regulatory organizations; proposed rule changes: National Securities Clearing Corp.,

[Federal Register: October 27, 1998 (Volume 63, Number 207)]

[Notices]

[Page 57346-57347]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr27oc98-112]

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40582; File No. SR-NSCC-98-4]

Self-Regulatory Organizations; National Securities Clearing Corporation; Order Granting Approval of a Proposed Rule Change Adopting an Interpretation of the Board of Directors Regarding NSCC's Obligation To Continuously Review Participants To Determine If Participants Are Required To Reapply for Membership Due to a Material Change in Conditions

October 20, 1998.

On April 24, 1998, the National Securities Clearing Corporation (``NSCC'') filedwith the Securities and Exchange Commission (``Commission'') the proposed rule change (File No. SR-NSCC-98-4) 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 June 19, 1998.\2\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

\1\ 15 U.S.C. 78s(b)(1).

\2\ Securities Exchange Act Release No. 40086 (June 12, 1998), 63 FR 33750.

  1. Description

    New Addendum T to NSCC Rules allow NSCC: (i) to reexamine a participant who has undergone a material change in circumstances,\3\ (ii)

    [[Page 57347]]

    to reconsider the participant's continuing status as a participant as if such entity was initially applying for membership when conditions originally in existence at the time a participant was accepted for membership have materially changed; and (iii) to require the participant to satisfy any concerns NSCC may have as to the participant's ongoing membership in NSCC as part of such reevaluation. In addition, new Addendum T explicitly states that participants have the affirmative obligation to advise NSCC if such material change occurs.

    \3\ New Addendum T sets forth three categories where changes may warrant reconsideration: (1) material changes in ownership, control or management, (2) material changes in business lines, including but not limited to, new business lines undertaken, or (3) participation as a defendant in litigation which could reasonably have a direct negative impact on the participant's business. Addendum T states that these categories are listed as examples and should not be viewed as exclusive in the process.

    When a material change occurs with respect to an existing participant's ownership, control or management, mix of business, use of third party service providers, or regulatory history, among other areas, NSCC is faced with a different risk perspective than it faced at the time it approved such participant's application for membership. The NSCC board has concluded that it is in the best interests of NSCC and its membership as a whole that NSCC address these types of changes, including the ability to require the participant to reapply for membership, as if the participant was not already a participant. If NSCC did not have the ability to continually reexamine participants' status, the purpose behind scrutinizing applications and the comfort level provided by such process, would be undermined.

  2. Discussion

    Section 17A(b)(3)(F) of the Act \4\ requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. The Commission believes that new Addendum T to NSCC Rules will clarify NSCC's right to continuously review its participants to make sure that they have not experienced a material change in circumstances which may result in a material change in a participant's risk profile. Therefore, the Commission believes that the proposed rule change is consistent with NSCC's obligation under Section 17A(b)(3)(F) to safeguard securities and funds.

    \4\ 15 U.S.C. 78q-1(b)(3)(F).

  3. 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 with 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-98-4) be and hereby is approved.

    For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\5\

    \5\ 17 CFR 200.30-3(a)(12).

    Margaret H. McFarland, Deputy Secretary.

    [FR Doc. 98-28638Filed10-26-98; 8:45 am]

    BILLING CODE 8010-01-M

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT