[Federal Register Volume 59, Number 162 (Tuesday, August 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20567]


[[Page Unknown]]

[Federal Register: August 23, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34529; File No. SR-GSCC-94-04]

 

Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Establishing New 
Categories of Netting System Membership for Futures Commission 
Merchants

August 12, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 5, 1994, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-GSCC-94-04) 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. Sec. 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 will establish new categories of netting 
system membership for futures commission merchants (``FCMs'').

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 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 the 
Statutory Basis for, the Proposed Rule Change

    GSCC was established primarily to provide the government securities 
marketplace with risk protections and a means of ensuring orderly 
settlement. The initial set of market participants for which it was 
intended GSCC provide its netting and risk protection services were 
large dealers and interdealer brokers.
    Nevertheless, it was recognized at the time GSCC was established 
and was made a prerequisite by the Commission for permanent 
registration that GSCC's netting system ultimately was not to be solely 
for the benefit of the primary dealer community and that additional 
classes of market participants would be encompassed as members in the 
future.
    After consideration of the matter following expressions of interest 
in netting system membership by several FCMs, GSCC has determined it 
appropriate to establish a Category 1 FCM netting system membership 
class and a Category 2 FCM netting system membership class.\2\
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    \2\This filing also amends GSCC's rules to expressly provide 
that if an applicant qualifies for more than one category of netting 
system membership, GSCC will have the discretion to determine which 
category of netting system membership that applicant should apply 
for and which reporting requirements are applicable.
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FCMs
    Typically, an FCM is an entity that solicits orders, accepts 
orders, and/or accepts funds for the purchase or sale of exchange 
traded options on futures or futures. In effect, an FCM is the 
equivalent in the futures industry of a securities broker.
    With certain limited exceptions, any person who acts as an FCM must 
register as such with the Commodity Futures Trading Commission 
(``CFTC''). Once registered, the FCM must comply with the CFTC's rules 
on pre-account opening and transactional disclosure, various trading 
proscriptions, customer account supervision, minimum net capital, 
segregation and protection of customer funds, recordkeeping, and 
reporting.
    Most FCMs also are members of one or more futures exchanges and 
therefore are subject to futures exchange regulation and oversight. If 
an FCM is a member of a futures exchange or a registered futures 
association it will be audited by a designated organization to assure 
compliance with their capital requirements. In addition, FCMs that 
desire to clear their own trades on a particular exchange become 
clearing members of that futures exchange or its clearing affiliate. 
Clearing membership subjects the FCM to additional rules and to closer 
oversight from a financial perspective.
Proposed Minimum Financial Standards
    The term ``net capital'' as used in GSCC's rules and the 
Commission's net capital rule is the approximate accounting equivalent 
of the term ``adjusted net capital'' as that term is used in the CFTC 
financial requirement rule. In addition, the term ``net worth'' as used 
in GSCC's rules is comparable to the concept of ``net worth'' in the 
CFTC's financial requirement rule.
    Given these similarities, GSCC believes there is a basis for 
establishing categories of FCM netting membership with minimum 
financial standards and margin requirements that are equivalent to 
those for Category 1 and Category 2 dealer netting members. 
Specifically, GSCC will establish a Category 1 FCM with minimum 
financial standards of $50 million in net worth and $10 million in 
excess adjusted net capital and a clearing fund requirement the same as 
a Category 1 dealer netting member. A Category 2 FCM will be 
established with minimum financial standards of $25 million in net 
worth and $10 million in excess adjusted net capital and a clearing 
fund requirement the same as for Category 2 dealer netting members.
    While dealer netting members are required to file regulatory 
financial reports on a monthly basis, the CFTC requires all FCMs, 
except introducing brokers, as of the close of business each month only 
to make and to keep a record of their computation of adjusted net 
capital. In view of this, GSCC will require every FCM netting member to 
furnish GSCC each month with a copy of the computation of adjusted net 
capital required by the CFTC in addition to furnishing to GSCC a copy 
of the CFTC's regulatory financial report at the time that the form is 
filed with the CFTC each quarter.
    GSCC believes that because the proposed rule change allows GSCC to 
broaden access to its netting and risk management services thereby 
allowing a greater number of market participants to receive the 
benefits of its services it is consistent with Section 17A of the Act 
and the rules and regulations thereunder applicable to GSCC.

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

    GSCC 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 on the proposed rule change have not yet been solicited or 
received. GSCC members will be notified of the rule filing and comments 
will be solicited by a GSCC Important Notice. GSCC will then notify the 
Commission of any written comments received by GSCC regarding the 
proposed rule change.

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 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 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 GSCC. All submissions 
should refer to file number SR-GSCC-94-04 and should be submitted by 
September 13, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20567 Filed 8-22-94; 8:45 am]
BILLING CODE 8010-01-M