[Federal Register: March 6, 2008 (Volume 73, Number 45)]
[Notices]
[Page 12242-12244]
[DOCID:fr06mr08-120]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57404; File No. SR-NSCC-2007-06]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Order Approving Proposed Rule Change To Modify the Hearing
Procedures Afforded to Members and Applicants for Membership and
Harmonize Them With Similar Rules of Its Affiliates

February 29, 2008.

I. Introduction

    On April 30, 2007, the National Securities Clearing Corporation
(``NSCC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-NSCC-2007-06 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\
The proposed rule change was published for comment in the Federal
Register on December 6, 2007.\2\ No comment letters were received on
the proposal. This order approves the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 56865 (Nov. 29, 2007),
72 FR 68930.
---------------------------------------------------------------------------

II. Description

    The proposed rule change (1) modifies NSCC's rules regarding
hearing procedures afforded to members and applicants for membership
and (2) where practicable or beneficial,

harmonizes such rules with similar rules of NSCC's affiliates, The
Depository Trust Company (``DTC'') and the Fixed Income Clearing
Corporation (``FICC'').\3\
---------------------------------------------------------------------------

    \3\ DTC and FICC have filed similar proposed rule changes.
Securities Exchange Act Release No. 56863 (Nov. 29, 2007), 72 FR
68920, Securities Exchange Act Release No. 57406 (Feb. 29, 2008)
[SR-DTC-2007-06]. Securities Exchange Act Release No. 56864 (Nov.
29, 2007), 72 FR 68922, Securities Exchange Act Release No. 57405
(Feb. 29, 2008) [SR-FICC-2007-06].
---------------------------------------------------------------------------

A. Minor Rule Violation Plan

    In 1984, the Commission adopted amendments to Rule 19d-1(c) under
the Act \4\ that allow self-regulatory organizations with Commission
approval to adopt plans for the disposition of minor violations of
rules.\5\
---------------------------------------------------------------------------

    \4\ 17 CFR 240.19d-1(c).
    \5\ Securities Exchange Act Release No. 21013 (June 1, 1984), 49
FR 23828 (June 8, 1984) [File No. S7-983A].
---------------------------------------------------------------------------

    Currently under NSCC's rules, a member or applicant subject to
disciplinary action has a right to a hearing before a panel comprised
of members of NSCC's Credit and Market Risk Management Committee
regardless of the severity of the action for which the member or
applicant is being disciplined.\6\ Because some rule violations are not
sufficiently serious to merit Board review, NSCC is adopting a Minor
Rule Violation Plan within the meaning of Rule 19d-1(c)(2) under the
Act for those rule violations NSCC deems minor. Consistent with Rule
19d-1(c)(2) under the Act, NSCC is designating as minor rule violations
those rule violations for which a fine may be assessed in an amount not
to exceed $5,000. If a member disputes a fine imposed by NSCC by filing
a written request for hearing and a written statement setting forth,
among other things, the action or proposed action with respect to which
a hearing is being requested and the basis for the objection to such
action, NSCC management would have the authority to waive the fine.
NSCC management would notify the Board of Directors or a Committee
authorized by the Board of Directors of its determination to waive the
fine and would provide the reasons for the waiver. The Board or
Committee could in its discretion decide to reinstate any fine waived
by NSCC management. If NSCC management were not to waive the fine, the
member could appeal the decision to a panel comprised of NSCC officers
(``Minor Rule Violation Panel'').
---------------------------------------------------------------------------

    \6\ If the action or proposed action of NSCC as to which the
hearing relates has been taken or has been proposed to be taken by
the Credit and Market Risk Management Committee, the members of the
panel shall be drawn from members of the Executive Committee of
NSCC's Board of Directors. See Rule 37 (Hearing Procedures), Section
2.
---------------------------------------------------------------------------

B. Hearings for All Other Violations and Minor Rule Violation Appeals

    For matters involving (1) an alleged violation of an NSCC rule for
which a fine in an amount of over $5,000 is assessed, (2) applicants
for membership, (3) other disciplinary actions to which the Minor Rule
Violation Plan would not apply, or (4) appeals from a Minor Rule
Violation Panel decision adverse to a member or applicant, the member
or applicant is entitled to a hearing before a panel comprised of three
individuals of the NSCC Board of Directors or their designees appointed
by the Chairman of the NSCC Board. Decisions of the panel are final;
however, the full Board of Directors retains the right to modify any
sanction or reverse any decision of the panel that is adverse to the
member or applicant.
    Currently with respect to hearings, a member or applicant is
afforded the opportunity to be heard and may be represented by counsel
if desired. A record is kept of the hearing, and at the discretion of
the panel, the associated cost may be charged in whole or part to the
member or applicant in the event that the decision is adverse to the
member or applicant. The member or applicant is advised of the panel's
decision within ten business days after the conclusion of the hearing.
These procedures would also apply with respect to the Minor Rule
Violation Plan.

C. Administrative Changes: Uniformity of Time Frames

    The rule changes will implement uniform time periods among NSCC,
DTC, and FICC governing actions a member or applicant would be required
to take in order to request a hearing.\7\ Under the rule change, a
member or applicant has five business days, or two business days in the
case of a summary action taken against the member or applicant pursuant
to Rule 46,\8\ from the date on which NSCC first informs it of a
sanction or a denial of membership in which to request a hearing.
---------------------------------------------------------------------------

    \7\ DTC rules do not impose an accelerated deadline for an
Interested Person to request a hearing in the case of summary action
taken against the Interested Person. A summary action is an action
taken prior to a hearing to determine the propriety of the action.
    \8\ Examples of a summary action are a suspension of a member or
restriction of a member's access to services as described in Rule 46
(``Restrictions on Access to Services'').
---------------------------------------------------------------------------

    Within seven business days, or three business days in the case of a
summary action taken against the member or applicant, after filing a
request for a hearing with NSCC, the member or applicant is required to
submit to NSCC a clear and concise written statement setting forth the
action or proposed action of NSCC with respect to which the hearing is
requested, the basis for objection to such action, whether the member
or applicant intends to attend the hearing, and whether the member or
applicant chooses to be represented by counsel at the hearing.

D. Pending Changes From NSCC Rule Filing SR-NSCC-2006-17

    The current time frame for an applicant or member to request a
hearing appears in the following rules: Rule 2 (``Members''), Rule 3
(``Lists to Be Maintained''), Rule 51 (``Fund Member''), Rule 54
(``Settling Bank Only Members''), Rule 56 (``Insurance Carrier/
Retirement Services Member''), and Rule 60 (``TPA Member'').\9\ Each of
those rules is pending deletion as part of rule filing SR-NSCC-2006-17.
Accordingly, since this filing is approved prior to the approval of SR-
NSCC-2006-17, the time frame for an applicant or member to request a
hearing that appears in those rules is also deleted.
---------------------------------------------------------------------------

    \9\ The current time frame for an applicant or member to request
a hearing also appears in Rule 45 (``Notices''). This rule filing
deletes that reference also.
---------------------------------------------------------------------------

III. Discussion

    The Commission finds 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. In particular,
the Commission believes the proposal is consistent with the
requirements of Section 17A(b)(3)(F),\10\ which, among other things,
requires that the rules of a clearing agency are designed to remove
impediments to and perfect the mechanisms of a national system for the
prompt and accurate clearance and settlement of securities transactions
and with the requirements of Section 17A(b)(3)(H) \11\ which, among
other things, requires that the rules of a clearing agency provide a
fair procedure with respect to the disciplining of participants and the
denial of participation to any person seeking to be a participant. The
Commission finds that the proposed rule change, which harmonizes NSCC's
hearing procedure rules with those of DTC and FICC and which adopts a
Minor Rule Violation Plan, is consistent with those statutory
obligations.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
    \11\ 15 U.S.C. 78q-1(b)(3)(H).

---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act \12\ and the
rules and regulations thereunder.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (File No. SR-NSCC-2007-06) be,
and hereby is, approved.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ In approving the proposed rule change, the Commission
considered the proposal's impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E8-4340 Filed 3-5-08; 8:45 am]

BILLING CODE 8011-01-P