Notice2022-17224
Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Enhance National Securities Clearing Corporation Automated Customer Account Transfer Service
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 11, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 154 (Thursday, August 11, 2022)</title>
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[Federal Register Volume 87, Number 154 (Thursday, August 11, 2022)]
[Notices]
[Pages 49628-49631]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-17224]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95437; File No. SR-NSCC-2022-011]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change To Enhance National Securities Clearing Corporation
Automated Customer Account Transfer Service
August 5, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 26, 2022, National Securities Clearing Corporation (``NSCC'' or
``Corporation'') 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 by the clearing agency.
NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of
the Act \3\ and Rule 19b-4(f)(4) thereunder.\4\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(4).
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change
The proposed rule change consists of amendments to NSCC's Rules &
Procedures (``Rules'') in order to enhance NSCC's Automated Customer
Account Transfer Service (``ACATS''), as described in greater detail
below.\5\
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\5\ Terms not defined herein are defined in the Rules, available
at http://dtcc.com/~/media/Files/Downloads/legal/rules/
nscc_rules.pdf.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
In its filing with the Commission, the clearing agency 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. The clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change
1. Purpose
The proposed rule change consists of modifications to NSCC's Rules
to expand the ``receiver delete'' functionality in ACATS to additional
products.
(i) Background
ACATS is a non-guaranteed service provided by NSCC that enables
Members to effect transfers of customer accounts among themselves.
ACATS complements Financial Industry Regulatory Authority (``FINRA'')
Rule 11870 (``FINRA Rule 11870'') regarding customer account transfers,
which requires FINRA members to use automated clearing agency customer
account transfer services and to effect customer account transfers
within specified time frames.\6\ ACATS automates and standardizes
procedures for the transfer of assets in a customer account, allowing
Members to efficiently and automatically enter, review, and generate
instructions to settle customer account transfers. The timing and
procedures with respect to customer account transfers are intended to
be consistent with the timing and processes set forth in FINRA Rule
11870.
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\6\ See FINRA Rule 11870, available at <a href="https://www.finra.org/rules-guidance/rulebooks/finra-rules/11870">https://www.finra.org/rules-guidance/rulebooks/finra-rules/11870</a>. NSCC also permits
Qualified Securities Depositories (i.e., The Depository Trust
Company (``DTC'')) to utilize ACATS on behalf of their participants
(e.g., DTC member banks) on a voluntary basis. See Section 1 of Rule
50, id.
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Pursuant to NSCC Rule 50, an NSCC Member to whom a customer's
account will be transferred (the ``Receiving Member'') initiates the
transfer by submitting a transfer initiation request to NSCC, which
contains the customer detail information that the NSCC Member who
currently has the account (the ``Delivering Member'') requires to
transfer the account.\7\ The Delivering Member must either reject the
customer account transfer request or submit detailed customer account
asset data to NSCC. NSCC then provides a report detailing the customer
account asset data to the Receiving Member,\8\ who has one Business Day
after receipt of the report to review the account and: (i) accept all
assets; (ii) reject (or ``delete'') one or more assets, to the extent
such a rejection is permitted by the Receiving Member's Designated
Examining Authority (``DEA'') (i.e., FINRA),\9\ and allow the transfer
of the remaining assets; (iii) request the Delivering Member to make
adjustments to the customer account asset list; or (iv) reject the
account, to extent such a rejection is permitted by NSCC or the
Receiving Member's DEA.\10\ Once a customer account has been accepted
by the Receiving Member, ACATS facilitates the settlements associated
with the account transfer at the appropriate asset settling location
(e.g., through the Continuous Net Settlement system (``CNS'') for CNS-
eligible securities, DTC for securities otherwise eligible for DTC
settlement services, Fund/SERV for eligible mutual fund products, the
Insurance Processing Service (``IPS'') for annuities, or The Options
Clearing Corporation for listed options).\11\
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\7\ See Section 2 of Rule 50, supra note 5.
\8\ See Section 7 of Rule 50, supra note 5.
\9\ As discussed in further detail below, NSCC Rule 50 currently
limits the type of assets that a Receiving Member may delete from
the customer account asset data list in ACATS to MF/I&RS Products.
NSCC proposes to expand this functionality to other assets that may
be deemed ``nontransferable assets'' under FINRA Rule 11870.
\10\ See Section 8 of Rule 50, supra note 5. Pursuant to FINRA
Rule 11870(d)(8), a Receiving Member may reject a transfer of
account assets in whole if the account is not in compliance with the
Receiving Member's credit policies or minimum asset requirements.
See supra note 6.
\11\ See Section 14 of Rule 50, supra note 5.
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FINRA Rule 11870 acknowledges that some customer assets may not be
transferred within the specified time frames to the extent that those
assets are not readily transferable (a ``nontransferable asset''). For
purposes
[[Page 49629]]
of FINRA Rule 11870, a nontransferable asset is any asset that is
incapable of being transferred because it is: (i) an asset that is a
proprietary product of the carrying member; \12\ (ii) an asset that is
a product of a third party (e.g., mutual fund/money market fund) with
which the receiving \13\ member does not maintain the relationship or
arrangement necessary to receive/carry the asset for the customer's
account; (iii) an asset that may not be received due to regulatory
limitations on the scope of the receiving member's business; (iv) an
asset that is a bankrupt issue for which the carrying member does not
possess (which shall be deemed to include possession at a securities
depository for the carrying member's account) the proper denominations
or quantity of shares necessary to effect delivery and no transfer
agent is available to re-register the shares; (v) an asset that is an
issue for which the proper denominations cannot be obtained pursuant to
governmental regulation or the issuance terms of the product (e.g.,
foreign securities, baby bonds, etc.); or (vi) limited partnership
interests in retail accounts.\14\
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\12\ For purposes of Rule 50, a carrying member would be the
Delivering Member.
\13\ See Section 5 of Rule 50, supra note 5.
\14\ See supra note 6.
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NSCC Rule 50 currently limits the type of assets that a Receiving
Member may delete from the customer account asset data list in ACATS
(the ``receiver delete functionality'') to ``MF/I&RS Products,'' \15\
which are comprised of Fund/SERV Eligible Fund assets \16\ and/or I&RS
Eligible Products.\17\ As a result, certain customer assets that may
also be deemed ``nontransferable assets'' under FINRA Rule 11870 are
not currently included in the receiver delete functionality in ACATS
and must be handled by a manual process outside of the automated ACATS
system. For example, nontransferable alternative investment products
that are the product of a third party, such as hedge funds, fund of
funds, private equity, non-traded real estate investment trusts, and
business development companies, may be submitted by the Delivering
Member in the customer account asset list but cannot be removed using
the receiver delete functionality in ACATS even though those products
cannot be settled on an automated basis at one of the asset settling
locations due to a lack of arrangements between the issuer of the
product and the Receiving Member, which prevents such products from
being held by at the Receiving Member. Instead, nontransferable
alternative investment products included in an ACATS transfer generate
a Receive and Deliver (``R&D'') ticket instructing firms to complete
the transfer outside of the ACATS process. This generally involves the
Delivering Member generating physical transfer paperwork and sending it
to the Receiving Member, often via the Envelope Settlement Service
(``ESS''),\18\ to deliver the asset. Some of these assets end up
getting rejected by the Receiving Member because, for example, the
necessary contracts are not in place with the issuer, or the asset is
otherwise ineligible to be held in the receiving account. Depending on
the operational structure of the firm, the manual process to return
paperwork to the Delivering Member may involve multiple touchpoints and
paperwork handoffs, resulting in processing delays.
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\15\ See Section 8 of Rule 50, supra note 5.
\16\ Rule 1 defines the term ``Fund/SERV Eligible Fund'' to mean
a fund or other pooled investment entity included in the list for
which provision is made in Section 1.(c) of Rule 3, supra note 5.
\17\ Rule 1 defines the term ``I&RS Eligible Product'' to mean
an insurance product or a retirement or other benefit plan or
program included in the list for which provision is made in Section
1.(d) of Rule 3, supra note 5.
\18\ ESS is a non-guaranteed service of NSCC that facilitates
the processing and settlement of physical security deliveries and
associated charges through the use of envelope deliveries. Under
this service, physical certificates may be processed for delivery at
specified NSCC locations through the use of sealed envelopes
accompanied by appropriate documentation (which, among other items,
identifies the security, the receiving Member and the money value
(if any) associated with the delivery). See Rule 9, supra note 5.
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(ii) Proposed Rule Change
NSCC proposes to modify Rule 50 to allow ACATS to process deletions
for any customer assets that are (i) deemed to be nontransferable
assets under FINRA Rule 11870 and (ii) permitted by NSCC. Specifically,
NSCC would effectuate the proposed change by revising two statements in
Section 8 of Rule 50 concerning the deletion process to replace
references to ``MF/I&RS Products'' with the phrase ``nontransferable
assets as defined by the Receiving Member's DEA and as permitted by the
Corporation.'' NSCC would also make non-substantive revisions to
improve the clarity of Section 8 of Rule 50. Section 8 of Rule 50
currently provides, in part, that ``[d]uring the one (1) Business Day
time period, only the Delivering Member will be able to add, delete or
change an item, provided that the Receiving Member did not accelerate
the transfer . . . other than with respect to MF/I&RS Products, which
can also be deleted by the Receiving Member'' (emphasis added). NSCC
proposes to delete the word ``only'' because, as noted in the current
and proposed rule, the Receiving Member may also utilize the receiver
delete functionality for certain products within this one Business Day
time period. NSCC would also replace the phrase ``other than with
respect to MF/I&RS Products, which can also be deleted by the Receiving
Member'' with ``however, the Receiving Member may delete
nontransferable assets as defined by the Receiving Member's DEA and as
permitted by the Corporation during the one (1) Business Day time
period.'' NSCC believes these proposed changes would improve the
clarity and readability of the Rule.
NSCC would initially extend the receiver delete functionality to
certain nontransferable alternative investment products that are the
product of a third party, as discussed above. The proposed change would
immediately address the need to delete alternative investment products
directly within ACATS and provide necessary flexibility within NSCC's
Rules to apply the receiver delete functionality to other
nontransferable assets beyond MF/I&RS Products in the future.\19\ NSCC
would maintain a list of nontransferable assets for which the receiver
delete functionality is permitted and make the list available to its
Members.\20\
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\19\ NSCC would issue an Important Notice to inform Members of
any new products eligible for the receiver delete functionality in
ACATS.
\20\ NSCC would initially maintain this list in the ACATS User
Guide, which is available through the DTCC Learning Center. See
<a href="https://dtcclearning.com/products-and-services/equities-clearing/acats/acats-users.html">https://dtcclearning.com/products-and-services/equities-clearing/acats/acats-users.html</a>.
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As discussed above, the ACATS service is intended to compliment
FINRA Rule 11870 and provide timing and procedures for customer account
transfers that are consistent with the timing and processes set forth
in FINRA Rule 11870. NSCC Rule 50 currently limits the scope of assets
that may be deleted from the customer account asset data list in ACATS
to MF/I&RS Products, which prevents Members from processing the
deletion of other nontransferable assets within the automated system.
In the case of alternative investment products, this results in the
need for manual and more lengthy processing of such assets through the
R&D ticket process, which often involves generating physical transfer
paperwork, the physical transmission of assets through ESS, and the
ultimate rejection of nontransferable assets. Expanding the receiver
delete functionality to additional nontransferable assets would reduce
the cases in which transfer paperwork is mailed unnecessarily and
enable the account owner to more immediately
[[Page 49630]]
ascertain the transfer status of such assets. The proposed rule change
would therefore eliminate the manual burdens and delays associated with
transfers and rejections under the current R&D ticket process and would
generally result in the same outcome (i.e., rejection) for those
assets. Moreover, the proposed rule change would allow NSCC to apply
the receiver delete functionality to any future assets determined by
FINRA to be nontransferable under FINRA Rule 11870. NSCC therefore
believes that the proposed rule change is designed to further the goals
of standardizing customer account transfer procedures, reducing
operating costs, and accelerating the timing for transaction
settlements in the customer account transfer process.
2. Statutory Basis
NSCC believes that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. Section 17A(b)(3)(F) of the
Act \21\ requires, in part, that the rules of a clearing agency be
designed to promote the prompt and accurate clearance and settlement of
securities transactions. The proposed rule change would provide
necessary flexibility within NSCC's Rules to expand the receiver delete
functionality in ACATS to nontransferable assets beyond MF/I&RS
Products. The proposed change would reduce the burdens and delays
associated with nontransferable assets that fall within the current
manual R&D ticket process and bring greater efficiency and expediency
to the account transfer process for those products as set forth above.
NSCC therefore believes the proposed rule change would promote the
prompt and accurate clearance and settlement of securities
transactions, consistent with the requirements of the Act, in
particular Section 17A(b)(3)(F) of the Act.\22\
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\21\ 15 U.S.C. 78q-1(b)(3)(F).
\22\ Id.
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(B) Clearing Agency's Statement on Burden on Competition
NSCC does not believe that the proposed rule change would have any
impact, or impose any burden, on competition. The proposed changes
would bring greater efficiency to the account transfer process by
allowing ACATS participants to process deletions of additional
nontransferable assets in an automated and expedited fashion. Allowing
ACATS participants to process account transfers in a more efficient
manner would result in client assets being transferred to the
appropriate Members and DTC participants more quickly. NSCC does not
believe that the proposed rule change would have any impact on
competition or materially affect the rights or obligations of NSCC
Members because they would apply to all ACATS participants equally and
effectively result in the same outcome as under the current manual
process performed today.
(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others
NSCC has not received or solicited any written comments relating to
this proposal. If any written comments are received, they will be
publicly filed as an Exhibit 2 to this filing, as required by Form 19b-
4 and the General Instructions thereto.
Persons submitting comments are cautioned that, according to
Section IV (Solicitation of Comments) of the Exhibit 1A in the General
Instructions to Form 19b-4, the Commission does not edit personal
identifying information from comment submissions. Commenters should
submit only information that they wish to make available publicly,
including their name, email address, and any other identifying
information.
All prospective commenters should follow the Commission's
instructions on how to submit comments, available at <a href="https://www.sec.gov/regulatory-actions/how-to-submit-comments">https://www.sec.gov/regulatory-actions/how-to-submit-comments</a>. General
questions regarding the rule filing process or logistical questions
regarding this filing should be directed to the Main Office of the
Commission's Division of Trading and Markets at
<a href="/cdn-cgi/l/email-protection#a8dcdac9ccc1c6cfc9c6ccc5c9dac3cddcdbe8dbcdcb86cfc7de"><span class="__cf_email__" data-cfemail="5d292f3c3934333a3c3339303c2f3638292e1d2e383e733a322b">[email protected]</span></a> or 202-551-5777.
NSCC reserves the right not to respond to any comments received.
III. Date of Effectiveness of the Proposed Rule Change, and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) \23\ of the Act and paragraph (f) \24\ of Rule 19b-4
thereunder. At any time within 60 days of the filing of the proposed
rule change, the Commission summarily may temporarily suspend 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.
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\23\ 15 U.S.C. 78s(b)(3)(A).
\24\ 17 CFR 240.19b-4(f).
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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. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#2d5f584148004e4240404843595e6d5e484e034a425b"><span class="__cf_email__" data-cfemail="90e2e5fcf5bdf3fffdfdf5fee4e3d0e3f5f3bef7ffe6">[email protected]</span></a>. Please include
File Number SR-NSCC-2022-011 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-NSCC-2022-011. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of NSCC and on DTCC's website
(<a href="http://dtcc.com/legal/sec-rule-filings.aspx">http://dtcc.com/legal/sec-rule-filings.aspx</a>). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NSCC-2022-011 and should be submitted on
or before September 1, 2022.
[[Page 49631]]
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-17224 Filed 8-10-22; 8:45 am]
BILLING CODE 8011-01-P
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