register Volume 75, Number 181 (Monday, September 20, 2010)]
[Notices]
[Pages 57318-57321]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-23372]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62882; File No. SR-NSCC-2010-09]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Regarding the 
Creation of a Universal Trade Capture Application and Automated Special 
Representative Facility

September 10, 2010.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 30, 2010, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on September 9, 
2010, amended the proposed rule change described in Items I and II 
below, which Items have been prepared primarily by NSCC. The Commission 
is publishing this notice to solicit comments on the rule change from 
interested parties.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change would modify NSCC's rules and procedures 
regarding the creation of a Universal Trade Capture application and an 
automated Special Representative facility.

[[Page 57319]]

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.

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

1. Universal Trade Capture (``UTC'')
i. Background
    Since the 1970s, NSCC has provided a framework for the clearance 
and settlement of transactions executed on national securities 
exchanges and in the over-the-counter (``OTC'') market through its 
``Comparison and Trade Recording Operation.'' \2\ A Regional Interface 
Operation (the ``Interregional Interface Service'' or ``RIO'') was 
established in 1974 through National Clearing Corporation (one of 
NSCC's predecessor organizations) that permitted participating 
registered clearing corporations to provide for settlement of 
transactions in listed securities in the OTC market.\3\ Due to efforts 
to promote straight-through processing, markets have assumed 
responsibility for trade comparison (i.e., matching the buy and sell 
side of a securities transaction) at the point of trade and submit the 
compared transaction to NSCC for trade recording purposes (i.e., the 
transaction details have already been compared and the transaction is 
submitted to NSCC on a ``locked-in'' basis).
---------------------------------------------------------------------------

    \2\ On separate platforms, NSCC also provides services 
supporting mutual funds, alternative investments, and insurance 
products in addition to providing various other services.
    \3\ In 1983, the service was further expanded to facilitate the 
settlement of transactions that had been confirmed and affirmed 
through the facilities of a registered securities depository.
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ii. Trade Comparison and Recording Operation
    Transaction data is for the compared trades submitted to NSCC on a 
locked-in basis by self-regulatory organizations (``SROs'') and 
Qualified Special Representatives (``QSRs'') on behalf of their members 
for the purpose of trade recording with purchaser and seller trade 
details compared by the SRO or QSR prior to submitting the information 
to NSCC. NSCC validates and records the transaction and reports the 
details back to the SRO, QSR, and member, as appropriate. NSCC also 
provides a Comparison Operation for its members whereby the 
purchasering and selling members may submit transactions that NSCC 
validates, compares, and reports back to the members. Compared and 
recorded trades are subsequently routed to the Continuous Net 
Settlement (``CNS'') Accounting Operation, the Balance Order Accounting 
Operation, or the Foreign Security Accounting Operation, as applicable. 
NSCC makes transaction details available to members, SROs, and QSRs on 
either a real-time, intra-day, or end-of-day basis.
    As NSCC's systems for receipt of input and generation of output 
have developed, depending upon the transaction and the originating 
entity, different reporting formats for both input and output may be 
utilized. There is currently no standard common record that is utilized 
by all market places or members.
iii. Regional Interface Operation
    Originally, each participating clearing corporation had the 
opportunity to provide its own system for comparison. Inter-clearing 
corporation (``RIO'') trades had to be compared by one of the two 
clearing corporations involved in the RIO transaction, and an inter-
clearing corporation had to be one side to each RIO trade. Over time, 
as organizations discontinued providing clearance and settlement 
services for their members and as those members ultimately became 
direct NSCC members or entered into clearing arrangements with other 
NSCC members, the reporting and settlement of trades submitted to NSCC 
changed.
    With the discontinuance of the RIO service, NSCC nevertheless 
continued to accept trade input from regional exchanges and other 
marketplaces using the RIO formats. The formats used by regional 
exchanges for the submission of transaction data to NSCC are generally 
the same as the formats that had been used for information processed 
through the interface operation and continue to commonly be referred to 
as ``RIO.'' Consequently, references today to ``RIO'' are not in 
reference to services previously provided under the interface service 
but rather to information received by NSCC in connection with NSCC's 
trade recording and trade reporting.
iv. Proposed Changes
    The proposed rule change will amend NSCC's rules to accommodate the 
UTC application, which will standardize, streamline, consolidate, and 
modernize NSCC's existing legacy trade capture applications 
(specifically, with respect to trade recording applications within 
NSCC's Trade Comparison and Recording Operation) to create a more 
efficient and centralized process. The UTC application will accept and 
process a common input record from all marketplaces and will provide 
for receipt and reporting of data in both real-time and intraday-batch 
submissions to and from members and SROs.
    UTC will replace all current locked-in OTC and listed trade capture 
applications with one central real-time validation and reporting 
process. UTC will have the capability to accept or reject, validate, 
process, and send contract output to members in real-time. Members will 
only have to support one standardized input and output format.
    As further described below, trade data will be received from 
markets in real-time and in batch. NSCC will convert the existing input 
format to the new UTC input record format, which will enable the UTC to 
provide members and SROs with their trade output in the format of their 
choice (new or old).\4\
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    \4\ See below, Section II.A.4. ``Implementation Timeframe.''
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    As part of this effort, NSCC will also provide for enhancements to 
its Correspondent Clearing Service and QSR processing as further 
described below.
2. Automated Special Representative Facility for Special 
Representatives and Qualified Special Representatives
i. Background
    NSCC's Correspondent Clearing Service is designed to provide an 
automated method by which a member acting as a Special Representative 
may move an obligation (a position) that is in the process of clearance 
at NSCC to the account of another member (its correspondent) on whose 
behalf the original trade was executed.\5\
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    \5\ The term ``original trade'' is used within Correspondent 
Clearing solely to distinguish between trades executed in the 
marketplace by the Special Representative and transactions booked 
for accounting purposes to accommodate the movement of positions 
between members as provided for in NSCC Procedure IV. Correspondent 
Clearing is not a mechanism for original trade submission.
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ii. Proposed Changes
(a) Expanding Permitted Use of Service
    Currently, NSCC's rules provide the Correspondent Clearing Service 
may only be used in the following situations: (a) To accommodate a 
member with

[[Page 57320]]

multiple affiliate accounts that wishes to move a position resulting 
from an ``original trade'' in the process of clearance from one 
affiliate account to another and (b) to accommodate a member that 
relies on its Special Representative to execute a trade in a market 
that the member is precluded due to membership requirements (e.g., 
membership requirement for access to markets) or applicable regulation 
in order to enable the resulting position to be moved from the Special 
Representative to that member.
    Since it is not uncommon that members utilize the services of other 
broker-dealers to execute trades in markets where they are members in 
order to facilitate their trading strategies, NSCC proposes to modify 
its rules to provide that the Correspondent Clearing Service may be 
utilized by members to accommodate a member that relies on its Special 
Representative to execute a trade in any market regardless of whether 
that member maintains direct access to that market to enable the 
resulting position to be moved from the Special Representative to that 
member.
(b) Creation of an Automated Special Representative Facility
    Historically, members participating in the Correspondent Clearing 
Service and those utilizing the services of a QSR for the submission of 
original, locked-in trade data have been required to complete and remit 
to NSCC specific agreements for each relationship established. For 
example, in Correspondent Clearing, one member completes documentation 
(commonly referred to as Form 9a--Application for Status as a Special 
Representative) by which it applies to NSCC for status as a Special 
Representative to submit transactions on behalf of a specified member, 
i.e., the Correspondent. The Correspondent must also complete and 
submit to NSCC documentation (commonly referred to as a Form 9b--
Special Representative Consent) by which it consents to the 
establishment of that relationship. For QSR relationships, members 
submit Forms 9a and Form 9b along with an additional form that is 
specific to the QSR system being utilized (commonly referred to as an 
``Attachment 1''). NSCC then establishes these relationships on its 
internal masterfile. NSCC subsequently terminates these relationships 
at the direction of either party.
    To assist members in controlling and monitoring their Special 
Representative and Qualified Special Representative relationships, NSCC 
proposes to create an automated, online, and secure facility by which 
members themselves may establish, monitor, and maintain these 
relationships. Both the Special Representative Member and the 
Correspondent Member would have to submit matching instructions within 
the facility in order for the relationship to be established. Either 
party could submit a single entry to retire the relationship.
    Members will be reminded, through formatting within the facility, 
of their existing and unchanged obligations under NSCC's rules with 
respect to utilizing these services--namely, that by establishing the 
relationship within the facility both members continue to be bound by 
NSCC's rules, the Correspondent is bound by the details of all 
transactions submitted on their behalf by the Qualified Special 
Representative (or Special Representative as the case may be), and any 
errors or omissions or disputes relating to such relationships and 
related transactions must be resolved directly between the parties.
    The establishment of relationships through the automated facility 
shall meet the written notice requirements for such services as 
otherwise set forth within NSCC's rules and procedures. Members will no 
longer be required to submit signed forms to NSCC for these processes.
3. Rule Modifications
    As the UTC functionality will provide for processing of a common 
input or output record from or to all marketplaces (validating the 
transaction and providing for real-time message output to members and 
SROs), NSCC proposes to modify its rules to make conforming changes to 
reflect a single procedure or process for the submission and reporting 
of transaction data to and from SROs and members. References and 
provisions within the rules that pertained to the now obsolete RIO 
Service will be eliminated. In addition, NSCC will modify its rules to 
provide for an automated online functionality for the establishment and 
retirement of Special Representative and Qualified Special 
Representative relationships.
    Accordingly, NSCC proposes to amend the following rules and 
procedures as set forth in Exhibit 5 to its filing: Rule 7 (Comparison 
and Trade Recording Operation); Rule 40 (Interregional Interface 
Service); Procedure II (Trade Comparison and Recording Service); 
Procedure III (Trade Recording Service--Interface Clearing Procedures); 
and Procedure IV (Special Representative Service).\6\
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    \6\ In addition, the following Rules and Procedures will be 
generally modified to make conforming changes: Procedure VII (CNS 
Accounting Operation)--modified to conform an existing rule cross 
reference to a renamed Procedure; Procedure X (Execution of Buy-Ins) 
modified to eliminate references to regional accounts; Procedure 
XIII (Definitions), modified to remove a defined and now obsolete 
term ``Qualified Non-Participant;'' Procedure V (Balance Order 
Accounting Operation); Procedure VI (Foreign Security Accounting 
Operation); Addendum A (Fee Schedule)--modified to delete obsolete 
regional/inter-clearing corporation references; Addendum J 
(Statement of Policy--Locked-In Data from Service Bureaus)--modified 
to correct a preexisting erroneous reference to Section 5 of Rule 7 
where it should have referenced Section 6 of that Rule; Addendum K 
(Interpretation of the Board of Directors--Application of Clearing 
Fund)- modified to reflect specific reference to T Contracts, and 
Addendum N (Interpretation of the Board of Directors--Locked-In Data 
from Qualified Special Representatives)--modified to conform an 
existing rule cross reference to renumbered procedure subsection.
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4. Implementation Time Frame
    Subject to Commission approval, NSCC will implement the above 
changes by January 31, 2011.
    With respect to UTC changes and to support the migration period, 
NSCC will provide a conversation process to support those markets that 
are not yet ready to submit transaction data in the new common input 
format (i.e., NSCC will accept data in the old format and convert data 
into the new UTC format). The conversion process will enable NSCC to 
offer members and SROs the new output format regardless of whether the 
market has converted to the new standard. UTC will continue to support 
all existing interfaces with markets, members, and SROs with respect to 
trade input and output.
    To support maximum flexibility in allowing firms to migrate to the 
new input and output formats according to their own schedules, NSCC 
will continue to support all existing interfaces with markets, 
Member's, SRO's and regulatory agencies for a period of time after UTC 
is implemented.
    NSCC will establish a plan for the retirement of all legacy input 
and output formats and by the end of the first quarter of 2012 will 
reassess the status of those firms utilizing legacy formats. At that 
time, NSCC will work with any members, SROs, and regulatory agencies 
that have not yet converted from legacy reporting, thereby affording 
such firms sufficient lead time for migration.
    NSCC states that the proposed rule change will provide for 
additional efficiencies to NSCC and its participants while maintaining 
safe and secure operation and that the proposed rule change facilitates 
the prompt and

[[Page 57321]]

accurate clearance and settlement of securities. NSCC further states 
that the proposal is consistent with the CPSS/IOSCO Recommendations for 
Central Counterparties (specifically Recommendation 12) in that in 
addition to the additional efficiencies noted above, the UTC will also 
provide for cost-effectively meeting the requirements of NSCC's 
members.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NSCC believes that the proposed rule change will not impose any 
burden on competition 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

    NSCC has not solicited or received written comments relating to the 
proposed rule change. NSCC will notify the Commission of any written 
comments it receives.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 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 90 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 or disapprove 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 may be submitted by using the 
Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml), or send an e-mail to rule-comment@sec.gov. Please include 
File No. SR-NSCC-2010-09 on the subject line.
     Paper comments should be sent in triplicate to Elizabeth 
M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington DC 20549-1090.

All submissions should refer to File No. SR-NSCC-2010-09. 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 (https://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 Web site viewing and 
printing 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 filing also will be available for 
inspection and copying at NSCC's principal office and NSCC's Web site 
(https://www.dtcc.com/legal/rule_filings/nscc/2010.php). 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 No. SR-NSCC-2010-09 and should be 
submitted October 12, 2010.

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-23372 Filed 9-17-10; 8:45 am]
BILLING CODE 8010-01-P
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