NSCC Proposed Rule Change: File No. SR-NSCC-97-10

File No. SR-NSCC-97-10

Securities and Exchange Commission

Washington, D.C. 20549

______________________________

Form 19b-4

Proposed Rule Change
By

NATIONAL SECURITIES CLEARING CORPORATION

Pursuant to Rule 19b-4 under the

Securities Exchange Act of 1934

1. Text of Proposed Rule Change.

(a) The text of the proposed rule change is attached hereto as Exhibit A. It consists of modifications to NSCC’s Rules and Procedures to establish a new category of Fund Member for registered Investment Advisers.

(b) Not applicable.

2. Procedures of the Self-Regulatory Organization.

(a) The proposed rule change has been approved by the Board of Directors of NSCC.

(b) Contact regarding questions and comments:

Richard J. Paley (212) 412-8874.

3. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change.

(a) The purpose of the proposed rule change is to permit Investment Advisers registered with the Securities and Exchange Commission (the "Commission") to become Fund Members in NSCC’s Mutual Fund Services ("MFS").

Currently, NSCC’s Rules and Procedures permit two categories of Fund Member: (1) Principal Underwriters, or the fund distributors of a mutual fund who are registered broker-dealers under the Securities Exchange Act of 1934 (the "Exchange Act"); and, (2) Investment Companies, or the mutual funds themselves who are registered under the Investment Company Act of 1940.

Although mutual funds which have no broker-dealer distributor may join MFS as individual Fund Members, it can be a cumbersome and inefficient process. For example, families of these self-distributed no load funds may only join MFS through each of their separate investment companies. To take full advantage of the benefits of a single membership--such as net settlement, reduced costs, operational efficiencies and oversight by a single board of directors--these funds prefer to join MFS through an Investment Adviser.

Accordingly, we are proposing to expand the Fund Member category to include registered Investment Advisers, as defined in Section 202(a)(11) of the Investment Advisers Act of 1940 (the "Advisers Act"). To be eligible for membership in MFS, a non-guaranteed service of NSCC, Investment Advisers must be registered with the Commission. In addition to and apart from the registration requirement, the proposed Procedures require an Investment Adviser applicant to have a minimum of $25 million in assets under management and $100,000 in total net worth.

We are also making a technical amendment to conform our Procedures with our Rules. Specifically, Procedure Addendum I(B)(2) sets forth the standards of financial responsibility and operational capability for the Investment Company Fund Member applicant. Since Rule 51's list of eligible Fund Members inadvertently omits Investment Companies, Rule 51, Section 1 will be amended to include this existing category of Fund Member.

(b) The proposed rule change is consistent with the requirements of the Exchange Act, and the rules and regulations thereunder, since it will facilitate the prompt and accurate clearance and settlement of securities transactions and, in general, protect investors and the public interest.

4. Self-Regulatory Organization's Statement on Burden on Competition.

NSCC does not believe that the proposed rule change will have an impact on or impose a burden on competition.

5. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others.

No written comments relating to the proposed rule change have been solicited or received. NSCC will notify the Commission of any written comments received by NSCC.

6. Extension of Time Period for Commission Action.

NSCC does not consent to an extension of the time period specified in Section 19(b)(2) of the Exchange Act for Commission action.

7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or for Accelerated Effectiveness Pursuant to Section 19(b)(2).

(a) Not applicable.

(b) Not applicable.

(d) Not applicable.

8. Proposed Rule Change Based on Rules of Another Self-Regulatory Organization or of the Commission.

The proposed rule change is not based on a rule of another self-regulatory

organization or of the Commission.

9. Exhibits.

Exhibit A - Text of the proposed rule change.

Exhibit B - Notice of the proposed rule change for publication in the Federal Register.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act, the self-regulatory organization has duly caused this filing to be signed on its behalf by the undersigned thereunto duly authorized.

NATIONAL SECURITIES CLEARING CORPORATION

BY:_________________________________________ Karen L. Saperstein

Managing Director and Deputy General Counsel

Exhibit A

Underlined, boldface text indicates additions.

[Bracketed, boldface] text indicates deletions.

Modify NSCC's Rules and Procedures as follows:

FUND MEMBER

Rule 51. SEC. 1. The Corporation shall act for those organizations, entities or persons who qualify as a Fund Member under these Rules and who apply to the Corporation to act for them, and whose applications are approved by the Corporation. A partnership, corporation or other organization, entity or person shall be qualified to become a Fund Member if:

(a) it is a P[p]rincipal U[u]underwriter as defined in Section 2(a)(29) of the Investment Company Act of 1940, as amended that is a broker/dealer registered under the Securities Exchange Act of 1934, as amended; or

(b) it is an Investment Company as defined in Section 3 of the Investment Company Act of 1940, as amended; or

(c) it is an Investment Adviser as defined in Section 202(a)(11) of the Investment Advisers Act of 1940, as amended; or

(d[b]) it is an applicant that has demonstrated to the Board of Directors that its business and capabilities are such that it could reasonably expect material benefit from direct access to the Corporation's Mutual Fund Services.

A partnership or other organization, entity or person whose application to become a Fund Member has been approved by the Corporation shall sign and deliver to the Corporation an instrument in writing whereby such applicant shall agree as provided in Section 2 of this Rule.

* * *

ADDENDUM I

STANDARDS OF FINANCIAL RESPONSIBILITY

AND OPERATIONAL CAPABILITY FOR FUND MEMBERS

The Corporation shall apply the following standards in determining the financial responsibility and operational capability of Fund Members and applicants for Mutual Fund Services membership.

I. Fund Member Standards

A. In addition to the requirements established pursuant to the provisions of Rule 51, an applicant for Mutual Fund Services Membership shall:

(1) have sufficient financial ability to meet obligations to the Corporation;

(2) have an established business history of a minimum of three years or personnel with sufficient operational background and experience to ensure the ability of the Fund Member to conduct such a business;

(3) have adequate personnel capable of handling mutual fund transactions with the Corporation and adequate physical facilities, books and records and procedures to fulfill anticipated commitments to and meet the operational requirements of the Corporation and Settling Members with necessary promptness and accuracy and to conform to any condition and requirement which the Corporation reasonably deems necessary for its protection or that of its Settling Members;

(4) not be known to be subject to any Statutory Disqualification or an order of similar effect issued by a Court or agency of competent jurisdiction; and

(5) not be known to be subject to any other action or condition the existence of which would require the applicant to be placed on surveillance by the Corporation.

B. In addition to the foregoing standards,

(1) Broker/dealer Fund/Serv applicants shall:

a.(i) have $25,000 in excess net capital over the minimum net capital requirement imposed by the Securities and Exchange Commission or such higher requirement imposed by the broker/dealer's designated examining authority, and aggregate assets under management for all investment companies registered under the Investment Company Act of 1940 for whom it distributes shares shall be at least $500,000; or

(ii) have $50,000 in excess net capital over the minimum net capital requirement imposed by the Securities and Exchange Commission or such higher requirement imposed by the broker/dealer's designated examining authority; and,

b. not be subject to reporting under Rule 17(a)(11) of the Securities and Exchange Commission; and

c. not be known to be on a "closer-than-normal" surveillance by the applicant's designated examining authority as that term is defined by the applicant's designated examining authority.

(2) A Fund Member applicant that is an Investment Company registered under the Investment Company Act of 1940 shall have a minimum of $100,000 in assets under management.
(3) A Fund Member applicant that is an Investment Adviser registered under the Investment Advisers Act of 1940 shall have a minimum of $25,000,000 in assets under management and $100,000 in total net worth.

(4[3]) All other applicants shall be required to meet financial stability and operational capability standards as are applicable to the industry in which the applicant is associated.

* * *

Exhibit B

SECURITIES AND EXCHANGE COMMISSION

(Release No. 34- ; File No. SR-NSCC-97-10)

Proposed rule change by NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") consisting of modifications to NSCC’s Rules and Procedures to establish a new category of Fund Member for registered Investment Advisers. Comments requested within days after the date of this publication.

______________________________________

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the "Act"), 15 U.S.C. 78s(b)(1), notice is hereby given that on , NSCC filed with the Securities and Exchange Commission ("Commission") the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change.

The text of the proposed rule change is attached hereto as Exhibit A. It consists of modifications to NSCC’s Rules and Procedures to establish a new category of Fund Member for registered Investment Advisers.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change.

In its filing with the Commission, NSCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NSCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change.

Accordingly, we are proposing to expand the Fund Member category to include registered Investment Advisers, as defined in Section 202(a)(11) of the Investment Advisers Act of 1940 (the "Advisers Act"). To be eligible for membership in MFS, a non-guaranteed service of NSCC, Investment Advisers must be registered with the Commission.² In addition to and apart from the registration requirement, the proposed Procedures require an Investment Adviser applicant to have a minimum of $25 million in assets under management and $100,000 in total net worth.

(b) The proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder, since it will facilitate the prompt and accurate clearance and settlement of securities transactions and, in general, protect investors and the public interest.

(B) Self-Regulatory Organization's Statement on Burden on Competition.

NSCC does not believe that the proposed rule change will have an impact on or impose a burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants, or Others.

No written comments relating to the proposed rule change have been solicited or received. NSCC will notify the Commission of any written comments received by NSCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action.

Within 35 days of the date of publication of this notice in the Federal Register or within such longer period (i) as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) by order approve such rule filing, or

(B) institute proceedings to determine whether the rule filing should be disapproved.

IV. Solicitation of Comments.

Interested persons are invited to submit written data, views and arguments concerning the foregoing. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 20549. Copies of the submission, all subsequent amendments, all written statements with respect to the rule filing that are filed with the Commission, and all written communications relating to the rule filing between the Commission and any person, other than those that may be withheld from the public in accordance with provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room in Washington, D.C. Copies of such filing will also be available for inspection and copying at the principal office of the above- mentioned self-regulatory organization. All submissions should refer to the file number in the caption above and should be submitted within days after the date of this publication.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.

Jonathan G. Katz
Secretary

Dated: