Self-Regulatory Organizations; National Securities Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Amend Procedure II of the NSCC Rules & Procedures To Modify the Money Tolerance Comparison Provisions for Fixed Income Securities, 4405 [2011-1432]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 16 (Tuesday, January 25, 2011)]
[Notices]
[Page 4405]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1432]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63722; File No. SR-NSCC-2010-16]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change To Amend 
Procedure II of the NSCC Rules & Procedures To Modify the Money 
Tolerance Comparison Provisions for Fixed Income Securities

January 14, 2011.

I. Introduction

    On November 19, 2010, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-NSCC-2010-16 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ 
Notice of the proposal was published in the Federal Register on 
December 8, 2010.\2\ The Commission received no comment letters. For 
the reasons discussed below, the Commission is granting approval of the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 63404 (December 1, 
2010), 75 FR 76515 (December 8, 2010).
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II. Description

    NSCC provides a Real-Time Trade Matching (``RTTM'') service for 
trade input and comparison of corporate bond, municipal bond, and unit 
investment trust (collectively ``CMU'') fixed income securities. 
Matching requires that the two trade counterparties submit certain 
required trade details to RTTM that either match exactly or fall within 
predefined parameters. If the trade details are matched within RTTM, a 
valid and binding contract between the submitting trade parties 
results. If the purchaser and seller submit trade data that matches in 
all required aspects except for trade value, NSCC uses the seller's 
money (referred to as ``seller's value'') as the trade value and deems 
the trade compared as long as the difference between the seller's 
submitted trade value and the buyer's submitted trade value falls 
within prescribed dollar values (i.e., money tolerance amounts) as more 
fully described below.
    Prior to the rule change, Procedure II of NSCC's Rules & Procedures 
provided two scenarios in which trades would be compared using the 
seller's value. In the first scenario, NSCC uses the seller's value to 
match a trade submitted prior to the cut-off time for intraday 
comparison if the respective trade parties have submitted contract 
amounts that are within (1) a net $2 difference for trades of $1 
million or less and (2) $2 per million for trades greater than $1 
million. In the second scenario, NSCC also used the seller's value 
during the end-of-day enhanced comparison process to match a trade that 
remained uncompared after the intraday comparison process if the 
contract amounts were within (i) a net $10.00 difference for trades of 
$100,000 or less and (ii) $.10 per $1,000 for trades greater than 
$100,000.
    Since the establishment of these CMU money tolerance amounts in 
1995, member firms have significantly improved the timing and accuracy 
of fixed income trade reporting. In 2005, the Municipal Securities 
Rulemaking Board (``MSRB'') instituted a requirement that firms report 
trades in municipal securities to the RTTM engine within 15 minutes, 
which required member firms to improve their reporting accuracy and 
technology. As a result, RTTM is matching a greater percentage of CMU 
trades upon initial trade input from the buyer and seller.
    NSCC believes that because of these improvements the current money 
tolerance is wider than needed and that best practices dictates that 
the money tolerance be modified to reflect current business conditions. 
Accordingly, NSCC is reviewing the CMU money tolerance for the above 
described second scenario in which trades are compared using the 
seller's value. As amended, NSCC's Rules and Procedures will provide 
that transactions that remain uncompared after the intraday comparison 
process shall be deemed compared during the end-of-day enhanced 
comparison process using the seller's value if the trade parties have 
submitted contact amounts that have a net $10.00 difference for trades 
of $250,000 or less and $0.04 per $1,000 for trades greater than 
$250,000.\3\ NSCC members will be advised of the implementation date 
through the issuance of an NSCC Important Notice.
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    \3\ NSCC has informed Commission staff that NSCC money tolerance 
amounts were developed in part to align NSCC's money tolerance 
amounts with those used by FICC's Government Securities Division.
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III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions and to 
remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions.\4\ By narrowing the money tolerance, the rule change 
should allow NSCC to enhance the efficiency of its clearance and 
settlement processes by providing for more trades to be compared and 
settled. As a result, NSCC should be better enabled to facilitate the 
prompt and accurate clearance and settlement of securities transactions 
and to remove impediments to and help perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with NSCC's requirements under the 
Act, in particular with the requirements of Section 17A of the Act, and 
the rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-2010-16) be and hereby 
is approved.\5\
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    \5\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1432 Filed 1-24-11; 8:45 am]
BILLING CODE 8011-01-P