National Securities Clearing Corporation ("NSCC" or “the Corporation”) has filed a rule change with the Securities and Exchange Commission  ("SEC") pursuant to Section 19(b)(3)(a) of the Securities Exchange Act of 1934, which consists of modifications NSCC’s Rules and Procedures (the “Rules”).

The purpose of the proposed rule change is to modify NSCC’s rules to provide that fines may be imposed upon Members and Non-Clearing Members utilizing the Commission Settlement service, when they fail to timely pay all or part of their monthly Commission Settlement obligations to NSCC. 

Accordingly, Rule 16 (Settlement of Commissions) and Addendum P (Fine Schedule) have been modified to reflect the addition of a Commission Bill Payment Fine Schedule, listing applicable fines under the service.  In addition, Rule 16 (Settlement of Commissions) has been modified to clearly state that failure to timely pay all or part of a monthly Commission Settlement balance may result in the imposition of a fine and may subject Members/Non-Clearing Members to action by the Corporation pursuant to Rule 46 (Restriction on Access to Services) or 48 (Disciplinary Proceedings).

A copy of Addendum P has been attached for your reference.  NSCC will implement this process effective with the July 2003 Commission Settlement cycle.

The full text of the rule change (SR-NSCC-2003-17) may be obtained by visiting our web site at www.nscc.com. Written comments on the proposed rule filing may be addressed to Lisa T. Siebold, Assistant Secretary, National Securities Clearing Corporation, 55 Water Street, New York, New York 10041, and your comments will be forwarded to the SEC. 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 the above filing should be directed to Lisa Siebold at (212) 855-3206, or to the undersigned at (212) 855-3203. 

Karen L. Saperstein

Managing Director and General Counsel

Exhibit A

TEXT OF PROPOSED CHANGES TO NSCC'S RULES AND PROCEDURES

Underlined and Bolded text indicates additions to NSCC’s Rules and Procedures.

[Strikethrough and Bracketed] text indicates deletions to NSCC’s Rules and Procedures.

SETTLEMENT OF COMMISSIONS

Rule l6. All payments of commissions due on business when a principal is given up between Members and Non-Clearing Members shall be settled monthly as follows

(1)       Each Payee shall make up bills in the customary form for all commissions due on business when a principal is given up.

(2)       Each Payee shall deliver the customary commission bill to each Payer on or before the 5th day of each month if a business day; otherwise the next succeeding business day.

(3)       Each Payer shall promptly verify such bill and shall not later than l2 noon on the l0th day of each month, if a business day, otherwise on the next succeeding business day or on such other day or by such other time as the Corporation shall determine, deliver to the Corporation such information in such form as the Corporation may prescribe from time to time.

(4)       The Corporation shall upon completion of the clearance, debit and credit the respective Payers and Payees with resulting amounts plus or minus the charges for services rendered for which provision is made by the Corporation from time to time.

If, as a result of such clearance of commissions, a Non- Clearing Member shall be indebted to the Corporation, such Non- Clearing Member shall pay the amount due to the Corporation on or before the commission bill settlement date of each month determined by the Corporation. If such Non-Clearing Member shall be entitled to a credit, the Corporation shall pay the same by ACH wire transfer as soon as practicable, provided however, if a Non-Clearing Member indebted to the Corporation does not pay part or all of the amount due to the Corporation, the Corporation shall be entitled to set-off such amount against any commission bill credit to which such Non-Clearing Member is entitled.  A Member or Non-Clearing Member that fails to timely pay part or all of the amount due to the Corporation may be subject to action by the Corporation pursuant to Rule 46 or 48, which includes, but is not limited to, fines, censure or any other sanction as the Corporation deems appropriate pursuant to these Rules.

If, as a result of such clearance of commissions, a Member shall be indebted to the Corporation, or entitled to a credit, such debits and credits shall be included in the settlement of the accounts of such Member for such day as the Corporation may determine.

The Corporation shall have power to determine the amounts to be received by it in the settlement of commissions and the persons entitled thereto and any determination so made shall be final and conclusive upon all parties to the settlement.

ADDENDUM P

FINE SCHEDULE

1)         SDFS FAILURE-TO-SETTLE AND LATE ACKNOWLEDGMENT FINES

NOTES:     
 a) In addition to the fine, interest is charged to the Member, or the Settling Bank Only Member, that failed to settle for the cost of borrowing to complete settlement.

b) The number of occasions will be determined over a moving three-month period.  A Member, or a Settling Bank Only Member, that exceeds four failure-to-settle occasions in a three-month period will be subject to further fees and/or other actions at the Corporation’s discretion after consultation between the Member, or the Settling Bank Only Member, and the Corporation.

c) If the Corporation determines that it had significantly affected a Member’s, or a Settling Bank Only Member’s, ability to settle (because of a Corporation system delay, for example), the Corporation may determine to waive failure-to-settle fines for that occurrence.

2)         Failure to notify and supply required data as provided for under these Rules & Procedures (other than as provided in items one, three, [and] four and five of this addendum):  Each single offense, $5,000.00 fine.

3)         Late Satisfaction of Clearing Fund Deficiency Call ^[1]

* First occasions result in a warning letter issued to the Member.

    4)       Requests For Information ^[2]

* First occasions result in a warning letter issued to the Member.  Warning Letters for first occasion violations will be discontinued one year after implementation of this schedule, at which time each violation will be subject to imposition of a fine.

5)         SETTLEMENT OF COMMISSIONS (pursuant to Rule 16)²

NOTES:         1) First occasions result in a warning letter issued to the Member/Non-Clearing Member.

2) In addition to the fine, unpaid amounts will incur interest charges until paid.