[Federal Register Volume 59, Number 97 (Friday, May 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12302]


[[Page Unknown]]

[Federal Register: May 20, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34066; File No. SR-MBS-94-02]

 

Self-Regulatory Organizations; MBS Clearing Corporation; Notice 
of Filing of Proposed Rule Change Relating to the Establishment of the 
Electronic Pool Notification Service

May 13, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 6, 1994, the MBS 
Clearing Corporation (``MBS'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change (File No. SR-MBS-
94-02) as described in Items I, II, and III below, which Items have 
been prepared primarily by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organizations Statement of the Terms of Substance of 
the Proposed Rule Change

    The proposed rule change will add Articles VI, VII, VIII, IX, and X 
to MBS's rules relating to the establishment of MBS's electronic pool 
notification (``EPN'') service.

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

    In its filing with the Commission, the self-regulatory organization 
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. The self-regulatory organization 
has prepared summaries, set forth in section 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 purpose of the proposed rule change is to add Articles VI, VII, 
VIII, IX, and X to MBS's rules relating to the establishment of MBS's 
EPN service. EPN is a real-time, store and forward message switch that 
will provide an electronic communications network through which EPN 
Users will be able to transmit mortgage-backed securities pool 
allocation information regarding securities deliveries for settlement 
quickly and efficiently. An EPN Message will be required to contain (i) 
the lot-sequence of Good Delivery Millions (i.e., the number of million 
dollar lots delivered in accordance with PSA guidelines); (ii) a pool 
number that references a specific pool of mortgages; (iii) the 
principal amount at date of issue; (iv) the coupon rate; and (v) a 
termination code. In addition, an EPN Message may contain additional 
information, such as the maturity date, CUSIP number, current 
outstanding principal amount, an MBS trade number, internal control 
number, and interest accrued, among other things.
    Currently, in order for participants to notify other participants 
of pool information, participants must manually phone or fax the 
information to other participants. Because of the nature of this method 
of exchanging information, busy signals are common. Historically, 
billions of dollars of fails have been incurred each month because 
sellers are not able to communicate with buyers because of the buyer's 
phone, fax, and staffing limitations. The proposed rule change, 
therefore, will establish rules for the EPN service which should make 
this process more efficient and more reliable.
    MBS has decided that a complete stand-alone set of rules for EPN 
was preferable to trying to integrate the EPN rules into existing MBS 
rules. As a result, many of the EPN rules mirror existing MBS rules and 
make those rules applicable to users of the EPN service. To this end, 
there has been an attempt to use the same terms and definitions that 
MBS uses in its current rules wherever possible.
    The EPN rules do differ, however, from existing MBS rules in 
several respects. First, the EPN rules describe EPN and define new 
terms related to EPN such as ``EPN Eligible Security,'' ``EPN User,'' 
``EPN User Profile,'' ``EPN User Agreement,'' ``EPN User Fund,'' ``EPN 
Service,'' ``Message Detail Report,'' ``Message Purge Report,'' 
``Message Recovery Report,'' and ``Messages,'' etc. These reflect 
applicable names for existing functions and new services and concepts 
that do not exist in the current MBS rules. For example, because users 
of the EPN service will not necessarily be full participants of MBS, 
they are called ``EPN Users.'' In addition, the EPN User fund entails 
the same concept as the current participants fund.
    Another change from existing rules concerns who can become an EPN 
User. Because EPN is essentially a sophisticated e-mail-database system 
that does not involve the clearance or settlement of securities, the 
risk to MBS from defaulting EPN Users is limited to their fees. As a 
result, the standards for the approval of applicants to become an EPN 
User is significantly less than is required of applicants who wish to 
become full participants of MBS. It is anticipated that applicants who 
would not qualify as participants of MBS could still become EPN Users.
    Because the EPN service will time stamp messages, the new rules 
provide that this time stamp will determine good delivery. The rules 
also provide the several reports will be issued to EPN Users, one of 
which will constitute a confirmation. In addition, as stated above, the 
new EPN rules provide for an EPN User Fund. This is intended to be 
similar in purpose to, but smaller in scope than, the existing 
participants fund. This will protect MBS in the event that any EPN User 
defaults in payments of fees. Finally, like MBS's existing rules, the 
EPN rules expressly limit MBS's liability in the performance of its 
obligations to the same extent as MBS's existing rules.
    MBS believes that the proposed rule change is consistent with 
Section 17A of the Act and the rules and the regulations thereunder in 
that it promotes the prompt and accurate clearance and settlement of 
securities transactions.

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

    MBS does not believe that the proposed rule change will impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    The proposed rule change was developed through discussions with 
participants and the Computer-To-Computer-Interface User 
Committee.Written comments from MBS participants or others have not 
been solicited nor received.

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 submission 
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 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 MBS. All submissions 
should refer to File Number SR-MBS-94-02 and should be submitted by 
June 10, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12302 Filed 5-19-94; 8:45 am]
BILLING CODE 8010-01-M