Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change Relating to a Modification to its Procedures to Allow the Processing of Voluntary Reorganizations with Protect Periods of Three Days or Greater

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36258; File No. SR-NSCC-95-09]

Self-Regulatory Organizations; National Securities Clearing

Corporation; Order Approving Proposed Rule Change Relating to a

Modification to its Procedures to Allow the Processing of Voluntary

Reorganizations with Protect Periods of Three Days or Greater

September 21, 1995.

On July 27, 1995, National Securities Clearing Corporation

(``NSCC'') filed a proposed rule change (File No. SR-NSCC-95-09) with

the Securities and Exchange Commission (``Commission'') pursuant to

Section 19(b) of the Securities Exchange Act of 1934 (``Act'').\1\

Notice of the proposal was published in the Federal Register on August

22, 1995, to solicit comments from interested persons.\2\ The

Commission did not receive any comments. As discussed below, this order

approves the proposed rule change.

\1\ 15 U.S.C. 78s(b) (1988).

\2\ Securities Exchange Act Release No. 36097 (August 11, 1995),

60 FR 43629.

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I. Description

The proposed rule change modifies NSCC's Procedures, Section

VII.H.4(b), to allow the processing of voluntary reorganizations (i.e.,

tender or exchange offers) with protect periods \3\ of three days or

greater through NSCC's Continuous Net Settlement (``CNS'') system.

Previously, only voluntary reorganizations with protect periods of five

days or greater were eligible for NSCC's CNS system. All other

voluntary reorganizations with protect periods of four days or less had

to be settled on a trade by trade basis through NSCC's balance order

system. On June 7, 1995, Rule 15c6-1 \4\ adopted under the Act became

effective requiring that most broker-dealer securities transactions be

settled in three business days (``T+3''). Since the implementation of

T+3, some voluntary reorganizations have had protect periods of three

days rather than five days.

\3\ A protect period is generally understood to mean the amount

of time after the expiration of a tender or exchange offer that the

owner or record holder that has elected to participate in the offer

has to submit the shares to the tender agent.

\4\ 17 CFR 240.15c6-1 (1994).

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II. Discussion

The Commission believes that NSCC's proposed rule change is

consistent with Section 17A of the Act.\5\ Specifically, Section

17A(b)(3)(F) \6\ states that the

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rules of a clearing agency must be designed to promote the prompt and

accurate clearance and settlement of securities transactions.

\5\ 15 U.S.C. 78q-1 (1988).

\6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).

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Currently, if an entity making a tender or exchange offer wants a

protect period of three days, the entire reorganization must be settled

on a trade-by-trade basis. By including these transactions within the

CNS system, the rule change enhances the settlement procedure for such

trades. Thus, the rule promotes the prompt and accurate clearance and

settlement of securities transactions. Further, by including

reorganizations with protect periods of three days within the CNS

system, the proposed rule change may encourage the use of three day

protect periods.\7\ By limiting the time the tender or exchange offer

remains unsettled, the goal of risk reduction contemplated by Rule

15c6-1 is furthered.

\7\ Buyers sometimes purchase securities on the last day of a

tender offer and tender their shares that day. Such purchasers can

not deliver the securities until their purchase transactions settle.

Before the implementation of T+3, a three day protect period was not

practical because purchasers would not receive their securities

until the fifth business day after the trade date.

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III. Conclusion

For the reasons stated above, the Commission finds that NSCC's

proposal is consistent with Section 17A of the Act.\8\

\8\ 15 U.S.C. 78q-1 (1988).

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It is therefore ordered, pursuant to Section 19(b)(2) of the

Act,\9\ that the proposed rule change (File No. SR-NSCC-95-09) be and

hereby is approved.

\9\ 15 U.S.C. 78s(b)(2) (1988).

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For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\10\

\10\ 17 CFR 200.30(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-24031 Filed 9-27-95; 8:45 am]

BILLING CODE 8010-01-M