Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing of Proposed Rule Change To Enhance the Reconfirmation and Pricing Service, Including the Creation of the Obligation Warehouse, 65546-65550 [2010-26805]
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Federal Register / Vol. 75, No. 205 / Monday, October 25, 2010 / Notices
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Securities Exchange Act of 1934 4
(the ‘‘Act’’) in general, and furthers the
objectives of Section 6(b)(5) of the Act 5
in particular, in that it is designed to
promote just and equitable principles of
trade, to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and, in general to protect
investors and the public interest. In
particular, the Exchange believes listing
additional near-term expiration months
will offer investors more variety in
trading options series that were
previously not available. The Exchange
believes this proposal will also generate
additional volume in these options
classes without significantly taxing
system resources.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange 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 were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not significantly affect the
protection of investors or the public
interest, does not impose any significant
burden on competition, and, by its
terms, does not become operative for 30
days from the date on which it was
filed, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 6 and Rule 19b–
4(f)(6) thereunder.7
The Exchange has requested that the
Commission waive the 30-day operative
delay. The Commission believes that
waiver of the operative delay is
4 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
6 15 U.S.C. 78s(b)(3)(A).
7 17 CFR 240.19b–4(f)(6). In addition, Rule
19b–4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change, along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
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consistent with the protection of
investors and the public interest
because the proposal is substantially
similar to that of another exchange that
has been approved by the Commission.8
Therefore, the Commission designates
the proposal operative upon filing.9
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.
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–NYSEArca–2010–93 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–NYSEArca–2010–93. 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 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–
NYSEArca–2010–93 and should be
submitted on or before November 15,
2010.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.10
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–26926 Filed 10–22–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63126; File No. SR–NSCC–
2010–11]
Self-Regulatory Organizations;
National Securities Clearing
Corporation; Notice of Filing of
Proposed Rule Change To Enhance
the Reconfirmation and Pricing
Service, Including the Creation of the
Obligation Warehouse
October 18, 2010.
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 October
5, 2010, the National Securities Clearing
Corporation (‘‘NSCC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
primarily by NSCC.3 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 the Substance
of the Proposed Rule Change
The purpose of this proposed rule
change is to enhance the Reconfirmation
and Pricing Service (‘‘RECAPS’’) process,
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The text of the proposed rule change is attached
as Exhibit 5 to NSCC’s filing and is available at
https://www.dtcc.com/downloads/legal/rule_filings/
2010/nscc/2010-11.pdf.
1 15
8 See
supra note 3.
purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
9 For
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Federal Register / Vol. 75, No. 205 / Monday, October 25, 2010 / Notices
to modify RECAPS to run on a more
frequent basis, and to rename RECAPS
as the Obligation Warehouse (‘‘OW’’)
service.
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.4
(A) Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
emcdonald on DSK2BSOYB1PROD with NOTICES
Background
RECAPS is NSCC’s automated fail
clearance system for eligible securities.
Through RECAPS, members are
provided with an opportunity on a
quarterly basis to reconfirm and reprice
compared transactions which remain
unsettled (i.e., fail transactions). The
rule change proposes to modify RECAPS
to run on a more frequent basis, enhance
the RECAPS process, and rename the
RECAPS process the Obligation
Warehouse (‘‘OW’’ or ‘‘OW Service’’). As
more fully described below, the
proposed enhanced service will
provide: (1) Comparison of transactions
that are not otherwise submitted by the
applicable marketplaces or members
themselves for trade comparison or
recording through other NSCC trade
capture services; (2) tracking, storage,
and maintenance of unsettled
obligations either compared through the
service or forwarded to it from other
NSCC services in accordance with
NSCC rules (including securities exited
from NSCC’s Continuous Net Settlement
(‘‘CNS’’) system, non-CNS Automated
Customer Account Transfer Service
(‘‘ACATS’’) items,5 NSCC Balance Order
transactions and Special Trades)
(collectively ‘‘OW Obligations’’); 6 and
(3) repricing and netting of fail
4 The Commission has modified the text of the
summaries prepared by NSCC.
5 Only non-CNS eligible ACATS items and CNSeligible ACATS items that have been designated as
ex-CNS shall be forwarded to the OW. Non-CNS
ACATS items for mutual funds, limited
partnerships, and safekeeping items, however, will
not be eligible for OW.
6 Balance Orders will be forwarded to the OW
after netting and allotting has occurred in
accordance with NSCC’s Procedures.
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obligations. The tracking, storage, and
maintenance functionality of the OW
will provide transparency, will make
information available to its users while
serving as a central depository of open
(i.e., failed or unsettled) broker-tobroker obligations, and will allow users
to manage and to resolve exceptions
(e.g., ‘‘don’t know’’ or ‘‘DK’’ obligations)
in an efficient and timely manner. As
proposed, OW will simultaneously
provide on-going maintenance and
servicing of open OW Obligations, such
as adjustments for corporate actions and
regular scans of OW Obligations for CNS
eligibility.7
Current RECAPS Service
RECAPS allows members to
periodically reconfirm open, aged fails
(i.e., fails that are five days or older),
reprice such fails to the current market
value, and when possible, net the
reconfirmed and repriced fails. All
NSCC members that are also members of
the Financial Industry Regulatory
Authority (‘‘FINRA’’) are required to
participate in the RECAPS service; 8
however, the service is available to all
members. As part of the RECAPS
process, those CNS-eligible recompared
fails are forwarded to CNS for
processing and settlement. Transactions
in non-CNS eligible issues are repriced,
netted, and allotted, when applicable,
and Balance Orders generated for them
or they are designated to settle trade-fortrade.
RECAPS provides reject and DK
capabilities for advisories received and
requires members to effectively respond
to all open fails submitted by a
contraparty through a batch overnight
submission. Advisories that are either
‘‘unresponded to’’ or ‘‘DK’d’’ are subject
to close-out action under the rules of the
appropriate marketplace. RECAPS
provides for a one-day settlement
capability for all compared fails.
Currently, the RECAPS processing
procedures are as follows:
1. On a Friday evening at the time and
in the manner established by NSCC,
members submit RECAPS fail
information (‘‘RECAPS Input’’).
2. On the following Monday morning,
NSCC produces RECAPS Contracts
indicating compared, uncompared, and
advisory items. Members: (i) Must
respond to all advisories that they
receive as a result of the initial fail
submission (either by submitting an
advisory, a ‘‘DK,’’ or a reject) and (ii)
may submit an ‘‘as-of’’ trade if the
7 These functionalities will be made available at
a date no less than ten business days following
announcement of implementation by Important
Notice.
8 FINRA Rule 11190(a).
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member failed to timely submit a
transaction to RECAPS. As-of trades are
compared only if there is an exact
match, and no trade resolution process
is available. NSCC produces
supplemental RECAPS Contracts
showing items compared on Monday’s
input and CNS and non-CNS Compared
Trade Summaries for those items that
compared as a result of Monday’s
submission.
3. Fails that compared on the Friday
submission will settle on Monday. Fails
that compared on the Monday
submission will settle on Tuesday.
4. A RECAPS Activity Report is made
available to members at the end of the
RECAPS cycle.
5. The net cash adjustment (the
difference between the aggregate value
of the original fails and the aggregate
value of the reconfirmed trades) will
settle the day the underlying RECAPS
Contract settles and is included as part
of the member’s daily money settlement
with NSCC.
6. Because RECAPS is not a
guaranteed service of NSCC, if NSCC
does not receive payment from a
member, NSCC may, in its discretion,
reverse in whole or part any credit
previously given to a member that is the
contra side to a trade reconfirmed and
repriced through RECAPS.
Obligation Warehouse
Currently, many of the transactions
submitted to RECAPS by members are
subject to noncentralized, manual
processes for purposes of comparison of
fail details and fail confirmation. Under
this proposed rule change, NSCC
proposes to enhance and rename the
RECAPS service as the OW to which
members may submit and may
subsequently maintain and manage their
unsettled transactions. As part of these
enhancements, NSCC proposes to
provide a trade matching and
confirmation process pursuant to which
members may submit to NSCC
information on certain obligations that
are not otherwise submitted to NSCC by
the applicable marketplaces or members
themselves through NSCC’s other trade
comparison or recording services.9
9 See Procedure II (Trade Comparison and
Recording Service) which sets forth the procedures
for comparison of direct submissions by members
and trade recording of locked-in transactions. In
accordance with Municipal Securities Rulemaking
Board (‘‘MSRB’’) rules, NSCC reports transactions in
municipal securities compared through its Realtime Trade Matching (‘‘RTTM’’) service to the MSRB
on behalf of members; however, transactions
submitted through the OW will not be reported to
the MSRB. In order to remain compliant with MSRB
reporting requirements, members will have to
continue to make submissions subject to MSRB
rules through RTTM.
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Federal Register / Vol. 75, No. 205 / Monday, October 25, 2010 / Notices
Comparison of transactions submitted
through the OW will occur in real-time.
Obligations will be tracked and
maintained within the OW and will be
made available for RECAPS processing
(as described below) until settled or
otherwise cancelled. In addition,
transactions exited from CNS, non-CNSeligible ACATS items, and Balance
Orders, and Special Trades will also be
forwarded to the OW for storage and
maintenance and RECAPS processing.10
Compared items stored in the OW
(whether compared by the OW or
forwarded to it from other NSCC
services or systems) will be referred to
as ‘‘OW Obligations.’’ As more fully
described below, in order to further
reduce manual processing by members,
NSCC may automatically adjust any OW
Obligations for certain mandatory
reorganization events, which will
initially be limited to adjustments for
forward splits, name changes,
redemptions, mergers (both cash and
stock), and full calls with respect to
bonds.11
The proposed OW Service will
forward to CNS on a daily basis (or such
other time frame as NSCC determines
from time to time) OW Obligations in
CNS-eligible securities.12 However, the
OW will not be a guaranteed service,
and an obligation forwarded to CNS will
only be guaranteed to the extent that the
member meets its settlement obligation
on the date the item is originally
scheduled to settle in CNS. Transactions
eligible for submission will have to have
a valid CUSIP or ISIN and be
denominated in U.S. Dollars or such
other currencies as NSCC may designate
from time to time. NSCC may determine
from time to time and shall announce by
Important Notice which items are
eligible for submission to OW. Initially,
government, mortgage-backed, and
foreign securities will all specifically
not be eligible. Further, cash trades will
be processed by OW only after
settlement failure of these trades.
emcdonald on DSK2BSOYB1PROD with NOTICES
OW Comparison and Trade Resolution
Procedures
As proposed, once a party enters the
required transaction information,13 the
10 Such items will be subject to the validation
criteria of the systems/services that forwarded them
to the OW; therefore, the matching/validation
criteria (which are set forth in footnote 9 below)
will not apply.
11 Adjustments for mandatory reorganization
events are expected to be available shortly after
February 4, 2011, or a date no less than 10 business
days following announcement of its
implementation by Important Notice.
12 This functionality is anticipated to be rolled
out in early March 2011.
13 Data required for a valid submission will
include security identification, quantity to which
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contraparty will receive an advisory to
which it must respond by submitting
identical transaction details to facilitate
a compared obligation or by submitting
a DK.14 If a member does not act on an
advisory submitted against it by the
close of business on the day after
submission, NSCC may impose a fee
upon the member. If the deliverer and
receiver submit trade data that matches
in all required respects, the trade will be
deemed compared.15 NSCC may permit
uncompared trade details to be modified
or cancelled by the submitter on the
submission date through the use of the
appropriate instruction.16 Upon
comparison, NSCC may permit
obligations to be cancelled if both
receiver and deliverer agree by
submitting a cancel request or if one
party accepts the other party’s cancel
request. Each OW Obligation will
receive an ‘‘OW Control Number’’ to
facilitate tracking the obligation through
its settlement, cancellation, or closure.
NSCC will have no responsibility for
determining whether any trade
submission is duplicative of an earlier
trade submission, and any such input
will be treated as a separate submission.
NSCC may delete trade input which is
not matched by such time frames as it
determines from time to time.
Maintenance and Tracking
The proposed OW service will permit
members to track each OW Obligation
for the life of the obligation until it has
been (i) Settled, (ii) cancelled by
members party to the obligation, or (iii)
otherwise closed in the OW Service by
NSCC pursuant to NSCC Rules (e.g.,
when the obligation becomes CNSparty is deliverer or receiver, contra-broker,
deliverer’s final money, settlement date, market
participation identification (MPID) (if applicable),
Member’s unique reference number (‘‘x-ref’’),
whether a transaction should be excluded from CNS
processing and other identifying details as NSCC
may require or permit.
14 Obligations will be able to be submitted to the
OW in real-time. Required matching criteria will
include the specific criteria listed in the
immediately preceding footnote (except for the xref), and other identifying details as NSCC may
require or permit. Any submission of a DK must
include the applicable reason code pertaining to the
Member’s disagreement with the transaction.
15 If the deliverer and receiver submit trade data
that matches in all required respects, the trade will
be deemed compared if it meets an initial money
tolerance of $5 per million. The amount of the
money tolerance may change from time to time
following the filing of a proposed rule change by
NSCC.
16 Modification of transaction details will result
in the cancellation of the existing entry and the
opening of a new submission. Transaction details
that have been DK’d by a contraparty will be
deleted from processing in accordance with time
frames specified by NSCC from time to time.
Initially, such transaction details will be deleted on
the fifth business day following submission of the
DK by the contraparty.
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eligible and is sent to CNS for
settlement).
NSCC may adjust any compared OW
Obligation with respect to certain
mandatory reorganization events, which
will initially be limited to forward
splits, name changes, redemptions,
mergers (both cash and stock), and full
calls with respect to bonds. In the case
of such a mandatory reorganization, at
such time on or after the effective date
of the reorganization as NSCC shall
determine and to the extent NSCC has
the relevant information, the affected
OW Obligation may be adjusted in
accordance with the terms of the
reorganization event. With respect to
name changes and forward splits, OW
positions in the subject security will be
converted into the equivalent positions
of the new securities and/or cash, and
a new obligation will be created
automatically as part of the processing
in the OW. Any cash component
associated with a mandatory
reorganization will be included as part
of the member’s daily money settlement
with NSCC.17
Unless otherwise excluded by a
member, all CNS-eligible OW
Obligations that reach the status of
settlement date minus one (‘‘SD–1’’) or
that have reached or passed their
scheduled settlement date, may be
forwarded to CNS by NSCC on a daily
basis.18 However, the settlement of any
such item forwarded to CNS will be
guaranteed only to the extent that the
member pays its full settlement
obligation on the date the item is
scheduled to settle in CNS. An item
forwarded to CNS from the OW may be
exited from the CNS Accounting
Operation to the extent the member fails
to complete its settlement obligation. If
NSCC exits an item, any credits received
by a member arising from the
corresponding payment obligation shall
be reversed, and settlement of the item
shall be effected between the receiving
and delivering member outside the
facilities of NSCC.
OW Obligations for which deliveries
are made through The Depository Trust
Company (‘‘DTC’’) through either The
New York Window (‘‘NYW’’) or
electronic book-entry deliver order that
include the OW Control Number will be
updated to indicate that they have
settled in accordance with proper
instructions from DTC or the member,
17 In the event that NSCC ceases to act for a
member pursuant to Rule 18, NSCC will reverse
credits and debits relating to such a cash
adjustment.
18 This functionality is expected to be rolled out
by March 2011 or on a date no less than 10 business
days following announcement of its
implementation by Important Notice.
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emcdonald on DSK2BSOYB1PROD with NOTICES
respectively. In order to give effect to
such an update, members must provide
DTC with instructions in accordance
with DTC’s procedures and must
include the OW Control Number. In the
event of a partial delivery through DTC,
NSCC will update the records for the
respective OW Obligation accordingly
based on information received either
from DTC or the member’s update to
their own OW Obligation records. Other
items will be recorded as settled upon
the submission of appropriate
instructions by the counterparties.
Obligations that have been reflected in
the OW as settled may be reopened
(either partially or fully) as a result of
a delivery reclaim message sent by
either party to the obligation to OW.
Updates to reflect reclaims of settled
transactions will be made once one
party enters details of the original
transaction and the original
transaction’s OW Control Number.19
Once these details are submitted, an
advisory of the reclaim will be sent to
the contraparty that must then submit
either identical transaction details to
facilitate the reclaim and reopening of
the obligation in OW or notification that
it does not accept the reclaim details
entered by the initiating party. Updates
for reclaims may only be submitted to
the OW for a period of two business
days following the actual settlement
date of the relevant obligation. If the
reclaim message is not accepted by the
contraparty, it will be deleted from the
OW, and the parties will need to
generate a new reclaim message in OW.
If the original obligation has been
settled for longer than two business
days, any reclaim message will be
rejected.
Under the proposal, if NSCC ceases to
act for a member, all open activity
relating to that member will be deleted
from the OW. However, the reports
relating to such activity will be
maintained in accordance with NSCC’s
record retention requirements.
Modified RECAPS Process
As proposed, the existing RECAPS
process will continue to function in a
modified form.20 NSCC proposes that
upon implementation of OW, the
RECAPS process will be incorporated
into OW and will require one day to
complete. It is anticipated that the
process will occur more frequently than
the current quarterly schedule.21
19 Transaction details required will be identical to
those required when comparing an obligation, set
out in note 9 above.
20 It is expected that the first RECAPS process in
the OW will run in late March or early April 2011.
21 Upon implementation of the changes described
herein, NSCC anticipates operating the RECAPS
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On a day specified by NSCC, each OW
Obligation eligible for RECAPS 22 will
be re-priced, if appropriate,23 renetted
and allotted, if appropriate, the
settlement date will be updated to the
next business date, and a new OW
Obligation will be opened. Securities
that are not CNS-eligible or are
designated as trade-for-trade will not be
netted and allotted. Obligations eligible
for RECAPS in the OW can be excluded
from the RECAPS process if so
designated by the member.
All new obligations arising from the
RECAPS process will be tracked and
processed in accordance with the OW
procedures described above. If a fail was
open over an interest payment date, the
parties to the trade will be required to
settle that interest payment outside of
the OW. Any net cash adjustments
resulting from the RECAPS process will
be sent to NSCC Settlement as they are
under the current process.
Reporting
The rule change proposes that each
member will receive real-time updates
regarding its OW activity. In addition,
NSCC proposes to make available to
each member an end-of-day report that
reflects all end-of-day positions of such
member in OW, which may be accessed
by members through NSCC’s systems.
Accordingly, NSCC will discontinue
issuance of all RECAPS reports (e.g.,
RECAPS Contracts/Supplemental
Contracts and RECAPS Compared Trade
Summaries).
Proposed Rule Changes
The rule change also proposes that
NSCC will create a new Rule 51
(Obligation Warehouse) and Procedure
IIA (Obligation Warehouse) to reflect the
changes and enhancements as described
above. Rule 51 would provide: (i) A
general description of the OW service,
(ii) a provision relating to the settlement
of OW Obligations and the nonguaranteed nature of the service, and
(iii) a limitation of liability on the part
of NSCC with respect to obligations
processed through the OW.
Furthermore, the provisions of
Procedure IIA will supersede those set
process on a monthly cycle. Members will be
notified of changes in the processing cycle, if any,
by an NSCC Important Notice.
22 Obligations that are matched and have a
settlement date of at least two days prior to the date
on which the RECAPS process commences will be
considered for inclusion in the RECAPS process,
and therefore, fail items not already in the OW and
eligible for RECAPS processing must be submitted
by the Member prior to RECAPS processing.
23 In the event that the current market price for
a security is not available, the obligation will be
priced at the amount at which the obligation was
previously matched.
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65549
forth in Procedure II, Section F
(RECAPS) and thus Section F will be
deleted.
In addition, NSCC proposes to make
conforming changes to:
a. Rule 1 (Definitions) to add a
definition for ‘‘Obligation Warehouse’’
and ‘‘OW Obligation’’;
b. Rule 7 (Comparison and Trade
Recording Operation) to remove
language from the rule relating to
submission of data to NSCC for
reconfirmation and repricing of trade
data with respect to transactions already
compared through the facilities of NSCC
or other facilities, as this service will
now occur pursuant to Rule 51 and
Procedure XVII;
c. Rule 11 (CNS System) to provide
that obligations arising from Special
Trades will be automatically entered
into the OW;
d. Rule 18 (Procedures for When
NSCC Ceases to Act) to reflect that (i)
the OW Obligations that have been
forwarded to CNS for settlement relating
to a member for which NSCC has ceased
to act will be removed from the CNS
Accounting Operation and that any
outstanding OW Obligations of the
member will be removed from the OW
service and (ii) NSCC will reverse any
cash adjustments that were forwarded to
settlement relating to the OW activity of
a member for which NSCC has ceased
to act;
e. Rule 50 (Automated Customer
Account Transfer Service) to reflect that
non-CNS ACATS items (as well as CNSeligible items designated to be delivered
ex-CNS) will be automatically entered
into the OW;
e. Procedure V (Balance Order
Accounting Operation) to reflect that
Balance Orders will be automatically
entered into the OW; and
f. Procedure VII (CNS Accounting
Operation) to reflect (i) the addition of
CNS-eligible OW activity to the CNS
Miscellaneous Activity Report and (ii)
securities removed from CNS that result
in a CNS Receive and Deliver
Instructions will be entered into the
Obligation Warehouse service.
Pilot and Participant Testing
NSCC implemented a pilot program of
the OW process in early February 2010
for firms that had completed systems
changes necessary to participate in the
process. This pilot program ended at the
beginning of June 2010, as additional
discussions ensued between NSCC and
its participant members regarding the
additional functionalities sought to be
included within the service, which are
described in this filing. Prior to
implementation of OW, NSCC proposes
that a participant testing period will
E:\FR\FM\25OCN1.SGM
25OCN1
65550
Federal Register / Vol. 75, No. 205 / Monday, October 25, 2010 / Notices
take place between November 2010 and
January 2011. An industry-wide test of
the OW RECAPS process would be
scheduled for March 11, 2011.
emcdonald on DSK2BSOYB1PROD with NOTICES
Implementation Timeframe
NSCC proposes to implement the
changes set forth in this filing for all
members during the first quarter of 2011
with the first settlement date expected
to be on January 24, 2011. Mandatory
reorganization events are anticipated to
be applied to OW Obligations shortly
after February 4, 2011, on a date no less
than 10 business days following
announcement of its implementation by
Important Notice. Similarly, at the
request of the industry, the functionality
providing for OW Obligations in CNSeligible securities to be reviewed and
sent to CNS will be implemented
several weeks after the initial launch to
give members time to familiarize
themselves with the OW settlement
tracking functionality. Accordingly,
after March 4, 2011, or on a date no less
than 10 business days following
announcement of its implementation by
Important Notice obligations in the OW
will be reviewed for CNS-eligibility and
if eligible, will be closed and sent to
CNS. The first RECAPS process in the
OW will be run in late March or early
April 2011. Pending Commission
approval, members will be advised of
the implementation dates through
issuance of NSCC’s Important Notices.
The proposed rule change is
consistent with the requirements of the
Securities Exchange Act of 1934, as
amended (‘‘Act’’) and the rules and
regulations thereunder applicable to
NSCC because it facilitates the prompt
and accurate clearance and settlement of
securities transactions by providing for
greater efficiency and transparency with
respect to securities transaction
obligations processed through the OW.
In addition, the proposal is consistent
with the CPSS/IOSCO
Recommendations for Central
Counterparties in that it facilitates the
prompt and automated confirmation
and comparison of trades, and the
tracking of fail transactions by the
parties thereto through settlement.
(B) Self-Regulatory Organization’s
Statement on Burden on Competition
NSCC does not believe that the
proposed rule change would 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
VerDate Mar<15>2010
16:05 Oct 22, 2010
Jkt 223001
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 forty-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 or disapprove
the 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 (https://www.sec.gov/
rules/sro.shtml) or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NSCC–2010–11 on the
subject line.
printing in the Commission’s Public
Reference Section, 100 F Street, NE.,
Washington, DC 20549–1090, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filings
will also be available for inspection and
copying at the principal office of NSCC
and on NSCC’s Web site at https://
www.dtcc.com/downloads/legal/
rule_filings/2010/nscc/2010-11.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–2010–11 and should
be submitted on or before November 15,
2010.
For the Commission by the Division of
Trading and Markets, pursuant to delegated
authority.24
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–26805 Filed 10–22–10; 8:45 am]
BILLING CODE P
DEPARTMENT OF STATE
[Public Notice: 7166]
Overseas Security Advisory Council
(OSAC) Meeting Notice
Closed Meeting
The Department of State announces a
meeting of the U.S. State Department—
Overseas Security Advisory Council on
November 16, 17, and 18 at the U.S.
Paper Comments
Department of State, Washington DC.
• Send paper comments in triplicate
Pursuant to Section 10(d) of the Federal
to Elizabeth M. Murphy, Secretary,
Advisory Committee Act (5 U.S.C.
Securities and Exchange Commission,
Appendix), 5 U.S.C. 552b(c)(4), and
100 F Street, NE., Washington, DC
5 U.S.C. 552b(c)(7)(E), it has been
20549–1090.
determined that the meeting will be
All submissions should refer to File
closed to the public. The meeting will
Number SR–NSCC–2010–11. This file
focus on an examination of corporate
number should be included on the
security policies and procedures and
subject line if e-mail is used. To help the will involve extensive discussion of
Commission process and review your
trade secrets and proprietary
comments more efficiently, please use
commercial information that is
only one method. The Commission will privileged and confidential, and will
post all comments on the Commission’s discuss law enforcement investigative
Internet Web site (https://www.sec.gov/
techniques and procedures. The agenda
rules/sro.shtml). Copies of the
will include updated committee reports,
submission, all subsequent
a global threat overview, and other
amendments, all written statements
matters relating to private sector
with respect to the proposed rule
security policies and protective
change that are filed with the
programs and the protection of U.S.
Commission, and all written
business information overseas.
communications relating to the
For more information, contact Marsha
proposed rule change between the
Thurman, Overseas Security Advisory
Commission and any person, other than Council, U.S. Department of State,
those that may be withheld from the
Washington, DC 20522–2008, phone:
public in accordance with the
571–345–2214.
provisions of 5 U.S.C. 552, will be
24 17 CFR 200.30–3(a)(12).
available for Web site viewing and
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
E:\FR\FM\25OCN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 205 (Monday, October 25, 2010)]
[Notices]
[Pages 65546-65550]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-26805]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63126; File No. SR-NSCC-2010-11]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Enhance the
Reconfirmation and Pricing Service, Including the Creation of the
Obligation Warehouse
October 18, 2010.
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 October 5, 2010, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared primarily by NSCC.\3\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The text of the proposed rule change is attached as Exhibit
5 to NSCC's filing and is available at https://www.dtcc.com/downloads/legal/rule_filings/2010/nscc/2010-11.pdf.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The purpose of this proposed rule change is to enhance the
Reconfirmation and Pricing Service (``RECAPS'') process,
[[Page 65547]]
to modify RECAPS to run on a more frequent basis, and to rename RECAPS
as the Obligation Warehouse (``OW'') service.
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.\4\
---------------------------------------------------------------------------
\4\ 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
Background
RECAPS is NSCC's automated fail clearance system for eligible
securities. Through RECAPS, members are provided with an opportunity on
a quarterly basis to reconfirm and reprice compared transactions which
remain unsettled (i.e., fail transactions). The rule change proposes to
modify RECAPS to run on a more frequent basis, enhance the RECAPS
process, and rename the RECAPS process the Obligation Warehouse (``OW''
or ``OW Service''). As more fully described below, the proposed
enhanced service will provide: (1) Comparison of transactions that are
not otherwise submitted by the applicable marketplaces or members
themselves for trade comparison or recording through other NSCC trade
capture services; (2) tracking, storage, and maintenance of unsettled
obligations either compared through the service or forwarded to it from
other NSCC services in accordance with NSCC rules (including securities
exited from NSCC's Continuous Net Settlement (``CNS'') system, non-CNS
Automated Customer Account Transfer Service (``ACATS'') items,\5\ NSCC
Balance Order transactions and Special Trades) (collectively ``OW
Obligations''); \6\ and (3) repricing and netting of fail obligations.
The tracking, storage, and maintenance functionality of the OW will
provide transparency, will make information available to its users
while serving as a central depository of open (i.e., failed or
unsettled) broker-to-broker obligations, and will allow users to manage
and to resolve exceptions (e.g., ``don't know'' or ``DK'' obligations)
in an efficient and timely manner. As proposed, OW will simultaneously
provide on-going maintenance and servicing of open OW Obligations, such
as adjustments for corporate actions and regular scans of OW
Obligations for CNS eligibility.\7\
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\5\ Only non-CNS eligible ACATS items and CNS-eligible ACATS
items that have been designated as ex-CNS shall be forwarded to the
OW. Non-CNS ACATS items for mutual funds, limited partnerships, and
safekeeping items, however, will not be eligible for OW.
\6\ Balance Orders will be forwarded to the OW after netting and
allotting has occurred in accordance with NSCC's Procedures.
\7\ These functionalities will be made available at a date no
less than ten business days following announcement of implementation
by Important Notice.
---------------------------------------------------------------------------
Current RECAPS Service
RECAPS allows members to periodically reconfirm open, aged fails
(i.e., fails that are five days or older), reprice such fails to the
current market value, and when possible, net the reconfirmed and
repriced fails. All NSCC members that are also members of the Financial
Industry Regulatory Authority (``FINRA'') are required to participate
in the RECAPS service; \8\ however, the service is available to all
members. As part of the RECAPS process, those CNS-eligible recompared
fails are forwarded to CNS for processing and settlement. Transactions
in non-CNS eligible issues are repriced, netted, and allotted, when
applicable, and Balance Orders generated for them or they are
designated to settle trade-for-trade.
---------------------------------------------------------------------------
\8\ FINRA Rule 11190(a).
---------------------------------------------------------------------------
RECAPS provides reject and DK capabilities for advisories received
and requires members to effectively respond to all open fails submitted
by a contraparty through a batch overnight submission. Advisories that
are either ``unresponded to'' or ``DK'd'' are subject to close-out
action under the rules of the appropriate marketplace. RECAPS provides
for a one-day settlement capability for all compared fails.
Currently, the RECAPS processing procedures are as follows:
1. On a Friday evening at the time and in the manner established by
NSCC, members submit RECAPS fail information (``RECAPS Input'').
2. On the following Monday morning, NSCC produces RECAPS Contracts
indicating compared, uncompared, and advisory items. Members: (i) Must
respond to all advisories that they receive as a result of the initial
fail submission (either by submitting an advisory, a ``DK,'' or a
reject) and (ii) may submit an ``as-of'' trade if the member failed to
timely submit a transaction to RECAPS. As-of trades are compared only
if there is an exact match, and no trade resolution process is
available. NSCC produces supplemental RECAPS Contracts showing items
compared on Monday's input and CNS and non-CNS Compared Trade Summaries
for those items that compared as a result of Monday's submission.
3. Fails that compared on the Friday submission will settle on
Monday. Fails that compared on the Monday submission will settle on
Tuesday.
4. A RECAPS Activity Report is made available to members at the end
of the RECAPS cycle.
5. The net cash adjustment (the difference between the aggregate
value of the original fails and the aggregate value of the reconfirmed
trades) will settle the day the underlying RECAPS Contract settles and
is included as part of the member's daily money settlement with NSCC.
6. Because RECAPS is not a guaranteed service of NSCC, if NSCC does
not receive payment from a member, NSCC may, in its discretion, reverse
in whole or part any credit previously given to a member that is the
contra side to a trade reconfirmed and repriced through RECAPS.
Obligation Warehouse
Currently, many of the transactions submitted to RECAPS by members
are subject to noncentralized, manual processes for purposes of
comparison of fail details and fail confirmation. Under this proposed
rule change, NSCC proposes to enhance and rename the RECAPS service as
the OW to which members may submit and may subsequently maintain and
manage their unsettled transactions. As part of these enhancements,
NSCC proposes to provide a trade matching and confirmation process
pursuant to which members may submit to NSCC information on certain
obligations that are not otherwise submitted to NSCC by the applicable
marketplaces or members themselves through NSCC's other trade
comparison or recording services.\9\
[[Page 65548]]
Comparison of transactions submitted through the OW will occur in real-
time. Obligations will be tracked and maintained within the OW and will
be made available for RECAPS processing (as described below) until
settled or otherwise cancelled. In addition, transactions exited from
CNS, non-CNS-eligible ACATS items, and Balance Orders, and Special
Trades will also be forwarded to the OW for storage and maintenance and
RECAPS processing.\10\ Compared items stored in the OW (whether
compared by the OW or forwarded to it from other NSCC services or
systems) will be referred to as ``OW Obligations.'' As more fully
described below, in order to further reduce manual processing by
members, NSCC may automatically adjust any OW Obligations for certain
mandatory reorganization events, which will initially be limited to
adjustments for forward splits, name changes, redemptions, mergers
(both cash and stock), and full calls with respect to bonds.\11\
---------------------------------------------------------------------------
\9\ See Procedure II (Trade Comparison and Recording Service)
which sets forth the procedures for comparison of direct submissions
by members and trade recording of locked-in transactions. In
accordance with Municipal Securities Rulemaking Board (``MSRB'')
rules, NSCC reports transactions in municipal securities compared
through its Real-time Trade Matching (``RTTM'') service to the MSRB
on behalf of members; however, transactions submitted through the OW
will not be reported to the MSRB. In order to remain compliant with
MSRB reporting requirements, members will have to continue to make
submissions subject to MSRB rules through RTTM.
\10\ Such items will be subject to the validation criteria of
the systems/services that forwarded them to the OW; therefore, the
matching/validation criteria (which are set forth in footnote 9
below) will not apply.
\11\ Adjustments for mandatory reorganization events are
expected to be available shortly after February 4, 2011, or a date
no less than 10 business days following announcement of its
implementation by Important Notice.
---------------------------------------------------------------------------
The proposed OW Service will forward to CNS on a daily basis (or
such other time frame as NSCC determines from time to time) OW
Obligations in CNS-eligible securities.\12\ However, the OW will not be
a guaranteed service, and an obligation forwarded to CNS will only be
guaranteed to the extent that the member meets its settlement
obligation on the date the item is originally scheduled to settle in
CNS. Transactions eligible for submission will have to have a valid
CUSIP or ISIN and be denominated in U.S. Dollars or such other
currencies as NSCC may designate from time to time. NSCC may determine
from time to time and shall announce by Important Notice which items
are eligible for submission to OW. Initially, government, mortgage-
backed, and foreign securities will all specifically not be eligible.
Further, cash trades will be processed by OW only after settlement
failure of these trades.
---------------------------------------------------------------------------
\12\ This functionality is anticipated to be rolled out in early
March 2011.
---------------------------------------------------------------------------
OW Comparison and Trade Resolution Procedures
As proposed, once a party enters the required transaction
information,\13\ the contraparty will receive an advisory to which it
must respond by submitting identical transaction details to facilitate
a compared obligation or by submitting a DK.\14\ If a member does not
act on an advisory submitted against it by the close of business on the
day after submission, NSCC may impose a fee upon the member. If the
deliverer and receiver submit trade data that matches in all required
respects, the trade will be deemed compared.\15\ NSCC may permit
uncompared trade details to be modified or cancelled by the submitter
on the submission date through the use of the appropriate
instruction.\16\ Upon comparison, NSCC may permit obligations to be
cancelled if both receiver and deliverer agree by submitting a cancel
request or if one party accepts the other party's cancel request. Each
OW Obligation will receive an ``OW Control Number'' to facilitate
tracking the obligation through its settlement, cancellation, or
closure.
---------------------------------------------------------------------------
\13\ Data required for a valid submission will include security
identification, quantity to which party is deliverer or receiver,
contra-broker, deliverer's final money, settlement date, market
participation identification (MPID) (if applicable), Member's unique
reference number (``x-ref''), whether a transaction should be
excluded from CNS processing and other identifying details as NSCC
may require or permit.
\14\ Obligations will be able to be submitted to the OW in real-
time. Required matching criteria will include the specific criteria
listed in the immediately preceding footnote (except for the x-ref),
and other identifying details as NSCC may require or permit. Any
submission of a DK must include the applicable reason code
pertaining to the Member's disagreement with the transaction.
\15\ If the deliverer and receiver submit trade data that
matches in all required respects, the trade will be deemed compared
if it meets an initial money tolerance of $5 per million. The amount
of the money tolerance may change from time to time following the
filing of a proposed rule change by NSCC.
\16\ Modification of transaction details will result in the
cancellation of the existing entry and the opening of a new
submission. Transaction details that have been DK'd by a contraparty
will be deleted from processing in accordance with time frames
specified by NSCC from time to time. Initially, such transaction
details will be deleted on the fifth business day following
submission of the DK by the contraparty.
---------------------------------------------------------------------------
NSCC will have no responsibility for determining whether any trade
submission is duplicative of an earlier trade submission, and any such
input will be treated as a separate submission. NSCC may delete trade
input which is not matched by such time frames as it determines from
time to time.
Maintenance and Tracking
The proposed OW service will permit members to track each OW
Obligation for the life of the obligation until it has been (i)
Settled, (ii) cancelled by members party to the obligation, or (iii)
otherwise closed in the OW Service by NSCC pursuant to NSCC Rules
(e.g., when the obligation becomes CNS-eligible and is sent to CNS for
settlement).
NSCC may adjust any compared OW Obligation with respect to certain
mandatory reorganization events, which will initially be limited to
forward splits, name changes, redemptions, mergers (both cash and
stock), and full calls with respect to bonds. In the case of such a
mandatory reorganization, at such time on or after the effective date
of the reorganization as NSCC shall determine and to the extent NSCC
has the relevant information, the affected OW Obligation may be
adjusted in accordance with the terms of the reorganization event. With
respect to name changes and forward splits, OW positions in the subject
security will be converted into the equivalent positions of the new
securities and/or cash, and a new obligation will be created
automatically as part of the processing in the OW. Any cash component
associated with a mandatory reorganization will be included as part of
the member's daily money settlement with NSCC.\17\
---------------------------------------------------------------------------
\17\ In the event that NSCC ceases to act for a member pursuant
to Rule 18, NSCC will reverse credits and debits relating to such a
cash adjustment.
---------------------------------------------------------------------------
Unless otherwise excluded by a member, all CNS-eligible OW
Obligations that reach the status of settlement date minus one (``SD-
1'') or that have reached or passed their scheduled settlement date,
may be forwarded to CNS by NSCC on a daily basis.\18\ However, the
settlement of any such item forwarded to CNS will be guaranteed only to
the extent that the member pays its full settlement obligation on the
date the item is scheduled to settle in CNS. An item forwarded to CNS
from the OW may be exited from the CNS Accounting Operation to the
extent the member fails to complete its settlement obligation. If NSCC
exits an item, any credits received by a member arising from the
corresponding payment obligation shall be reversed, and settlement of
the item shall be effected between the receiving and delivering member
outside the facilities of NSCC.
---------------------------------------------------------------------------
\18\ This functionality is expected to be rolled out by March
2011 or on a date no less than 10 business days following
announcement of its implementation by Important Notice.
---------------------------------------------------------------------------
OW Obligations for which deliveries are made through The Depository
Trust Company (``DTC'') through either The New York Window (``NYW'') or
electronic book-entry deliver order that include the OW Control Number
will be updated to indicate that they have settled in accordance with
proper instructions from DTC or the member,
[[Page 65549]]
respectively. In order to give effect to such an update, members must
provide DTC with instructions in accordance with DTC's procedures and
must include the OW Control Number. In the event of a partial delivery
through DTC, NSCC will update the records for the respective OW
Obligation accordingly based on information received either from DTC or
the member's update to their own OW Obligation records. Other items
will be recorded as settled upon the submission of appropriate
instructions by the counterparties. Obligations that have been
reflected in the OW as settled may be reopened (either partially or
fully) as a result of a delivery reclaim message sent by either party
to the obligation to OW. Updates to reflect reclaims of settled
transactions will be made once one party enters details of the original
transaction and the original transaction's OW Control Number.\19\ Once
these details are submitted, an advisory of the reclaim will be sent to
the contraparty that must then submit either identical transaction
details to facilitate the reclaim and reopening of the obligation in OW
or notification that it does not accept the reclaim details entered by
the initiating party. Updates for reclaims may only be submitted to the
OW for a period of two business days following the actual settlement
date of the relevant obligation. If the reclaim message is not accepted
by the contraparty, it will be deleted from the OW, and the parties
will need to generate a new reclaim message in OW. If the original
obligation has been settled for longer than two business days, any
reclaim message will be rejected.
---------------------------------------------------------------------------
\19\ Transaction details required will be identical to those
required when comparing an obligation, set out in note 9 above.
---------------------------------------------------------------------------
Under the proposal, if NSCC ceases to act for a member, all open
activity relating to that member will be deleted from the OW. However,
the reports relating to such activity will be maintained in accordance
with NSCC's record retention requirements.
Modified RECAPS Process
As proposed, the existing RECAPS process will continue to function
in a modified form.\20\ NSCC proposes that upon implementation of OW,
the RECAPS process will be incorporated into OW and will require one
day to complete. It is anticipated that the process will occur more
frequently than the current quarterly schedule.\21\
---------------------------------------------------------------------------
\20\ It is expected that the first RECAPS process in the OW will
run in late March or early April 2011.
\21\ Upon implementation of the changes described herein, NSCC
anticipates operating the RECAPS process on a monthly cycle. Members
will be notified of changes in the processing cycle, if any, by an
NSCC Important Notice.
---------------------------------------------------------------------------
On a day specified by NSCC, each OW Obligation eligible for RECAPS
\22\ will be re-priced, if appropriate,\23\ renetted and allotted, if
appropriate, the settlement date will be updated to the next business
date, and a new OW Obligation will be opened. Securities that are not
CNS-eligible or are designated as trade-for-trade will not be netted
and allotted. Obligations eligible for RECAPS in the OW can be excluded
from the RECAPS process if so designated by the member.
---------------------------------------------------------------------------
\22\ Obligations that are matched and have a settlement date of
at least two days prior to the date on which the RECAPS process
commences will be considered for inclusion in the RECAPS process,
and therefore, fail items not already in the OW and eligible for
RECAPS processing must be submitted by the Member prior to RECAPS
processing.
\23\ In the event that the current market price for a security
is not available, the obligation will be priced at the amount at
which the obligation was previously matched.
---------------------------------------------------------------------------
All new obligations arising from the RECAPS process will be tracked
and processed in accordance with the OW procedures described above. If
a fail was open over an interest payment date, the parties to the trade
will be required to settle that interest payment outside of the OW. Any
net cash adjustments resulting from the RECAPS process will be sent to
NSCC Settlement as they are under the current process.
Reporting
The rule change proposes that each member will receive real-time
updates regarding its OW activity. In addition, NSCC proposes to make
available to each member an end-of-day report that reflects all end-of-
day positions of such member in OW, which may be accessed by members
through NSCC's systems. Accordingly, NSCC will discontinue issuance of
all RECAPS reports (e.g., RECAPS Contracts/Supplemental Contracts and
RECAPS Compared Trade Summaries).
Proposed Rule Changes
The rule change also proposes that NSCC will create a new Rule 51
(Obligation Warehouse) and Procedure IIA (Obligation Warehouse) to
reflect the changes and enhancements as described above. Rule 51 would
provide: (i) A general description of the OW service, (ii) a provision
relating to the settlement of OW Obligations and the non-guaranteed
nature of the service, and (iii) a limitation of liability on the part
of NSCC with respect to obligations processed through the OW.
Furthermore, the provisions of Procedure IIA will supersede those set
forth in Procedure II, Section F (RECAPS) and thus Section F will be
deleted.
In addition, NSCC proposes to make conforming changes to:
a. Rule 1 (Definitions) to add a definition for ``Obligation
Warehouse'' and ``OW Obligation'';
b. Rule 7 (Comparison and Trade Recording Operation) to remove
language from the rule relating to submission of data to NSCC for
reconfirmation and repricing of trade data with respect to transactions
already compared through the facilities of NSCC or other facilities, as
this service will now occur pursuant to Rule 51 and Procedure XVII;
c. Rule 11 (CNS System) to provide that obligations arising from
Special Trades will be automatically entered into the OW;
d. Rule 18 (Procedures for When NSCC Ceases to Act) to reflect that
(i) the OW Obligations that have been forwarded to CNS for settlement
relating to a member for which NSCC has ceased to act will be removed
from the CNS Accounting Operation and that any outstanding OW
Obligations of the member will be removed from the OW service and (ii)
NSCC will reverse any cash adjustments that were forwarded to
settlement relating to the OW activity of a member for which NSCC has
ceased to act;
e. Rule 50 (Automated Customer Account Transfer Service) to reflect
that non-CNS ACATS items (as well as CNS-eligible items designated to
be delivered ex-CNS) will be automatically entered into the OW;
e. Procedure V (Balance Order Accounting Operation) to reflect that
Balance Orders will be automatically entered into the OW; and
f. Procedure VII (CNS Accounting Operation) to reflect (i) the
addition of CNS-eligible OW activity to the CNS Miscellaneous Activity
Report and (ii) securities removed from CNS that result in a CNS
Receive and Deliver Instructions will be entered into the Obligation
Warehouse service.
Pilot and Participant Testing
NSCC implemented a pilot program of the OW process in early
February 2010 for firms that had completed systems changes necessary to
participate in the process. This pilot program ended at the beginning
of June 2010, as additional discussions ensued between NSCC and its
participant members regarding the additional functionalities sought to
be included within the service, which are described in this filing.
Prior to implementation of OW, NSCC proposes that a participant testing
period will
[[Page 65550]]
take place between November 2010 and January 2011. An industry-wide
test of the OW RECAPS process would be scheduled for March 11, 2011.
Implementation Timeframe
NSCC proposes to implement the changes set forth in this filing for
all members during the first quarter of 2011 with the first settlement
date expected to be on January 24, 2011. Mandatory reorganization
events are anticipated to be applied to OW Obligations shortly after
February 4, 2011, on a date no less than 10 business days following
announcement of its implementation by Important Notice. Similarly, at
the request of the industry, the functionality providing for OW
Obligations in CNS-eligible securities to be reviewed and sent to CNS
will be implemented several weeks after the initial launch to give
members time to familiarize themselves with the OW settlement tracking
functionality. Accordingly, after March 4, 2011, or on a date no less
than 10 business days following announcement of its implementation by
Important Notice obligations in the OW will be reviewed for CNS-
eligibility and if eligible, will be closed and sent to CNS. The first
RECAPS process in the OW will be run in late March or early April 2011.
Pending Commission approval, members will be advised of the
implementation dates through issuance of NSCC's Important Notices.
The proposed rule change is consistent with the requirements of the
Securities Exchange Act of 1934, as amended (``Act'') and the rules and
regulations thereunder applicable to NSCC because it facilitates the
prompt and accurate clearance and settlement of securities transactions
by providing for greater efficiency and transparency with respect to
securities transaction obligations processed through the OW. In
addition, the proposal is consistent with the CPSS/IOSCO
Recommendations for Central Counterparties in that it facilitates the
prompt and automated confirmation and comparison of trades, and the
tracking of fail transactions by the parties thereto through
settlement.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would 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 forty-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 or disapprove the 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 (https://www.sec.gov/rules/sro.shtml) or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NSCC-2010-11 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-NSCC-2010-11. 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 Section, 100 F Street,
NE., Washington, DC 20549-1090, on official business days between the
hours of 10 a.m. and 3 p.m. Copies of such filings will also be
available for inspection and copying at the principal office of NSCC
and on NSCC's Web site at https://www.dtcc.com/downloads/legal/rule_filings/2010/nscc/2010-11.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-2010-11 and should be submitted on or before
November 15, 2010.
For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-26805 Filed 10-22-10; 8:45 am]
BILLING CODE P
