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89-4 Proposed Mandatory Participation by Clearing Members in Reconfirmation and Pricing Services (RECAPS); Last Date for Comment: February 3, 1989

SUGGESTED ROUTING*

Senior Management
Internal Audit
Legal & Compliance
Operations
Registration
Systems

*These are suggested departments only. Others may be appropriate for your firm.

REQUEST FOR COMMENTS

EXECUTIVE SUMMARY

The NASD is requesting comment on a proposed new Section 69 to the Uniform Practice Code. The new section would require that all NASD members that are participants in a registered clearing agency for purposes of clearing OTC transactions must participate in fail reconfirmation and pricing services if offered by the respective clearing agency of which they are a member.

BACKGROUND

In June 1987, the National Securities Clearing Corporation (NSCC), at the request of various industry groups, offered to its participants a new service, Re-Confirmation and Pricing Service (RECAPS). The service allowed NSCC participants the ability to reconfirm open aged fails, reprice such fails to the current market and, where possible, net the reconfirmed and repriced fails. The original service limited its scope to aged municipal bond fails.

Since that time, RECAPS has been expanded to allow the submission of over-the-counter equity securities and zero-coupon instruments (CATS/TIGRS). Aged fails in these eligible securities may be submitted for RECAPS through NSCC even though the original settlement occurred "ex-clearing." CNS-eligible recompared fails are forwarded to CNS for processing and settlement; non-CNS-eligible issues are netted, where applicable, and balance orders generated. RECAPS now is offered solely to NSCC participants, and its usage is on a voluntary basis.

The NASD's Uniform Practice Committee, upon the recommendation of its Operations Sub-Committee, reviewed NSCC's enhanced RECAPS and determined that such reconfirmation and pricing services offer major operational and financial benefits to their users with minimal additional staffing requirements. Specifically, fail updating and repricing (to the current market value) affords protection against market fluctuations.

Additionally, original contractual commitments are either affirmed or identified as problem items needing more attention. Also of importance is the establishment of a new settlement date that alleviates potential capital charges pursuant to the uniform net capital rule as they apply to aged fails.

EXPLANATION

The proposed new Section 69 of the Uniform Practice Code would require members who are participants in a registered clearing agency offering reconfirmation and pricing services to submit for RECAPS processing their aged fails in eligible securities that are subject to the provisions of the Uniform Practice Code. Further, Section 59 will be amended to provide protection for members against potential liability or losses that might arise when a buy-in is pending during a RECAPS processing cycle.

The NASD encourages all members and other interested parties to comment on the proposed new Section 69 of the Uniform Practice Code. Comments should be directed to:

Mr. Lynn Nellius, Secretary
National Association of Securities Dealers, Inc.
1735 K Street, NW
Washington, DC 20006-1506

Questions concerning this notice can be directed to Donald J. Catapano, NASD Uniform Practice/TARS at (212) 858-4350.

PROPOSED NEW SECTION TO THE UNIFORM PRACTICE CODE

Reconfirmation and Pricing Service Participation

Section 69

Each member or its agent that is a participant in a registered clearing agency, for purposes of clearing over-the-counter securities transactions, shall participate in fail reconfirmation and pricing services when offered.


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