[Federal Register Volume 59, Number 68 (Friday, April 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8441]
[[Page Unknown]]
[Federal Register: April 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33851; File No. SR-MCC-94-01]
Self-Regulatory Organizations; Midwest Clearing Corporation;
Order Approving a Proposed Rule Change Relating to the Processing of
Basket Trades
April 1, 1994.
On January 7, 1994, the Midwest Clearing Corporation (``MCC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change (File No. SR-MCC-94-01) under Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act'')\1\ to amend its rules
relating to the processing of basket trades. Notice of the proposal was
published in the Federal Register on February 15, 1994.\2\ No comment
letters were received. This order approves the proposal.
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\1\15 U.S.C. 78(b)(1) (1988).
\2\Securities Exchange Act Release No. 33595 (February 8, 1994),
59 FR 7274.
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I. Description
The proposal amends MCC's rules relating to the processing of
trades in the Chicago Basket (``CXM'') product which is traded on the
Chicago Stock Exchange (``CHX'').\3\ The CXM is a basket of stocks that
is comprised of twenty-five shares of each of the stocks included in
the Chicago Mercantile Exchange's MMI stock index futures contract.\4\
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\3\For a detailed description of the CXM product, refer to
Securities Exchange Act Release No. 33053 (October 15, 1993), 58 FR
4610 [File No. SR-CHX-93-18] (order approving proposed rule change).
\4\The Chicago Mercantile Exchange's MMI is a stock index
futures contract which is based on the American Stock Exchange's
Major Market Index. The Major Market Index is a broad-based, price-
weighted index currently based on twenty stocks listed on the New
York Stock Exchange.
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Basket trades are defined by MCC as trades in a group of securities
that an exchange or market place self-regulatory organization (``SRO'')
has designated as eligible for execution in a single trade. MCC's
current rules relating to basket trades permit MCC to accept from an
exchange or marketplace SRO locked-in basked trade data. On T+1, MCC
reports the locked-in basket trades to participants on a basket
purchase and sales report. For each participant, MCC aggregates the
trade data to arrive at an aggregate basket purchase figure and an
aggregate basket sale figure. Aggregate buy side and aggregate sell
side basket transactions are then ``burst'' into their component
securities, which are eligible for MCC's continuous net settlement
(``CNS'') system, for clearance and settlement. The CNS system nets all
component securities of the burst basket with each participant's other
transactions in the component securities. This results in an individual
participant being either a net buyer or a net seller in each of a
basket's component securities. These positions are reflected on the
appropriate CNS purchase and sales report.
The proposed rule provides an alternative clearing process for
trades in the CXM. The alternative must be elected on an account-by-
account basis (as opposed to a trade-by-trade basis). Under this
alternative, rather than aggregating all buy transactions and all sell
transactions in one account prior to the separation of the CXM into its
component stocks, MCC will separate each basket transaction into its
component securities without the aggregation process. MCC will report
this information to the electing participant instead of the
participant's aggregate net buy and aggregate net sell basket
information. According to MCC, the proposed alternative will make it
easier for participants to allocate the correct number of shares with
the proper execution prices to customers and will make it easier for
participants to identify trades for cancellation and correction.
II. Discussion
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions.\5\ The Commission
believes that the alternative settlement process is consistent with
MCC's obligations under this section because the alternative settlement
process will make it easier for participants to allocate the correct
number of shares with the proper execution prices to customers and will
make it easier for participants to identify trades for cancellation or
correction.
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\5\15 U.S.C. 78q-1(b)(3)(F).
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In addition, the Commission believes that the alternative
settlement process is consistent with MCC's other obligation under
section 17A(b)(3)(F) to assure the safeguarding of securities and funds
that are in its custody or control or for which it is responsible.\6\
MCC participants who trade or have customers who trade baskets and
choose the alternative settlement process will be subject to the same
financial responsibility and reporting requirements as other MCC
participants. Furthermore, because the baskets will be burst into their
component securities for processing and because MCC currently processes
trades in the underlying component securities, MCC's existing risk
management systems will apply to the alternative processing of basket
trades.
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\6\Id.
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III. Conclusion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and in particular with the
requirements of section 17A of the Act.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\7\ that the proposed rule change (File No. SR-MCC-94-01) be, and
hereby is approved.
\7\15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8441 Filed 4-7-94; 8:45 am]
BILLING CODE 8010-01-M