[Federal Register: January 31, 2003 (Volume 68, Number 21)]
[Notices]
[Page 5067-5069]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31ja03-139]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-47206; File No. SR-NSCC-2002-10]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Relating to the
Modification of Fixed Income Transaction System in Preparation for the
Implementation of Real Time Trade Processing
January 16, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of
1934,\1\ notice is hereby given that on November 5, 2002, the National
Securities Clearing Corporation (``NSCC'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change (File
No. SR-NSCC-2002-10) as described in items I, II, and III below, which
items have been prepared primarily by NSCC. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\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
NSCC proposes to modify its Trade Comparison Service rules to
modify its Fixed Income Transaction System (``FITS'') in order to begin
the move to real time trade matching processing (``RTTM'') for fixed
income securities that are eligible for processing by NSCC.
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,
[[Page 5068]]
and C below of the most significant aspects of such statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by NSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
RTTM \3\ was implemented by the Government Securities Clearing
Corporation (``GSCC''), an NSCC affiliate, in the fourth quarter of
2000 for the processing of government securities. It was designed with
a vision to also use the platform for other fixed income securities.
Once RTTM was deployed for government securities, GSCC and MBS Clearing
Corporation (``MBSCC'') worked together to adapt RTTM to support the
requirements of mortgage-backed securities and was implemented by MBSCC
on September 27, 2002. The next logical extension of RTTM is its
further adaptation for fixed income securities that are eligible for
processing by NSCC. NSCC currently plans to implement RTTM for
corporate bonds, municipal bonds, and Unitary Investment Trusts
(``UIT'') in the fourth quarter of 2003. RTTM will eventually replace
NSCC's current FITS.
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\3\ RTTM provides firms with the ability to compare trades
shortly after execution. It will facilitate Straight Through
Processing by utilizing a single pipeline with one communications
link for all fixed income products. Standardized message formats are
utilized for all inbound and outbound interactive transmissions.
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One of NSCC's main objectives will be to ensure an orderly
transition to RTTM. In order to prepare participants for the new RTTM
functionality, NSCC proposes that certain modifications be made to FITS
during March 2003. These modifications will enable participants to
become familiar with RTTM-type processing. In addition, some lesser-
utilized FITS functionality that will not be incorporated into RTTM
will be eliminated from FITS. The proposed modifications have been
endorsed by the RTTM Working Group, which consists of representatives
of participants who maintain key positions in The Bond Market
Association, the Securities Industry Association, and the Regional
Municipal Operations Association.
The following is a summary of the proposed modifications to FITS:
[sbull] FITS will automatically compare a trade even if the
counterparties submit data on the trade in different pieces, a process
known as ``trade summarization.'' \4\
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\4\ For example, Firm A submits one trade for $30 million and
Firm B ``breaks down'' the trade into three $10 million pieces.
Alternatively, Firm A and Firm B may execute five separate trades
each worth $10 million. Firm A submits each trade separately while
Firm B ``bunches'' the five trades into one $50 million piece. In
both of these examples, the trades will be compared.
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[sbull] Except for trades where the settlement date is the same
business day as or the business day after the trade date,\5\ FITS will
be modified to accept (instead of reject) trade submissions with a
contractual settlement date of the day of input or of prior dates and
will automatically assign a settlement date of the next business day to
the trades.
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\5\ NSCC will continue to reject trades where the settlement
date is the same business day as or the business day after the trade
date regardless of the date of submission.
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[sbull] Corporate bond trades in quantities of other than multiples
of a thousand (round-lots) must be divided into separate data
submissions of the round lot quantity and the odd-lot quantity
(multiples of less than one thousand).
The following is a summary of functions that NSCC proposes to
eliminate from FITS:
[sbull] Demand As Of processing.\6\
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\6\ The As Of capability will still be available to compare
trades that do not initially compare in FITS. The As Of capability
requires the submission by each counterparty of data that matches in
all respects whereas the Demand As Of capability permitted a trade
to be ``force compared'' on the submitter's terms even if the
counterparty did not respond.
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[sbull] One Sided Deletes for compared, secondary market municipal
security trades. In order to delete these trades, both counterparties
will be required to submit Withholds that match in all respects.\7\
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\7\ One Sided Deletes functionality will be retained for
syndicate takedown transactions and for uncompared municipal bond,
corporate bond, and UIT trades.
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[sbull] Trade Submit and Carry Forward Totals will not be reported
on the Supplemental and Added Trade Contracts.
[sbull] Regular Way Extended Settlement Carry Forward Totals.\8\
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\8\ Carry Forward Totals will be retained on New Issue
Contracts.
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Along with these proposed changes, NSCC proposes to change the
current cutoff time for trade submission and will require the
submission of certain additional trade data.\9\ Finally, NSCC wishes to
make a technical correction to the use of the term ``business day'' in
its rules. During the preparation of this filing, NSCC realized that
the use of upper and lower case letters for the term is inconsistent in
the rules. In order to carry out the intention of the drafters of the
rules, NSCC proposes that each use of the term throughout its rules be
``business day'' (lower case) as specified in the definition of that
term in NSCC rule 1-1.
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\9\ The details for these technical changes can be found in
Exhibit C to NSCC's proposed rule change, which is an important
notice that was distributed to NSCC's participants on October 2,
2002.
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NSCC believes that the proposed rule change is consistent with the
provisions of the Act and the rules and regulations thereunder because
it would prepare its participants for the new RTTM functionality that
will enable NSCC to process trades in the efficient manner that is
currently utilized by GSCC and MBSCC in connection with other fixed-
income trades.
B. Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change will have an
impact on or impose a burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments relating to the proposed rule change have been
solicited or received. NSCC will notify the Commission of any written
comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or such longer period (i) as the Commission may
delegate up to ninety days of such date if it finds such longer period
to be appropriate and published its reasons for so finding or (ii) as
to which the self-regulatory organization consents, the Commission
will:
(a) By order approve such proposed rule change or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0069.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-NSCC-2002-10. This file number should be included on the
subject line if e-mail is used. To help us process and review comments
more efficiently, comments should be sent in hardcopy or by e-mail but
not by both methods. Copies of the submission, all subsequent
amendments, all written statements
[[Page 5069]]
with respect to the rule filing that are filed with the Commission, and
all written communications relating to the rule filing between the
Commission and any person, other than those that may be withheld from
the public in accordance with provisions of 5 U.S.C. 552, will be
available for inspection and copying in the Commission's Public
Reference Room in Washington, DC. Copies of such filing will also be
available for inspection and copying at NSCC's principal office. All
submissions should refer to File No. SR-NSCC-2002-10 and should be
submitted by February 21, 2003.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-2256 Filed 1-30-03; 8:45 am]
BILLING CODE 8010-01-P