[Federal Register Volume 59, Number 121 (Friday, June 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15427]


[[Page Unknown]]

[Federal Register: June 24, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34232; Filed No. SR-DGOC-94-03]

 

Self-Regulatory Organization; Delta Government Options Corp.; 
Notice of Filing of a Proposed Rule Change Relating to the Investment 
of Federal Funds Deposited by Participants as Margin Collateral

June 17, 1994
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice if hereby given that on June 2, 1994, Delta 
Government Options Corp. (``DGOC'') 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 
primarily by DGOC. The Commission is publishing this notice to solicit 
comments on the proposed rle change from interested persons
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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

    DGOC is proposing amendments to its procedures relating to the 
investment of federal funds deposited by participants as margin 
collateral. The purpose of the proposed rule change is to expand the 
form of acceptable collateral that can be taken in connection with the 
investment of cash margin funds in repurchase agreements.

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

    In its filing with the Commission, DGOC included statments 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. DGOC has prepared sumaries, set forth in section A, B, 
and C below, of the most significant aspects of such statments.

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

    DGOC's proposal will establish a six month pilot program testing a 
new service which will expand DGOC's allowable investments of federal 
funds deposited by participants as margin collateral. The purpose of 
the new service is threefold: first, to employ a prudent methodology to 
monetize the asset value of participants' net long positions; second, 
to provide a superior rate of return on repurchase agreements for those 
participants providing cash collateral; and third, to provide a 
commercial inducement for participants to effect a greater proportion 
of their over-the-counter transactions through a registered clearing 
facility.
    The proposed rule change will amend Article VI, Section 601 of 
DGOC's procedures to permit DGOC's clearing bank or its affiliate to 
invest cash margin deposits in repurchase agreements which are 
collateralized by participants' long positions.\2\ The maximum value of 
a repurcahse agreement collateralized by a participant's long position 
will be determined as follows.
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    \2\The value of the repurchase agreements collateralized by a 
participant's long positions will be limited to 35% of the 
participant's long positions after adjusting for such participant's 
performance margin valuation. DGOC also added an Interpretation to 
Section 601 limiting the total of all repurchase agreements 
collateralized by participants' long positions to the difference 
between total cash margin and the greater of either $10 million or 
10% of the total cash margin.
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    First, the participant's long position will be calculated in 
accordance with DGOC's prescribed methodology whereby the long position 
equals the sum of the mark-to-market values of each option owned by a 
participant less the sum of the mark-to-market values of each option 
written by a participant. Second, the long position then will be 
reduced in value using DGOC's margin calculation which is comprised of 
a performance margin component and a mark-to-market margin component. 
Under DGOC's margining system, performance margin is calculated for 
both long positions and short positions because performance margin 
represents an estimate of the potential reduction in value of both long 
and short positions at the close of the next succeeding business day 
taking into account the most adverse market movement in the price of 
underlying Treasury securities which reasonable could be anticipated. 
Performance margin is always a negative number. Mark-to-market margin 
represents the net amount of the estimated cost to liquidate a 
participant's short positions offset by the estimated proceeds from the 
liquidation of its long positions. Mark-to-market margin can be a 
positive or negative amount depending upon whether a participant has a 
long or short position. Third, the adjusted long position valuation 
amount is then multiplied by a loan to value ration, which for the 
pilot program will be 35%. The product of this calcualtion is the 
maximum that can be loaned through a repurchase agreement to a 
participant using the participant's long positions in DGOC options as 
collateral.\3\ To prevent an undue concentrated exposure to any single 
participant, the amount of such repurchase agreement with any single 
participant may not exceed a specified amount which will be determined 
during or at the end of the test period.
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    \3\As an example, if a participant has a long position of $15 
million with a performance margin requirment of $5 million and a 
mark-to-market margin valuation of $15 million, the maximum 
repurchase agreement allowed would be $3.5 million calculated as 
follows: ($15M-$5M)  x  35% =$3.5M.
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    The proposed rule change is consistent with the requirements of 
Section 17A of the Exchange Act and the rules and regulations 
thereunder applicable to DGOC. Specifically, Section 17A(b)(3)(F) of 
the Exchange Act requires that a clearing agency be organized and its 
rules be designed among other things, to promote the prompt and 
accurate clearance and settlement of securities transactions and to 
remove impediments to and perfect the mechanism of a national system 
for the prompt and accurate clearance and settlement of securities 
transactions.\4\ The proposed rule change will enable DGOC to provide 
greater flexibility to its participants and permit more utilization of 
the system by DGOC's participants.
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    \4\15 U.S.C. 78q-1(b)(3)(F) (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DGOC perceives no impact on competition by reason of the propose 
rule change.

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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change 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 organization consents, 
the Commission will:
    (A) By order approve the 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, 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 the above-referenced 
self-regulatory organization. All submissions should refer to File No. 
SR-DGOC-94-03 and should be submitted by July 15, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15427 Filed 6-23-94; 8:45 am]
BILLING CODE 8010-01-M