(e) No change.
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Board 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 Board has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.
Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
(a) The clearance of institutional customer transactions is accomplished today in large part through the use of automated confirmation/acknowledgment systems operated by clearing agencies registered with the Commission ("registered clearing agencies"). These systems have provided substantial efficiencies and cost savings by ensuring timely settlement and eliminating some of the time consuming and expensive manual processing associated with paper confirmations. The Board views these systems as a critical part of the national system of clearance and settlement mandated by Section 17A of the Act.
Board rule G-15(d)(ii) requires that customer transactions in municipal securities which are effected on delivery versus payment or receipt versus payment ("DVP/RVP") settlement basis must, if eligible for processing in an automated confirmation/acknowledgment system, be confirmed and acknowledged through such a system. The rule currently specifies that the confirmation/acknowledgment system must be one operated by a registered securities clearing agency. Other self-regulatory organizations ("SROs") in the securities market also have similar rules requiring confirmation/acknowledgment through registered clearing agencies. Based on a request from a private vendor, it appears some private vendors, who are not registered securities clearing agencies, nevertheless may wish to market confirmation/acknowledgment services to brokers, dealers and municipal securities dealers.
The Board believes that competition among confirmation/acknowledgment service providers is a desirable goal and ultimately will make the clearance and settlement process more efficient and responsive to the needs of the securities industry. At the same time, the Board believes that, if private vendors are to provide a clearance or settlement service that previously has been provided only by registered clearing agencies under supervision of the Commission, appropriate safeguards must be provided to assure that the systems offered by private vendors are reliable and are effectively integrated into the national system of clearance and settlement.
The proposed rule change would allow brokers, dealers and municipal securities dealers to comply with rule G-15(d)(ii) through the use of confirmation/acknowledgment systems operated by non-registered "qualified vendors." To become a "qualified vendor" of confirmation/acknowledgment services, an entity would have to:
For each transaction that it processes in its confirmation/acknowledgment system, deliver a trade record to a registered clearing agency, obtain a control number, cross reference the control number to the confirmation/acknowledgment, electronically deliver any acknowledgment received from a customer or a customer's agent to the registered clearing agency and include such control number when delivering acknowledgments to the clearing agency.
Certify to the integrity and capacity of the electronic confirmation/acknowledgment system and that it will maintain monitoring and contingency procedures.
On an annual basis, submit an independent auditor's report to the Commission staff which the Commission staff does not object to.
Notify the Commission staff in writing of any material changes in the systems by which it offers electronic confirmation/acknowledgment services.
Submit to the Board copies of any of the above filings with the Commission staff within ten business days.
Supply supplemental information regarding its confirmation/acknowledgment services, as requested by the Board or the Commission staff.
The Board believes that these requirements for a vendor to become and remain qualified are necessary to assure that the confirmation/acknowledgment services used in the securities industry are reliable and are integrated into the national system of clearance and settlement. The proposed rule change is responsive to the Commission staff's request (contained in a letter, dated November 25, 1997 from Mr. Richard R. Lindsey, Director, Division of Market Regulation) that SROs consider adoption of uniform rule amendments which allow vendors to provide confirmation/acknowledgment services under circumstances similar to those specified in the proposed rule change.
(b) As set forth in Section 15B(b)(2)(C) of the Act,
the Board has the authority to adopt rules to "foster cooperation and coordination with persons engaged in . . . clearing, settling, processing information with respect to, and facilitating transactions in municipal securities."
The Board's role in this area is given additional direction by Section 17A of the Act,
which mandates the creation of a national system of automated clearance and settlement of securities transactions. Section 17A expressly includes municipal securities within the stated objectives.
Self-Regulatory Organization's Statement on Burden on Competition
The Board does not believe that the proposed rule change will have any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act because it applies equally to all brokers, dealers and municipal securities dealers involved in DVP/RVP customer transactions.
Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others
No written comments were solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Within thirty-five days of the date of publication of this notice in the
or within such longer period (i) as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:
(A) by order approve such proposed rule change or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 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 inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such filing also will be available for inspection and copying at the principal office of the
Board. All submissions should refer to File No. SR-MSRB-98-06 and should be submitted by [insert date 21 days from the date of publication in the Federal Register].
For the Commission by the Division of Market Regulation, pursuant to delegated authority.
Jonathan G. Katz
SEC News Digest
Self Regulatory Organizations
Approval of Proposed Rule Change
The Municipal Securities Rulemaking Board filed a proposed rule change (File No. SR-MSRB-98-06) under Section 19(b)(1) of the Exchange Act that will amend MSRB Rule G-15 to permit electronic confirmation/affirmation of customer transactions by "qualified vendors."
Publication of the proposal is expected to be made in the
during the week of April, 13, 1998.
(Release No. 34-39833)
15 U.S.C. 78s(b)(1).
Italicizing indicates new language; [brackets] indicate deletions.
At this time, the Commission staff intends to indicate that a vendor's initial Auditor's Report is not unacceptable and that the vendor therefore is a qualified vendor for purposes of Rule G-15 by issuing a letter to the vendor stating that it will not recommend enforcement action against any of the Board's member organizations that elect to use the confirmation/affirmation services of the vendor.
15 U.S.C. 78q-1.
The Commission notes that the proposed rule change addresses the concerns raised by the Petition for Rulemaking filed by Thomson Financial Services ("Thomson") with the Commission in December 1996. Thus, the Commission will respond to Thomson's petition after the final disposition of the proposed rule change.
15 U.S.C. 78o-4(b)(2)(C).
15 U.S.C. 78q-1.
17 CFR 200.30-3(a)(12).