
[Federal Register: December 9, 2008 (Volume 73, Number 237)]
[Notices]               
[Page 74769-74770]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09de08-94]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59044; File No. SR-NSCC-2007-08]

 
Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Approving Proposed Rule Change To Amend Membership 
Disqualification Criteria Rules

December 3, 2008.

I. Introduction

    On April 30, 2007, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commissio 
(``Commission'') and on February 7, 2008, and on March 18, 2008, 
amended proposed rule change SR-NSCC-2007-08 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 July 18, 2008.\2\ 
The Commission received no comment letters. 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. 58123 (July 9, 2008), 73 
FR 41390.
---------------------------------------------------------------------------

II. Description

    The purpose of this filing is to amend the NSCC rules as they 
relate to membership disqualification criteria in an effort to create 
more uniformity between the rules of NSCC and the rules of NSCC's 
affiliates, the Fixed Income Clearing Corporation (``FICC'') and The 
Depository Trust Company (``DTC'').
    Currently, Addendum S of NSCC's rules sets forth its policy as to 
standards relating to competence for membership. Addendum S includes 
both objective and subjective factors that may be considered by NSCC in 
its evaluation of an applicant or of the continued membership of a 
member. Going forward, NSCC seeks to amend its rules to only include 
those disqualification criteria that can be objectively monitored by 
Risk Management staff. For example, NSCC proposes to delete from its 
rules specific references to criteria that may not be reported in a 
regulatory background check, such as an entity being subject to 
``heightened supervision'' by a regulatory body. NSCC is proposing to 
include in its rules a general provision to permit consideration of 
events with respect to an applicant or member that may not be expressly 
mentioned but that may impact an applicant's or member's suitability as 
a member.
    In addition, pursuant to NSCC's current disqualification criteria, 
NSCC can consider the criteria with respect to a person or entity that 
has ``significant managerial responsibility'' over the applicant or 
member. Because it is not easily ascertainable as to what entities or 
individuals have ``significant managerial responsibility'' over a 
particular entity, NSCC is proposing to amend these provisions in the 
rules so that they are consistent with its internal surveillance 
procedures. Going forward, NSCC will extend the reach of certain 
disqualification criteria to persons and entities acting as 
``controlling management,'' which will include those officers of the 
entity that are currently screened by Risk Management staff pursuant to 
internal procedures.
    Specifically, NSCC's disqualification criteria will now include:
    (i) An applicant or member being subject to statutory 
disqualification as defined in Section 3(a)(39) of that Act.\3\
---------------------------------------------------------------------------

    \3\ While this provision currently exists in the rules, it will 
be moved within the rules and will be grouped with all other 
disqualification criteria. The NSCC rules will also provide that 
applicants and members must notify NSCC if any member of its 
controlling management is or becomes subject to a statutory 
disqualification, as defined in Section 3(a)(39) of the Act.
---------------------------------------------------------------------------

    (ii) An applicant, member, or its controlling management making a 
misstatement of material facts; committing fraudulent acts; or being

[[Page 74770]]

convicted of any of the crimes listed in the rule.
    (iii) An applicant, member, or its controlling management being 
permanently or temporarily enjoined from acting on behalf of a 
financial institution such as a broker-dealer.
    (iv) An applicant or member's suspension or termination from 
participation in a national securities association, exchange registered 
under the Exchange Act, a self-regulatory organization, clearing 
agency, or securities depository.
    Pursuant to the proposed change, NSCC will continue to be able to 
cease to act for a member when any of the factors in sections (i) 
through (iv) above are present. Addendum S will be struck entirely from 
the rules, and the listed disqualification criteria will be included in 
NSCC's proposed Rule 2A ``Initial Membership Requirements.'' \4\
---------------------------------------------------------------------------

    \4\ NSCC has also filed, and the Commission has published notice 
of, proposed rule change SR-NSCC-2006-17 which seeks to reorganize 
NSCC's rules related to membership standards and membership 
requirements. Securities Exchange Act Release No. 58100 (July 3, 
2008), 73 FR 39759 (July 10, 2008) [SR-NSCC-2006-17].
---------------------------------------------------------------------------

III. Discussion

    Section 19(b) of the Act directs the Commission to approve a 
proposed rule change of a self-regulatory organization if it finds that 
such proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to such 
organization. Section 17A(b)(3)(F) of the Act requires that the rules 
of a clearing agency be designed to remove impediments to the 
perfection of a national system for the prompt and accurate clearance 
and settlement of securities transactions and are not designed to 
permit unfair discrimination in the admission of participants or among 
participants in the use of the clearing agency.\5\ The Commission 
believes that NSCC's rule change, which refines NSCC's rules and 
procedures with regard to applicants and members, is consistent with 
these obligations and in general will protect investors and the public 
interest.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

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. In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NSCC-2007-08) be and hereby 
is approved.
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-29037 Filed 12-8-08; 8:45 am]

BILLING CODE 8011-01-P
