Daily Rules, Proposed Rules, and Notices of the Federal Government
The proposed rule change will amend Rule 50 of NSCC's Rules and Procedures to eliminate the use of a default pricing matrix to assign values to certain items transferred through NSCC's Automated Customer Account Transfer Service ("ACATS").
ACATS enables NSCC Members to effect automated transfers of customer accounts among themselves.
For items transferred through ACATS that are not eligible to be processed through NSCC's Continuous Net Settlement ("CNS") system
Each item transferred through ACATS must be assigned a market value in order to calculate the Incentive Charge. CNS-eligible items being transferred through ACATS are assigned a market value through the CNS system. Non-CNS eligible items, however, are assigned a market value pursuant to NSCC Rule 50, which calls for a market value based on either (i) the price obtained from a pricing source, if available or, if a pricing source is not available, (ii) the greater of (a) the price in U.S. dollars assigned by the Delivering Member ("Submitter's Value"), which, in most cases, must be the current market value of the item,
It has been observed that the default pricing matrix may, in some cases, overvalue items being transferred through ACATS. When this occurs, on ACATS settlement date the Delivering Member will be debited an Incentive Charge based on a higher value than the actual value of the item being transferred. Delivering Members will not receive the offset for this Incentive Charge until they deliver the related ACATS item. Therefore, a Delivering Member that does not deliver the ACATS item on ACATS settlement date will be required to pay the Incentive Charge associated with that item. If the default pricing matrix has overvalued an ACATS Incentive Charge, a Delivering Member that has failed to deliver the item will be faced with an unexpected inflated settlement charge on ACATS settlement date.
In order to reduce the risk of overcharging a Delivering Member, NSCC is proposing a rule change that will require NSCC to assign the Submitter's Value to items when the system cannot otherwise find a price for the security, thereby eliminating the use of the ACATS default pricing matrix altogether. Under the proposed rule change, in the case of non-CNS eligible items transferred through ACATS, NSCC will assign a market value to those items as either (i) the price obtained from a pricing source, if available or, if a pricing source is not available, the assigned market value will be (ii) the price in U.S. dollars assigned by the Delivering Member (
According to NSCC, this proposed rule change will reduce the risk that a non-CNS eligible item transferred through ACATS is assigned an inflated value based on its asset category, as it will require that the market value of these items be obtained either from a pricing source or from the Delivering Member.
Section 19(b)(2)(C) of the Act
The Commission concludes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to NSCC. The proposed rule change should ensure that NSCC members will no longer be surprised with inflated settlement charges in connection with ACATS transfers. By allowing NSCC members to gauge their liabilities more accurately, the proposed rule change will foster the prompt and accurate clearance and settlement of security transactions, and will assure the safeguarding of securities and funds in NSCC's custody or control, or for which NSCC is responsible.
On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act, in particular with the requirements of Section 17A of the Act
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,