[Federal Register Volume 59, Number 49 (Monday, March 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5807]


[[Page Unknown]]

[Federal Register: March 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33722; File No. SR-ICC-94-03]

 

Self-Regulatory Organizations; The Intermarket Clearing 
Corporation; Filing and Order Granting Temporary Approval on an 
Accelerated Basis to a Proposed Rule Change Relating to Revisions to 
the Standards for Letters of Credit Deposited as Margin

March 7, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 23, 1994, The 
Intermarket Clearing Corporation (``ICC'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared 
primarily by ICC. The Commission is publishing this notice and order to 
solicit comments from interested persons and to grant accelerated 
approval of the proposed rule change through December 31, 1994.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change requests that the Commission extend its 
temporary approval of ICC's modifications to its rules setting forth 
the standards for letters of credit deposited with ICC as a form of 
margin.\2\
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    \2\Securities Exchange Act Release Nos. 32003 (March 16, 1993), 
58 FR 15389 [File No. SR-ICC-92-01] (order approving revised letter 
of credit standards through December 31, 1994).
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICC 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. ICC 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

    The proposed rule change requests that the Commission extend its 
temporary approval of ICC's modifications to its rule 502(a)(3), which 
sets forth the standards for letters of credit deposited with ICC as 
margin. The modifications which are the subject of this proposed rule 
filing are the same modifications which were previously approved by the 
Commission.\3\
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    \3\For a detailed discussion of the revised standards, refer to 
Securities Exchange Act Release Nos. 32003, supra note 2.
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    First, ICC intends to require that letters of credit state 
expressly that payment must be made prior to the close of business on 
the third banking day following demand. Second, ICC proposes to amend 
its rules to eliminate the issuer's right to revoke the letter of 
credit. Third, unless otherwise permitted by ICC, ICC's proposal 
requires letters of credit to expire on a quarterly basis rather than 
annually. Fourth, ICC proposes to add language to its rules to make 
explicit ICC's authority to draw upon a letter of credit at any time, 
whether or not the clearing member that deposited the letter of credit 
has been suspended or is in default, if ICC determines that such a draw 
is advisable to protect ICC, other clearing members, or the general 
public.
    Finally, ICC proposes to amend its rules to grant its chairman 
limited discretion to accept a letter of credit that varies from the 
standards set forth in its rules. This discretionary power will be 
limited by the following factors: (1) Before using this power, the 
chairman must consult with the staffs of ICC's regulatory agencies, 
which include the Commission and the Commodity Futures Trading 
Commission (``CFTC''); (2) this power can be used only in unusual 
circumstances and only on a temporary basis; (3) after exercising such 
power, the chairman must advise ICC's board of directors; and (4) ICC 
must promptly notify clearing members affected by the exercise of this 
power.\4\ ICC believes the proposed rule change is consistent with the 
requirements of section 17A of Act.\5\ Specifically, ICC believes the 
proposed rule change promotes the protection of investors by enhancing 
ICC's ability to safeguard the securities and funds in its possession 
or subject to its control.
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    \4\Factors (1) and (2) are set forth in ICC Rule 502(a)(3). 
Factors (3) and (4) are set forth in the letter from James C. Yong, 
Vice President and Assistant Secretary, ICC, to Jerry W. Carpenter, 
Branch Chief, Division of Market Regulation (``Division''), 
Commission (March 1, 1993), which amended File No. SR-ICC-92-01. ICC 
has represented that the March 1, 1993, letter with all its 
requirements for use by ICC's Chairman of his limited discretion to 
accept a letter of credit that varies from the standards is 
applicable to this proposed rule filing. Conversation between James 
C. Yong, Vice President and Assistant Secretary, ICC, to Jerry W. 
Carpenter, Branch Chief, Division, Commission (March 4, 1994).
    \5\15 U.S.C. 78q-1
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B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe that the proposed rule change will impose any 
burden on competition.

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

    Comments were not and are not intended to be solicited with respect 
to the proposed rule change, and none were received.

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

    For the reasons set forth in the previous Commission order 
approving ICC's revised standards for letters of credit deposited as 
margin, the Commission believes that the proposal is consistent with 
ICC's obligations under section 17A(b)(3)(F) of the Act.\6\ Among other 
things, the revised standards: (1) Should make the letters of credit 
ICC will accept as margin deposits more liquid than under the previous 
standards and, consequently, should permit ICC to more safely rely upon 
such letters of credit; (2) should result in more frequent assessments 
of the financial conditions of clearing members depositing letters of 
credit and thereby should facilitate the discovery of any adverse 
developments in a more timely manner: and (3) should make letters of 
credit a more reliable form of margin deposit than previously because 
issuers will no longer be able to revoke letters of credit at times 
when clearing members most need credit facilities (e.g., when a 
clearing member is experiencing financial difficulties or during times 
of market volatility).\7\ By approving the proposed rule change on a 
temporary basis through December 31, 1994, ICC, the Commission, and 
other interested parties will be able to assess further any effects 
these revised standards have on letter of credit issuance and on margin 
deposited at ICC.\8\
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    \6\15 U.S.C. 78q-1(b)(3)(F) (1988). Among other things, section 
17A(b)(3)(F) requires that the rules of a clearing agency be 
designed to assure the safeguarding of securities and funds which 
are in the custody or control of the clearing agency or for which 
the clearing agency is responsible.
    \7\For a detailed discussion of the Commission's basis for 
approving ICC's revised standards, refer to Securities Exchange Act 
Release Nos. 32003, supra note 2.
    \8\The Commission and ICC currently are studying concentration 
limits on letters of credit deposited as margin. The Division 
believes that clearing agencies that accept letters of credit as 
margin deposits or clearing fund contributions should limit their 
exposure by imposing concentration limits on the use of letters of 
credit. Generally, clearing agencies impose limitations on the 
percentage of an individual member's required deposit or 
contribution that may be satisfied with letters of credit, 
limitations on the percentage of the total required deposits or 
contributions that may be satisfied with letters of credit by any 
one issuer, or some combination of both. ICC has no concentration 
limits on the use of letters of credit issued by U.S. institutions.
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    ICC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of the filing. The Commission finds good cause 
for so approving because the Commission believes it is desirable that 
the revised standards that were implemented under the previous 
temporary approval order remain in place pending permanent approval.

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 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 the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of ICC. All submissions 
should refer to the file number SR-ICC-94-04 and should be submitted by 
April 4, 1994.

V. Conclusion

    On the basis of the foregoing, the Commission finds that ICC's 
proposed rule change is consistent with the Act and in particular with 
Section 17A of the Act.
    It is therefore ordered, under section 19(b)(2) of the Act, that 
the proposal (File No. SR-ICC-94-03) be, and hereby is, approved 
through December 31, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5807 Filed 3-11-94; 8:45 am]
BILLING CODE 8010-01-M