[Federal Register: January 16, 2004 (Volume 69, Number 11)]
[Notices]
[Page 2639-2641]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ja04-113]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49051; File No. SR-NSCC-2003-15]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change to Implement
Real-Time Trade Matching for Fixed Income Securities
January 12, 2004.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 27, 2003, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change 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 parties.
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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 is seeking to implement a real-time trade matching system
(``RTTM'') for certain NSCC-eligible corporate bonds, municipal bonds,
and unit investment trusts (``NSCC debt securities'').\2\
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\2\ The proposed rule change does not apply to debt securities
transactions that are submitted to NSCC via its correspondent
clearing service, by regional exchanges/marketplaces, or through
qualified securities depositories as defined in NSCC's rules because
such transactions will not be processed by RTTM.
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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.\3\
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\3\ 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 was implemented in the fourth quarter of 2000 by the former
Government Securities Clearing Corporation (``GSCC''),\4\ an NSCC
affiliate, for the processing of government securities transactions.\5\
It was designed with a vision to use the platform for other fixed
income securities. Accordingly, it was implemented in 2002 for
mortgage-backed securities transactions processed by the former
MBSCC.\6\ The purpose of the proposed rule change is to implement RTTM
for NSCC debt securities. RTTM will eventually replace NSCC's current
Fixed Income Transactions System (``FITS'').\7\
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\4\ On January 1, 2003, MBS Clearing Corporation (``MBSCC'') was
merged into GSCC and GSCC was renamed the Fixed Income Clearing
Corporation (``FICC''). The functions previously performed by GSCC
are now performed by the Government Securities Division (``GSD'') of
FICC, and the functions previously performed by MBSCC are now
performed by the Mortgage-Backed Securities Division (``MBSD'') of
FICC. Securities Exchange Act Release No. 47015 (December 17, 2002),
67 FR 78531 (File Nos. SR-GSCC-2002-09 and SR-MBSCC-2002-01).
\5\ Securities Exchange Act Release No. 44946 (October 17,
2001), 66 FR 53816 (File No. SR-GSCC-2001-01).
\6\ Securities Exchange Act Release No. 45563 (March 14, 2002),
67 FR 13389 (File No. SR-MBSCC-2001-02).
\7\ In March 2003, the Commission approved certain modifications
to FITS in order to prepare NSCC participants for the new RTTM
functionality. Securities Exchange Act Release No. 47494 (March 13,
2003), 68 FR 13975 (File No. SR-NSCC-2003-10).
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The two areas of NSCC debt securities processing rules that require
changes to implement RTTM are (1) inbound submissions to NSCC and (2)
NSCC's reporting of information related to such submissions to
participants. Specifically, interactive messages and the RTTM Web User
Interface (``RTTM Web'') \8\ will be added as ways in which
participants can submit trade data and subsequent related trade
processing instructions.\9\ With respect to output issued by NSCC,
initially upon implementation, end-of-day reports will continue to be
produced by FITS
[[Page 2640]]
whereas intraday reports will be produced by RTTM. In addition, NSCC
will make output available for interactive message users and RTTM Web
users in those respective media.
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\8\ The RTTM Web will replace NSCC's PC Web application for NSCC
fixed income securities.
RTTM will be implemented in phases in 2004. Participants will be
notified of specific implementation dates by Important Notice.
Conversation with Nikki Poulos, Vice President and Associate General
Counsel, FICC (January 9, 2004).
\9\ Initially, RTTM will support the current batch method of
data input.
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The following is a summary of the key proposed rule changes needed
to implement RTTM:
[sbull] References to ``Contract Lists'' will be replaced with
references to ``output'' or to ``information made available'' by NSCC
to cover the additional types of output that could be generated by
RTTM.
[sbull] References to the names of specific instructions that
participants may submit to resolve uncompared trades (e.g., ``Delete of
Original Trade Input'') will be replaced with general references to
``appropriate instructions'' to include similar instructions which have
different names that may be submitted by interactive message users and
RTTM Web users.\10\
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\10\ For example, in the current version of NSCC's procedures
there is a reference to an instruction called a ``Delete of Original
Trade Input'' that is used by batch participants to delete
uncompared trade data they have submitted. Interactive message users
and RTTM Web users will use an instruction called a ``Cancel'' to
accomplish the same result. Therefore, references to ``Delete of
Original Trade Input'' will be replaced by references to
``appropriate instruction'' in order to cover the equivalent
interactive message and RTTM Web instruction.
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[sbull] With respect to trades submitted for two-sided comparison
processing, interactive message users and RTTM Web users will be able
to modify their trades, subject to the timeframes and requirements
imposed by NSCC from time to time, and will also be able to remove an
unmatched trade from processing by sending an instruction indicating
that they do not agree with the terms of a trade that has been
submitted against them.\11\ Locked-in trade sources and syndicate
managers that are interactive message users or RTTM Web users will also
be able to modify their trade submissions.
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\11\ RTTM Web users will also be able to subsequently restore a
trade to processing by submitting the requisite instruction.
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[sbull] RTTM will accept cash and next-day transactions for
comparison-only processing.
[sbull] RTTM will add an intraday money tolerance pursuant to which
NSCC will compare a trade using the seller's contract amount if the
contract amounts submitted by the buyer and seller are within a net $2
difference for trades of $1 million or less or $2 per million for
trades greater than $1 million.\12\ In addition, RTTM will compare a
trade if trade data matches in all respects, including contract amounts
which have been compared pursuant to the money tolerances, except for
trade date. In this case, the earlier of the two trade dates submitted
will be used. RTTM will not use the summarization process used to
compare trades currently set forth in NSCC procedure II, section
D.1(e).
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\12\ No changes are being proposed to NSCC's existing end-of-day
money tolerance currently contained in procedure II, section D.1(a).
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[sbull] NSCC's rules and procedures will continue to provide that
the submission of a locked-in trade or a syndicate takedown trade
results in a compared trade. However, RTTM will provide members on
behalf of whom locked-in and syndicate takedown trades are submitted
(``LI/ST contrasides'') the option of submitting matching trade details
for their internal reconciliation purposes. In order to facilitate the
participants' internal reconciliation process, RTTM has been designed
to issue output that indicates a status of ``unmatched'' or ``match
request'' upon receipt of a locked-in or syndicate takedown trade.
Notwithstanding the output indicating unmatched and match request, the
proposed rule changes make clear that the submission of matching trade
data by LI/ST contrasides will have no legal effect on the status of
locked-in and syndicate takedown trades as compared trades. In
addition, notwithstanding that output is made available by NSCC as a
result of subsequent processing information submitted by LI/ST
contrasides that are not specifically provided for in NSCC's rules and
procedures, the proposed rule changes make clear that such submissions
will have no legal effect and that RTTM has been designed to accept
such submissions for participants' internal reconciliation purposes
only.
In addition to the above, NSCC is proposing the following
additional technical changes and corrections:
[sbull] References to the ``Automated Bond System'' (``ABS'') will
be deleted because ABS trades submitted by the New York Stock Exchange
are locked-in trades and are covered by provisions dealing with locked-
in trades. In addition, references to the ``AMEX Order File System''
will be deleted because that system is no longer operational.
[sbull] Technical corrections will be made throughout the debt
when-issued section of NSCC's procedure II, section E to clarify the
submission requirements for a transaction to be treated as a when-
issued transaction. It should be noted that due to the systems
development schedule, RTTM will not be available with respect to when-
issued corporate debt securities transactions upon implementation. NSCC
will file a rule change pursuant to section 19(b)(3) of the Act and
will notify members when the service becomes available for these
transactions.
[sbull] Technical corrections will be made to the use of the term
``settlement date'' so that when referenced with upper case letters it
means the settlement date as established by NSCC.\13\
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\13\ For example, if a trade is made on September 15 with a
contract settlement date of September 18, but the trade does not
match until September 18 or later, NSCC will provide the Settlement
Date.
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NSCC believes that the proposed rule change is consistent with the
requirements of section 17A of the Act \14\ and the rules and
regulations thereunder applicable to NSCC because it should permit the
accurate clearance and settlement of securities by enabling NSCC to
process fixed income trades more efficiently.
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\14\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule changes 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 changes have 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 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW.,
[[Page 2641]]
Washington, DC 20549-0609. 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-2003-15. 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,
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 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 inspection and
copying in the Commission's Public Reference Section, 450 Fifth Street,
NW., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of NSCC and on
NSCC's Web site at http://www.nscc.com/legal/.
All submissions should refer to File No. SR-NSCC-2003-15 and should
be submitted by February 6, 2004.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-952 Filed 1-15-04; 8:45 am]
BILLING CODE 8010-01-P