[Federal Register Volume 59, Number 42 (Thursday, March 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4865]


[[Page Unknown]]

[Federal Register: March 3, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33667; File Nos. SR-MCC-93-7 and SR-MSTC-92-14]

 

Self-Regulatory Organizations; Midwest Clearing Corporation and 
Midwest Securities Trust Company; Notice of Filing of Proposed Rule 
Changes Relating To Establishment of a Risk Assessment Committee and 
Various Other Changes to MCC's and MSTC's Rules and By-Laws

February 23, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 17, 1993, and on 
December 23, 1993, the Midwest Clearing Corporation (``MCC'') and the 
Midwest Securities Trust Company (``MSTC'') respectively filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
changes as described in Items I, II, and III below, which Items have 
been prepared primarily by MCC and MSTC. MCC amended its proposal on 
December 23, 1993, thereby making it virtually identical to that of 
MSTC. MCC made a clarifying amendment on January 3, 1994.\2\ The 
Commission is publishing this notice to solicit comments from 
interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Letter from David T. Rusoff, Foley & Lardner, to Richard 
Strasser, (Attorney), Division of Market Regulation, Commission 
(December 30, 1993).
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I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Changes

    MCC and MSTC propose to change their Rules and By-Laws to: (1) 
Allow for the establishment of additional communities; (2) require MCC 
and MSTC to consult with at least one member of the Risk Assessment 
Committee before ceasing to act for a participant; (3) establish a Risk 
Assessment Committee; (4) modify their procedures relating to appeals; 
(5) add provisions relating to suits against MCC and MSTC and their 
employees; and (6) add a provision that requires MCC or MSTC 
participants, in certain circumstances, to pay MCC or MSTC all 
reasonable expenses they incur in defending a legal proceeding 
instigated by the participants.

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, MCC and MSTC included 
statements concerning the purpose of and statutory basis for the 
proposed rule changes and discussed any comments received on the 
proposals. The test of these statements may be examined at the places 
specified in Item IV below. MCC and MSTC have prepared summaries, set 
forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.

(A) Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    The purpose of the proposed rule changes is to amend various by-
laws and rules of MCC and MSTC to define participants' rights and 
obligations more precisely and to give MCC and MSTC more flexibility 
and protection in dealing with violations of their respective rules. 
By-laws will be added to allow MCC and MSTC to establish committees 
either through their respective by-laws or rules or by the board of 
directors. Rules will be added to: (1) Establish a Risk Assessment 
Committee for MCC and MSTC; (2) require MCC and MSTC to consult with at 
least one member of the Risk Assessment Committee prior to ceasing to 
act for a participant; and (3) expand the types of events that permit 
MCC and MSTC to cease to act for a participant to any instance where a 
participant poses a financial risk to MCC or MSTC. These changes will 
provide independent input to management in its decision-making process 
while still providing MCC and MSTC the flexibility to act quickly if 
necessary.
    To clarify that MCC and MSTC have the authority to establish the 
new Risk Assessment Committee, the proposed rules will amend their by-
laws to add a provision that expressly permits MCC and MSTC to 
establish committees by their rules or by-laws or through their boards 
of directors. The Risk Assessment Committee will hear all appeals under 
the applicable rules. The proposed rules specifically provide that 
prior participation by a member of the Risk Assessment Committee in any 
inquiry, consultation, examination, or investigation of the matter 
under appeal will not disqualify the Committee member from hearing the 
appeal. The proposed rules replace current rules which require the 
board of directors to appoint a panel to hear an appeal.
    MCC and MSTC also will add provisions to their rules that will give 
them greater flexibility in the decision to cease to act for a 
participant. Specifically, these provisions will allow MCC and MSTC to 
cease to act for a participant if there are reasonable grounds to 
believe that the participant poses a financial risk to MCC or to MSTC 
even if the firm itself is not in financial difficulty. These 
provisions will provide MCC and MSTC more flexibility in reducing risk 
to themselves and to other participants.
    The proposed rules also will mandate a formal standard of review to 
be applied in appeals beyond the Risk Assessment Committee review. 
Currently, either MCC's or MSTC's board may in its discretion reverse, 
modify, or remand for further consideration any decision adverse to an 
appellant. Under the proposed standard, neither board shall reverse, 
modify, or remand for further consideration any decision adverse to an 
appellant if the factual conclusions in the Risk Assessment Committee's 
decision are supported by substantial evidence and if the decision 
itself is not arbitrary, capricious, or an abuse of discretion.
    Finally, the proposed rules add provisions relating to MCC's and 
MSTC's liability and suits filed against MCC and MSTC and their 
employees. The possibility of suit against individual staff members of 
MCC or MSTC acting on company business makes it impossible for such 
persons to perform properly their duties. The proposed rules will 
prohibit an MCC or MSTC participant from suing any officer, director, 
employee, or agent of MCC or MSTC, of the Chicago Stock Exchange, or of 
any of their affiliates, if such person is acting on the business of 
MCC, MSTC, the Exchange, or of any of their affiliates. These proposed 
rules will not prohibit a participant from suing MCC or MSTC as a 
result of the actions of these individuals; they merely will prohibit 
suits against individuals acting in their official capacities. The 
proposed rules also will limit MCC's and MSTC's liability to 
participants to situations where MCC or MSTC acted willfully or with 
gross negligence. Finally, the proposals will add new provisions that 
require an MCC or MSTC participant that fails to prevail in a legal 
proceeding instigated by that participant against MCC, MSTC, or any of 
its officers, directors, committee members, employees, or agents to pay 
MCC or MSTC all reasonable expenses, including attorneys' fees, 
incurred by MCC or MSTC in defending the proceeding if those expenses 
exceed $20,000.
    The proposed rule changes are consistent with Section 17A of the 
Act in that they will facilitate the safeguarding of securities and 
funds which are in MCC's and MSTC's custody or control or for which 
they are responsible.

(B) Self-Regulatory Organizations' Statement on Burden on Competition

    MCC and MSTC believe that no burden will be placed on competition 
as a result of the proposed rule changes.

(C) Self-Regulatory Organizations' Statement on Comments on the 
Proposed Rule Changes Received From Members, Participants, or Others

    No comments were received.

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

    Within thirty-five 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 ninety 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 organizations consent, 
the Commission will:
    (A) By order approve the proposed rule changes; or
    (B) Institute proceedings to determine whether the proposed rule 
changes 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 NW., Washington, DC 20549. Copies 
of the submissions, all subsequent amendments, all written statements 
with respect to the proposed rule changes that are filed with the 
Commission, and all written communications relating to the proposed 
rule changes between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying at the 
principal offices of MCC and MSTC. All submissions should refer to File 
Nos. SR-MCC-93-7 and SR-MSTC-93-14 and should be submitted by March 24, 
1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-4865 Filed 3-2-94; 8:45 am]
BILLING CODE 8010-01-M