Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change Granting the Canadian Depository for Securities Access to the Automated Confirmation Transaction Service

[Federal Register Volume 61, Number 48 (Monday, March 11, 1996)]
[Notices]
[Pages 9739-9740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-5608]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36918; International Series Release No. 942; File No. 
SR-NASD-95-49]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change Granting the 
Canadian Depository for Securities Access to the Automated Confirmation 
Transaction Service

March 4, 1996.
    On October 12, 1995, the National Association of Securities 
Dealers, Inc. (``NASD'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change (File No. SR-NASD-
95-49) under section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ to allow access by The Canadian Depository for Securities 
(``CDS'') to the NASD's automated confirmation transaction service 
(``ACT''). Notice of the proposal was published in the Federal Register 
on December 12, 1995.\2\ No comment letters were received. For the 
reasons discussed below, the Commission is approving the proposed rule 
change.

    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Securities Exchange Act Release No. 36552 (December 5, 
1995), 60 FR 63746 [File No. SR-NASD-95-49].
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I. Description

    The NASD is amending its ``Rules of Practice and Procedure for the 
Automated Confirmation Transaction Service'' (``ACT Rules'') to permit 
CDS to enter trades in NASD's ACT Service.\3\

    \3\ Generally, ACT facilitates comparison and clearing of 
interdealer over-the-counter equity trades by requiring input of 
trade details within specific time frames, by comparing the trade 
details, and by submitting matched, locked-in trades for clearing. 
For a complete description of ACT, refer to Securities Exchange Act 
Release Nos. 27229 (September 8, 1989), 54 FR 38484 [File No. SR-
NASD-89-25] (order partially approving proposed rule change to 
permit ACT to be used by self-clearing firms) and 28583 (October 26, 
1990), 55 FR 46120 [File No. SR-NASD-89-25] (order approving 
remainder of File SR-NASD-89-25 to permit ACT to be used by 
introducing and correspondent broker-dealers).
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    In 1992, the NASD approved an amendment to its ACT Rules to permit 
certain non-member clearing organizations and their member broker/
dealers to have access to and participate in ACT. The rule change was 
adopted with the West Canada Clearing Corporation (``WCCC'') in mind, 
and WCCC was the first non-member clearing organization to be granted 
access to and participation in ACT.\4\

    \4\ The amendments to the ACT Rules allowing non-member clearing 
organizations access to and participation in ACT and specifically 
approving WCCC participation were approved by the Commission on 
April 19, 1995. Securities Exchange Act Release No. 35625 (April 19, 
1995), 60 FR 20785 [File No. SR-NASD-94-55] (order approving 
proposed rule change relating to the access of WCCC and its members 
to ACT).
    The NASD granted access and participation to WCCC in part 
because at that time WCCC was a participant of the Midwest Clearing 
Corporation (``MCC''). WCC also demonstrated sufficient financial 
strength to support the trade guarantee made on behalf of its 
members. Recently, Stock Clearing Corporation of Philadelphia 
(``SCCP'') replaced MCC as the clearing agency at which WCCC is a 
member. SCCP is a clearing agency registered with the Commission 
under section 17A of the Act. Furthermore, WCCC continues to 
guarantee the trades of its members and to provide financial 
resources to support the trade guarantee. For a description of the 
SCCP/WCCC arrangement, refer to a letter from William W. Uchimoto, 
General Counsel, Stock Clearing Corporation of Philadelphia, to 
Jonathan Kallman, Associate Director, Division of Market Regulation, 
Commission (January 24, 1996), requesting the Commission take a no-
action position regarding the clearing agency registration 
requirements under section 17A of the Act as they pertain to WCCC.
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    However, in granting access and participation to non-member 
clearing organizations the NASD was concerned about its ability to 
regulate individual non-member broker/dealers that enter into 
transactions with NASD members. Accordingly, the NASD determined to 
permit non-member participation only for those organizations that would 
guarantee the trades submitted by their members.
    Recently, the NASD received another request through the 
International Securities Clearing Corporation to allow member broker-
dealers of CDS to participate in ACT. After reviewing the financial 
status of CDS, the NASD determined that CDS is in a financial position 
to guarantee the performance of its members. In addition, CDS is a 
member of the National Securities Clearing Corporation (``NSCC'') and a 
Special Representative under NSCC's rules.\5\ Furthermore, CDS members 
submit trade data through NSCC's Correspondent Clearing Service \6\ as 
required by ACT Rules.\7\

    \5\ Generally, a Special Representative is a member or a 
registered clearing agency that has been authorized by one or more 
other persons to act on their behalf at NSCC. For a complete 
description of Special Representative, refer to NSCC Rule 39, 
``Special Representative/Index Receipt Agent.''
    \6\ Under the Correspondent Clearing Service, NSCC members 
functioning as Special Representatives (e.g., CDS) submit 
transaction data on behalf of correspondents, which are NSCC members 
or non-members of NSCC that are members of an interfaced clearing 
organization (e.g., CDS member). For a complete description of 
NSCC's Correspondent Clearing Service, refer to NSCC Procedure IV., 
C.
    \7\ ACT Rules require that a non-member clearing organization 
not be given access to ACT unless it (1) is a clearing agency 
registered under the Act, (2) maintains membership in a registered 
clearing agency, or (3) maintains an effective clearing arrangement 
with a registered clearing agency.

[[Page 9740]]

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II. Discussion

    Section 15A(b)(6) \8\ of the Act requires that the rules of a 
national securities association be designed to promote just and 
equitable principles of trade and to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
and processing information with respect to securities, and in general, 
to protect investors and the public interest. The Commission believes 
the proposed rule change is consistent with the NASD's obligations 
because it fosters cooperation and coordination with persons engaged in 
clearing and settling securities transactions by streamlining and 
improving the process by which trades between NASD and CDS members are 
compared. The Commission also believes the rule change is consistent 
with the Act because it permits CDS broker/dealer members to 
participate in ACT under an agreement by CDS to guarantee its member 
transactions. Such participation should promote the public interest by 
expanding the universe of Canadian Brokers executing trades with NASD 
members in the U.S. Furthermore, the CDS guarantee of its member 
transactions should promote investor protection.

    \8\ 15 U.S.C. Sec. 78o-3(b)(6) (1988).
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III. Conclusion

    The Commission finds that the proposal is consistent with the 
requirements of the Act and particularly with Section 15A(b)(6) 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-NASD-95-49) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\

    \9\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-5608 Filed 3-8-96; 8:45 am]
BILLING CODE 8010-01-M