A 5127 - July 12, 2000

A 5127 - July 12, 2000
P&S 4688

TO: ALL PARTICIPANTS

ATTENTION: MANAGING PARTNER/OFFICER, OPERATIONS PARTNER/OFFICER

SUBJECT: PROPOSED RULE CHANGE - EXCEPTION PROCESSING

On July 11, 2000, National Securities Clearing Corporation ("NSCC" or the "Corporation") filed a rule change with the Securities and Exchange Commission ("SEC"), pursuant to Section 19(b)(2) of the Securities Exchange Act of 1934, to permit the Corporation to keep otherwise ineligible securities in the respective CNS, Balance Order or other related System in order to facilitate their prompt and accurate clearance and settlement.

NSCC’s Rules permit the Corporation to continue to process certain securities undergoing reorganization or issuing dividends and specify how the Corporation shall handle those issues. However, not all types of reorganizations or dividends fit the procedures specifically set forth in the Rules. Ordinarily, this would require that the affected security be exited from the applicable System. When the issue is widely traded, this poses a burden on the financial investment community.

The adoption of this rule change will allow NSCC the flexibility to process in the CNS, Balance Order or other related System, on an exception basis, securities that would not otherwise have been eligible for processing, to the extent NSCC has the capability to do so. The rule change provides that in such circumstance, NSCC will issue a notice setting forth how NSCC will process the security. The rule further provides that the procedures set forth in the notice will have the same effect as if they were set forth in the Rules of NSCC.

Members will be notified by Important Notice of the approval of the proposed rule change. The text of the proposed rule change is attached to this Important Notice.

Written comments on the proposed rule filing may be addressed to David F. Hoyt, Assistant Secretary, National Securities Clearing Corporation, 55 Water Street, New York, New York 10041, and your comments will be forwarded to the Securities and Exchange Commission. You may also address your written comments to the Secretary of the Commission, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, D.C. 20549. We request that you provide NSCC with a copy of your comments.

Questions regarding this Notice should be directed to Kevin A. Brennan, Director, Operations, at 212-412-8662. Questions regarding the rule filing should be directed to Richard J. Paley, Associate Counsel, at (212) 855-3205.

Karen L. Saperstein
Managing Director
and Secretary

ATTACHMENT

Underlined, boldface text indicates additions to NSCC's Rules.

[Bracketed, boldface] text indicates deletions to NSCC’s Rules.

EXCEPTION PROCESSING

Rule 13. [(RULE NUMBER RESERVED FOR FUTURE USE)] Notwithstanding any provisions in these Rules to the contrary, in the event that a security may not otherwise be eligible for processing through the CNS, Balance Order or other System, the Corporation, in its sole discretion, may adopt, from time to time, procedures deemed appropriate for the processing of such security. Any such procedures shall be promptly communicated to Members by the Corporation and the Members shall be bound by the procedures set forth in such notice as fully as though such procedures were now a part of the Rules of the Corporation. Each such notice shall be effective only for the security covered therein.