Question from StopFTDs, What are the NSCC rules and procedures on failures to deliver and their legal basis in the USA?
Answer from AI:
The National Securities Clearing Corporation (NSCC) is a subsidiary of the Depository Trust & Clearing Corporation (DTCC) that provides clearing, settlement, risk management, central counterparty services, and a guarantee of completion for certain transactions for virtually all broker-to-broker trades involving equities, corporate and municipal debt, American depositary receipts, exchange-traded funds, and unit investment trusts.
NSCC Rules on Failures to Deliver
The NSCC has specific rules and procedures in place to handle failures to deliver. These rules are outlined in the NSCC’s Rulebook, specifically in Procedure VII (CNS Accounting Operation) and Procedure X (Buy-In Procedures and Close-Out Procedures).
- Procedure VII (CNS Accounting Operation): This procedure outlines the Continuous Net Settlement (CNS) system, which is designed to reduce the number of securities deliveries between members. If a member fails to deliver securities, the NSCC will attempt to redeliver the securities to the member who was supposed to receive them.
- Procedure X (Buy-In Procedures and Close-Out Procedures): If a member still fails to deliver securities after the CNS process, the NSCC may initiate a buy-in procedure, where it purchases the securities on the open market to fulfill the delivery obligation. If the buy-in procedure is not successful, the NSCC may initiate a close-out procedure, where it cancels the original transaction and assesses a penalty against the member who failed to deliver.
Legal Basis for NSCC Rules
The legal basis for the NSCC’s rules and procedures comes from the Securities Exchange Act of 1934, specifically Section 17A. This section gives the Securities and Exchange Commission (SEC) the authority to regulate clearing agencies, and it requires these agencies to have rules in place to protect investors and the public interest. The NSCC’s rules are approved by the SEC and are designed to meet these requirements.
Consulting a Legal Professional
While this information provides a general overview of the NSCC’s rules and procedures on failures to deliver, the specifics can be complex and may vary depending on the circumstances. Therefore, it’s recommended that individuals or entities facing a failure to deliver situation consult with a legal professional who specializes in securities law for personalized advice.