[Federal Register Volume 59, Number 200 (Tuesday, October 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25729]


[[Page Unknown]]

[Federal Register: October 18, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34827; File No. SR-GSCC-94-06]

 

Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Approving Proposed Rule Change Modifying the Trade 
Reporting Requirements for Category 2 Inter-Dealer Broker Netting 
Members

October 12, 1994.
    On July 5, 1994, the Government Securities Clearing Corporation 
(``GSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-GSCC-94-06) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ The proposed rule change modifies GSCC's rules concerning 
the trade reporting requirements for category 2 inter-dealer broker 
netting members (``IDBs''). The Commission published notice of the 
proposed rule change in the Federal Register on August 17, 1994.\2\ No 
comments were received. For the reasons discussed below, the Commission 
is approving the proposed rule change.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Securities Exchange Act Release No. 34511 (August 10, 1994), 
59 FR 42319.
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I. Description

    The proposed rule change modifies GSCC's rules concerning the trade 
reporting requirements for category 2 IDBs. In particular, the proposal 
revises Rule 15, Section 3 of GSCC's rules concerning special 
provisions for IDBs was established by GSCC in 1993 in order to permit 
qualifying IDBs to engage in up to ten percent of their trading 
activity in eligible securities with non-netting members.\3\ Each 
category 2 IDB must act exclusively as a broker, and at least ninety 
percent of its business, based on the overall dollar volume of next day 
and forward settlement activity in eligible netting securities over the 
most recent twenty day period, must be with netting members.\4\
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    \3\The Commission approved category 2 IDBs in Securities 
Exchange Act Release No. 32722 (August 12, 1993), 58 FR 42993.
    \4\For a temporary period established by GSCC's Board of 
Directors, the term netting members is defined to include certain 
specifically designated grandfathered non-netting member firms that 
currently have IDB screen access. This temporarily will allow 
category 2 IDBs to trade with nonmember dealers that historically 
have had access to the IDBs' screens. An IDB's trading activity with 
granfathered dealers will not be included for purposes of 
determining when an IDB meets the ten percent scope of business 
limitation.
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    In order to monitor compliance with their scope of business 
requirements, GSCC's rules currently require each category 2 IDB to 
provide GSCC in writing with a list of all of the legal entities that 
it acts on behalf of and promptly inform GSCC of any change to such 
list. Each category 2 IDB also is required to submit to GSCC on each 
business day all of its next day and forward settling trades in 
eligible netting securities, including trades with non-grandfathered 
non-members, and must indicate the buy and sell side of each 
transaction.
    GSCC's rules do not, however, expressly require that a category 2 
IDB provide to GSCC for every trade done involving an eligible netting 
security the identity of each buy side and sell side counterparty. The 
proposed rule change expressly requires each category 2 IDB to disclose 
to GSCC the identity of each buy side and sell side counterparty for 
every trade done, including trades done with non-members, involving an 
eligible netting security.\5\
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    \5\Although the identity of each buy side and sell side 
counterparty is known for trades done by category 1 IDBs, there is 
no obligation in GSCC's rules imposing this disclosure requirement. 
The proposed rule change therefore formalizes and expressly sets 
forth this reporting obligation for category 1 IDBs.
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II. Discussion

    The Commission believes that GSCC's proposed rule change is 
consistent with Section 17A of the Act,\6\ and in particular, Sections 
17A(b)(3) (A) and (F) of the Act.\7\ Sections 17A(b)(3) (A) and (F) 
require, among other things, that a clearing agency and its rules be 
designed to safeguard the securities and funds in its rules be designed 
to safeguard the securities and funds in its possession or control or 
for which it is responsible. The Commission believes that GSCC's 
proposal to modify the trade reporting requirements for category 2 IDBs 
is consistent with this obligation.
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    \6\15 U.S.C. 78q-1 (1988).
    \7\15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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    According to GSCC, requiring category 2 IDBs to provide the 
identity of each buy side and sell side counterparty for every trade 
done involving an eligible netting security is significant for risk 
monitoring and surveillance purposes. The Commission agrees with GSCC 
and believes that the proposal helps GSCC ensure that it can 
appropriately monitor its existing netting members. By requiring each 
category 2 IDB to disclose the identity of each buy side and sell side 
counterparty, GSCC will be better able to understand and assess the 
volume of and degree of concentration of trading done by a category 2 
IDB with one or more specific non-members. This, in turn, should help 
GSCC fulfill its safeguarding obligations.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the Act, and in particular with 
Section 17A of the Act, and with the rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-GSCC-94-06) be, and 
hereby is, approved.

    \8\15 U.S.C. 78s(b)(2) (1988).
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    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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-25729 Filed 10-17-94; 8:45 am]
BILLING CODE 8010-01-M