Daily Rules, Proposed Rules, and Notices of the Federal Government
The proposed rule change: (i) Eliminates the practice of netting of creations and redemptions of index receipts prior to their entering NSCC's Accounting Operation, and (ii) effects certain other technical changes. Details are set forth in Exhibit 5 to NSCC's rule filing, which can be found on NSCC's Web site (
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 such statements.
NSCC reports on, clears and settles domestic index receipts (i.e. shares in exchange-traded funds ("ETFs")) and their underlying component securities through a creation/redemption process, which is initiated by a Member. As more fully described below, the purposes of the proposed rule change are to: (a) Discontinue the current practice of netting of ETF transactions prior to entering the Corporation's Accounting Operation in order to: (1) Harmonize ETF processing with that for other transaction types and (2) better facilitate Members' internal reconciliation processes, and (b) make certain technical corrections and clarifications to the Rules text with respect to current ETF processing.
NSCC's index receipt processing supports: (a) The establishment of index receipt units (creation), whereby a Member will deliver the underlying component securities or cash to the index receipt agent and receive index receipts, and (b) the redemption of index receipt units whereby a Member will deliver the index receipts and receive the underlying components or cash. NSCC facilitates the processing of these transactions as set forth below.
NSCC's process for handling of index receipt transactions is set forth in Procedure II, Section G. On the day before trade date (T-1), an index receipt agent transmits files to NSCC which contain information regarding the underlying composition of index receipts for creates and redeems occurring the next business day. That evening, NSCC compiles the information and provides the respective Members with a portfolio composition report/file that lists the composition of index receipts eligible for processing. The file displays the proportionate amount of underlying components or cash
Pursuant to the proposed Rule change, creation/redemption index receipt activity will no longer be netted prior to the general netting associated with NSCC's Accounting Operation, and thus will not appear on the Index Receipt Detail Report as netted, but will be reported in gross. The discontinuation of this "pre-netting" practice will harmonize NSCC's processing for ETFs with the processing of other transactions that enter the Accounting Operation which are not netted prior to entering the Accounting Operation. In addition, the reporting of the underlying components for creations and redemptions in gross will better facilitate Members' internal
In addition, NSCC proposes certain technical corrections and clarifications to the Section G of Procedure II, including to:
(a) Highlight the distinction between cash used as the sole underlying component versus as a partial replacement for underlying components,
(b) Indicate, consistent with the change to eliminate the "pre-net" of index receipts, that the Index Receipt Detail Report will report securities components for a given index receipt transaction in gross,
(c) Make a correction to reflect that the Corporation reports to Members on the Index Receipt Detail Report the details of the creations and redemptions submitted on T rather than T+1,
(d) Clarify that the Index Receipt Detail Report also shows the quantity of index receipt shares associated with the current creation and redemption activity, and
(e) Delete an incorrect reference that the Index Receipt Detail Report provides the total quantity of securities to be delivered and received on Settlement Date.
NSCC proposes to implement the changes set forth in this filing in the third quarter of 2012. Members will be advised of the implementation date through the issuance of an NSCC Important Notice.
The proposed rule change facilitates the prompt and accurate clearance and settlement of securities transactions by harmonizing the processing of creates and redeems of index receipts with other NSCC activity and enhancing Members' abilities to reconcile such activity, as described above; and is therefore consistent with the requirements of the Act and the rules and regulations thereunder applicable to NSCC. The proposed rule change is consistent with the Principles for Financial Market Infrastructures as it promotes clarity in the Rules with respect to the reporting of contracts and input into the Corporation's Accounting Operation.
NSCC does not believe that the proposed rule change will have any impact, or impose any burden, on competition.
Written comments relating to the proposed rule change have not yet been solicited or received. NSCC will notify the Commission of any written comments received by NSCC.
The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(iii)
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:
* Use the Commission's Internet comment form (
* Send an email to
* Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NSCC-2012-07 and should be submitted on or before October 10, 2012.