NSCC Proposed Rule Change: File No. SR-NSCC-98-5

File No. SR-NSCC-98-5

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.

1. The proposed rule change involves:

A. proposed arrangements relating to a decision by the National Securities Clearing Corporation ("NSCC") to discontinue providing custody, clearance and settlement of physical securities through its Direct Clearing Services ("Direct Clearing") and its New York Window Services (the"Window"). Parties to the proposed arrangements are The Depository Trust Company ("DTC") and NSCC. The proposed arrangements, as they relate to DTC, would provide that DTC would offer most of the services currently offered as part of Direct Clearing and the Window to the users of Direct Clearing and the Window, initially at prevailing Window fees. Currently, all users of Direct Clearing and the Window are also DTC Participants (either directly or through the sponsorship of NSCC), and it is anticipated that all current users of Direct Clearing and the Window will be DTC Participants (either directly or through the sponsorship of NSCC) at the time DTC offers the proposed services.

B. In connection with the above-referenced arrangements, NSCC proposes to discontinue offering to Members the Direct Clearing and Window services, covered by NSCC Rules 30 (Direct Clearing Department) and 31 (New York Window Services), and Procedures IX (C) (Depository Processing) and IX (D) Direct Clearing Department.

(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) Direct Clearing is a physical securities processing service which NSCC has provided since its inception to NSCC participants who have no physical presence in New York City. Principal services of Direct Clearing include (i) processing of over-the-window receives and delivers, (ii) processing transfers of physical securities, and (iii) processing deliveries to designated agents in connection with reorganizations and other corporate actions. In the course of providing these and other Direct Clearing services, NSCC may (iv) have custody of participants’ physical securities (including overnight custody for one or more days).

The Window was originally approved by the Commission as a pilot project for NSCC in 1993 (see Release No. 34-31861), and became a permanent service in the following year (see Release No. 34-34629). Principal services of the Window are similar to those of Direct Clearing, but were initially provided to NSCC participants located in New York City. NSCC organized the Window in order to centralize redundant services maintained at many of NSCC’s participants’ offices that were based in New York City (see Release No. 34-31861).

NSCC proposes to discontinue its provision of Direct Clearing and Window Services in order to focus its resources on the core businesses of NSCC. The proposed arrangements will assist in eliminating redundant services and facilities, thereby resulting in greater efficiencies, while offering the current users of Direct Clearing and the Window the ability to receive similar services from DTC and to transfer their securities to DTC.

DTC has announced that it desires to adopt procedures that are substantially the same as NSCC’s Rule 31 (with the exception of Section 4 thereof, relating to settlement through the Window, which they will eliminate from the proposed Procedures), which was originally approved by the Commission in Release No. 34-34629; the current version of NSCC Rule 31 was approved by the Commission in Release No. 34-37347. NSCC’s proposed rule change will be made effective on the date of NSCC’s discontinuance of its provision of Direct Clearing and Window Services and DTC’s commencement of the proposed Window services, currently scheduled for July 10,1998.

(b) The proposed rule change is consistent with the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder, since the proposed arrangements will provide for more efficient clearing and depository services, and thereby facilitate the prompt and accurate clearance and settlement of such transactions.

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

The proposed arrangements would impose no burden on competition. Securities depositories registered under section 17A of the Exchange Act are utilities created to serve members of the securities industry for the purpose of providing certain services that are ancillary to the businesses in which industry members compete with one another.

After consummation of the proposed arrangements, securities industry members will continue to have access to high-quality, low-cost depository services provided under the mandate of the Exchange Act.

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 and DTC have worked closely, however, with a Users’ Group composed of many of the users of Direct Clearing and the Window in evaluating and planning the proposed transaction.

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 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).

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, 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

SECURITIES AND EXCHANGE COMMISSION

(Release No. 34- ; File No. SR-NSCC-98-5)

Proposed rule change by NATIONAL SECURITIES CLEARING CORPORATION ("NSCC") to permit NSCC to discontinue offering its Members Direct Clearing Services and New York Window Services. Comments requested within days after the date of this publication.

______________________________________

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the "Exchange 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.

(a) The proposed rule change involves:

1. proposed arrangements relating to a decision by the National Securities Clearing Corporation ("NSCC") to discontinue providing custody, clearance and settlement of physical securities through its Direct Clearing Services ("Direct Clearing") and its New York Window Services (the "Window"). Parties to the proposed arrangements are The Depository Trust Company ("DTC") and NSCC. The proposed arrangements would provide that DTC would, as they relate to DTC, offer most of the services currently offered as part of Direct Clearing and the Window to the users of Direct Clearing and the Window, initially at prevailing Window fees. Currently, all users of Direct Clearing and the Window are also DTC Participants (either directly or through the sponsorship of NSCC), and it is anticipated that all current users of Direct Clearing and the Window will be DTC Participants (either directly or through the sponsorship of NSCC) at the time DTC offers the proposed services.

2. In connection with the above-referenced arrangements, NSCC proposes to discontinue offering to Members the Direct Clearing and Window services, covered by NSCC Rules 30 (Direct Clearing Department) and 31 (New York Window Services), and Procedures IX (C) (Depository Processing) and IX (D) Direct Clearing Department.

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.

DTC has announced that it desires to adopt procedures that are substantially the same as NSCC’s Rule 31 (with the exception of Section 4 thereof relating to settlement through the Window, which they will eliminate from the proposed Procedures), which was originally approved by the Commission in Release No. 34-34629; the current version of NSCC Rule 31 was approved by the Commission in Release No. 34-37347. NSCC’s proposed rule change will be made effective on the date of NSCC’s discontinuance of its provision of Direct Clearing and Window Services and DTC’s commencement of the proposed Window services, currently scheduled for July 10, 1998.

(b) The proposed rule change is consistent with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, since it will facilitate the prompt and accurate clearance and settlement of securities transactions.

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

After consummation of the proposed arrangements, securities industry members will continue to have access to high-quality, low-cost depository services provided under the mandate of the Exchange Act.

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

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 proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change 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 proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change 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: