[Federal Register: March 28, 2006 (Volume 71, Number 59)]
[Notices]
[Page 15506-15508]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28mr06-102]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53528; File No. SR-NSCC-2005-15]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change Relating To Buy-Ins
in Its Continuous Net Settlement System
March 21, 2006.
I. Introduction
On December 1, 2005, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2005-15 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
[[Page 15507]]
December 27, 2005.\2\ No comment letters were received. For the reasons
discussed below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 52976 (December 19,
2005), 70 FR 76485.
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II. Description
The purpose of this filing is to modify NSCC's Rules with regard to
CNS Buy-Ins in an effort to harmonize the buy-in rules of the industry
and to assist NSCC members in reducing their exposure related to buy-
ins. At the request of participants and after consultation with the
Buy-In Subcommittee of the Securities Industry Association, NSCC is
modifying its Rules to create a new buy-in retransmittal procedure that
may be utilized by NSCC members receiving buy-in notices initiated
outside of the CNS System.\3\ Existing NSCC fees related to CNS Buy-Ins
will remain unchanged.
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\3\ The specific rules being amended are Rule 11, ``CNS
System,'' and Procedures VII, ``CNS Accounting Operation,'' and X,
``Execution of CNS Buy-Ins.''
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Current Process for CNS Buy-Ins
Currently under NSCC's Rules (except with respect to securities
subject to a voluntary corporate reorganization), a member having a
long position at the end of any day (``Originator'') may submit to NSCC
a Notice of Intention to Buy-In (``Buy-In Notice'') specifying the
quantity of securities that it intends to buy-in (``Buy-In Position'').
The Buy-In Position is given high priority for allocation from the CNS
night cycle on N+1 through completion of the CNS day cycle at
approximately 3 p.m. eastern standard time on N+2.\4\
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\4\ The day the Buy-In Notice is submitted to NSCC is referred
to as N with N+1 and N+2 referring to the succeeding days. Each CNS
day begins in the evening and includes an evening allocation of
securities and a daytime allocation of securities.
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If the Buy-In Position (or a portion thereof) remains unfilled
after the evening allocation on N+1, NSCC issues CNS Retransmittal
Notices on the following morning allocation (N+1) to a sufficient
number of members with short positions. NSCC issues CNS Retransmittal
Notices in an aggregate quantity at least equal to the Buy-In Position.
In no case will the Buy-In liability of a member exceed the Buy-In
Position or the total short position of the member. If several members
have short positions with the same age, all such members are issued CNS
Retransmittal Notices even if the total of their short position exceeds
the Buy-In Position. If the Buy-In Position is not satisfied by 3 p.m.
on N+2, the buy-in may be executed.
This current process will remain in effect. Buy-In Notices
transmitted by a member which is the original submitter will be
referred to as ``Original Buy-In Notices.''
Procedure for CNS Buy-In Retransmittals
At times, an NSCC member will be in receipt of a buy-in notice
initiated outside of the CNS system while at the same time be failing
to receive shares from CNS in the same security. Recognizing that such
externally initiated buy-ins may expire before the time the expiration
period that NSCC's Rules currently provide as the expiration for CNS
buy-ins (i.e., the current N+2 expiration), NSCC will utilize a new
procedure to permit retransmittals of such buy-ins with an
appropriately shortened execution time frame.
Accordingly, the new procedure provides that an NSCC member which
has a long position in CNS at the end of any day (i.e., a fail to
receive) and which is in receipt of a buy-in notice for securities of
the same CUSIP that was initiated outside of the CNS System may submit
a ``Buy-In Retransmittal Notice'' to NSCC. If the Buy-In Position (or a
portion thereof) that is the subject of the Buy-In Retransmittal Notice
is not satisfied by 3 p.m. on N+1, the buy-in can be executed. The Buy-
In Retransmittal Notice will identify the entity that initiated the
buy-in against the member.
The differences between a Buy-In Retransmittal Notice and an
Original Buy-In Notice are as follows:
An Original Buy-In Notice refers to a Buy-In Notice
transmitted by a member for which the member is the original submitter.
A Buy-In Retransmittal Notice refers to a Buy-In Notice submitted by a
member where the member has received a buy-in notice outside of the CNS
system with respect to securities of the same CUSIP.
The member submitting a Buy-In Retransmittal Notice
receives an elevated priority for CNS allocations upon NSCC's receipt
of the notice. The member submitting an Original Buy-In Notice
continues to receive elevated priority on the morning of N+1.
The member submitting a Buy-In Retransmittal Notice is
provided with five additional fields to be used to identify the entity
or entities that initiated the buy-in against the member. At least one
such entity other than the member must be identified or NSCC will
reject the Buy-In Retransmittal Notice.
For Buy-In Retransmittal Notices, NSCC transmits CNS
Retransmittal Notices to CNS short members upon receipt of the Buy-In
Retransmittal Notice on N. The CNS Retransmittal Notice identifies both
the submitting member and the entity or entities that initiated the
buy-in against the member. For Original Buy-In Notices, NSCC continues
to transmit CNS Retransmittal Notices to short members on the morning
of N+1.
A buy-in based on a Buy-In Retransmittal Notice may be
executed on N+1 if the Buy-In Position (or a portion thereof) is not
satisfied by 3 p.m. on N+1. The execution of a buy-in based on an
Original Buy-In Notice continues to be at 3 p.m. on N+2.
Technical Correction
In addition to modifying NSCC's Rules and Procedures to reflect the
above changes, NSCC is also making technical correction to Procedure X,
``Execution of Buy-Ins--CNS System.'' The procedure states that members
that receive CNS Retransmittal Notices and do not satisfy them assume
liability for the loss, if any, which occurs as a result of the buy-in
and that those members with the oldest short positions after the
evening cycle on N+2 will first be held liable for an executed buy-in.
Procedure X will now reflect that it is the oldest short positions
after the day cycle on N+2 that will first be held liable for an
executed buy-in.
Implementation
NSCC plans to implement these changes on a pilot basis open to all
members as soon as possible following the Commission's approval of the
proposed rule filing. The pilot will be limited to buy-ins of CNS
eligible NYSE listed securities. NSCC anticipates that the pilot phase
will be completed within thirty calendar days of implementation at
which time buy-ins of all other CNS eligible securities will be
permitted under these proposed changes. At that time the pilot will
cease. NSCC will notify its members by an Important Notice of the
specific date on which the pilot will expire and the proposed buy-in
procedures are available for use with all CNS eligible securities.
III. Discussion
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\5\ The Commission
finds that NSCC's proposed rule change is consistent with this
requirement because the buy-in
[[Page 15508]]
retransmittal procedures are designed to harmonize NSCC's buy-in rules
with the buy-in rules of other self-regulatory organizations.
Harmonization of buy-in rules among self-regulatory organizations
should increase the efficiency of the buy-in execution process and
should help to promote the prompt and accurate settlement of securities
transactions.
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\5\ 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 the requirements of the Act and
in particular Section 17A of the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\6\ that the proposed rule change (File No. SR-NSCC-2005-15) be and
hereby is approved.
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\6\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-4433 Filed 3-27-06; 8:45 am]
BILLING CODE 8010-01-P