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Notice

Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Imposition of Fines

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Start Preamble August 5, 2003.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] notice is hereby given that on July 2, 2003, National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The purpose of the proposed rule change is to modify NSCC Rule 16 and Addendum P to impose fines upon members and non-clearing members utilizing NSCC's Commission Settlement service when they fail to timely pay all or part of their monthly commission settlement obligations to NSCC.

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.[2]

(A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to modify NSCC's rules to provide that fines may be imposed upon members and non-clearing members utilizing NSCC's Commission Settlement service when they fail to timely pay all or part of their monthly commission settlement obligations to NSCC.

Under NSCC Rule 16 (Settlement of Commissions), NSCC provides a service where all payments of commissions due on business where a principal is given up between NSCC members and non-clearing members may be settled on a monthly basis. Rule 16 provides that if a member or non-clearing member is indebted to NSCC, it shall pay [3] the amount due to NSCC on or before the commission bill settlement date of each month, generally the 15th, as determined by NSCC. NSCC relies upon the timely receipt of the funds from such members and non-clearing members in order to pay others who are owed funds as a result of using the Commission Settlement service.

NSCC Rule 48 (Disciplinary Proceedings) allows NSCC to impose fines upon participants for any error, delay, or other conduct that is determined to be detrimental to NSCC's operations. Historically, NSCC has imposed fines upon participants for failure to timely settle end of day settlement balances, late settlement acknowledgement, and for late payment of clearing fund deposits. In 2002, NSCC commenced fining participants for failure to timely provide requested financial and operational information and for failure to timely notify NSCC on an ongoing basis of certain internal conditions which may cause NSCC to reevaluate the participants continued participation.[4] NSCC now intends to commence fining members and non-clearing members for failing to timely meet their obligations to NSCC arising out of their use of the Commission Settlement service.

The proposed rule change also amends NSCC Addendum P (Fine Schedule) to reflect the addition of the fines. The proposed fine schedule in NSCC Addendum P, Section 5, Settlement of Commissions, pursuant to NSCC Rule 16,[5] is as follows:

Net debitFirst occasionSecond occasionThird occasionFourth occasion (or greater)
$0-100,000(1)$100$200$300
$100,000-200,000(1)200300400
Greater than $200,000(1)300400500

Notes:

(1) First occasions result in a warning letter to the Member/Non-clearing member.

(2) In addition to the fine, unpaid amounts will incur interest charges until paid.

In addition, Rule 16 has been modified to clearly state that failure to timely pay all or part of a monthly Commission Settlement balance may result in the imposition of a fine and may subject the member or non-clearing member to action by NSCC pursuant to Rule 46 (Restriction on Access to Services) or Rule 48 (Disciplinary Proceedings). Participants will continue to have the ability to contest fines as currently provided for within NSCC's rules and procedures.[6]

The proposed rule change is consistent with Section 17A(b)(3)(G) of the Act [7] and the rules and regulations thereunder because it will allow NSCC to impose fines upon late paying users of the Commission Settlement service thereby further ensuring that NSCC has the ability to appropriately discipline for violations of its rules.

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(B) Self-Regulatory Organization's Statement on Burden on Competition

NSCC does not believe that the proposed rule change 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 change 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

The foregoing rule change will take effect upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act [8] and Rule 19b-4(f)(2) [9] thereunder because the proposed rule constitutes a due, fee, or other charge. At any time within sixty days of the filing of such rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

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., 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-2003-17. This file number should be included on the subject line if e-mail is used. To help us process and review 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 20549-0609. Copies of such filing also will be available for inspection and copying at the principal office of NSCC. All submissions should refer to File No. SR-NSCC-2003-17 and should be submitted by September 2, 2003.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[10]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

2.  The Commission has modified the text of the summaries prepared by NSCC.

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3.  Members and non-clearing members may make payment via ACH wire transfer, Fed Funds wire transfer, or by check made payable to NSCC.

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4.  Securities Exchange Act Release No. 46903 (November 25, 2002), 67 FR 72012 (December 3, 2002) (order approving NSCC's rule change to fine members who fail to timely provide requested financial or operating information or who fail to provide other changes to NSCC).

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5.  Fines to be levied for offenses within a moving twelve-month period beginning with the first occasion.

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6.  See, e.g., NSCC Rule 37 (Hearing Procedures).

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7.  15 U.S.C. 77(q-1)(b)(3)(G).

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8.  15 U.S.C. 78s(b)(3)(A)(ii).

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[FR Doc. 03-20379 Filed 8-8-03; 8:45 am]

BILLING CODE 8010-01-P