A#	5926
P&S #:	5496
DATE:	November 2, 2004
TO:	ALL PARTICIPANTS
ATTENTION:	MANAGING PARTNER/OFFICER; OPERATIONS PARTNER/OFFICER; MANAGER P&S DEPARTMENT; MANAGER DATA PROCESSING DEPARTMENT
FROM:	Elena Staloff & Margaret Koontz
SUBJECT:	NSCC to Begin Reporting Section 31 Don't Count Values on NYSE, AMEX and Regional Intra-day Machine Readable Output

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Under Section 31of the Securities and Exchange Act of 1934, the U.S. Securities and Exchange Commission (SEC) collects fees based on the aggregate amount of specified sale transactions (“covered sales”) executed on a national securities exchange (“covered exchange”) or through a national securities association (“covered association”).  The SEC uses these fees, commonly referred to as Section 31 fees, to recover the costs to the government of supervising and regulating securities markets and professionals.  Exempt from Section 31 fees, as specified in Section 31, are debt securities, reversals, creations and redemptions of Exchange Traded Fund (ETFs) shares and recognized riskless principal sales.

In the past, the covered exchanges or their members calculated Section 31 fees using various methods.  In July 2004, the SEC adopted changes to Section 31 to standardize the calculation of these fees. These changes require the registered clearing corporations to provide clearing data to the covered exchanges to serve as the basis for calculating Section 31 fees.     

On or about January 21, 2005 [1] , NSCC will implement an automated system for reporting covered sales on a daily basis to the covered exchanges based on clearing data adjusted to exclude records with omnibus accounts on the sell side, reversals and step outs.  To facilitate the calculation of covered sales, the covered exchanges have agreed to provide NSCC with Don’t Count values to designate trades that should be omitted from their Section 31 covered sales calculations.  The Don’t Count values allow covered exchanges to correctly account for riskless principal transactions, step outs, exempt securities and other types of unique trade reporting. 

Also in January, NSCC will begin reporting Don’t Count values in the Reversal/Correction field on the 400-byte NYSE, AMEX and Regional universal machine readable output (MRO) provided that it has received these values from the covered exchanges.  Participants can use the Don’t Count information in the MRO output to assist in reconciling/balancing their regulatory fees (formerly known as Section 31 fees) against their bills from the covered exchanges.  Participants may have to modify their systems to recognize the Don’t Count values in the Reversal/Correction field. 

Participants should note that trades designated with a Don’t Count value will be excluded from Section 31 obligations.  The three types of Don’t Count values follow:

D = Don’t Count Trade
K = Don’t Count Reversal Trade
L = Don’t Count Correction Trade

Machine Readable Intra-day Output

AutoRoute ID #	File Name
02013036	NYSE Intra-day Output
02013037	AMEX Intra-day Output
02143125	Regional Intra-day Output

The NYSE, AMEX and Regional 400-byte unified MRO will be expanded to include Don’t Count, Don’t Count Reversal and Don’t Count Correction values in the Reversal Correction field.  Participants can use these new values to reconcile their Section 31 obligations to the covered exchanges’ bills.

AutoRoute ID	File Name	Length	Position	Description	Comments
02013036 02013037 02143125	NYSE, AMEX and Regional formats.	1	338	Reversal/ Correction	Blank = Original Trade C = Corrected by Market N = Corrected by NSCC R = Reversed by Market S= Reversed by NSCC NEW VALUES D = Don’t Count Trade K = Don’t Count Reversal Trade L = Don’t Count Correction Trade

Additional correspondence, with a specific implementation date, will be distributed at a later date.  If you have additional questions, please contact your Relationship Manager or email estaloff@dtcc.com and mkoontz@dtcc.com.