[Federal Register Volume 60, Number 22 (Thursday, February 2, 1995)]
[Notices]
[Pages 6580-6582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2550]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35288; File No. SR-GSCC-94-10]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Proposed Rule Change Relating to Implementing a 
Comparison Service for Repurchase and Reverse Repurchase Transactions 
Involving Government Securities as the Underlying Instrument

January 27, 1995.
    Purusant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 30, 1994, the 
Government Securities Clearing Corporation (``GSCC'') 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 GSCC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.

    \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

    GSCC proposes to modify its rules to provide comparison services 
for repurchase and reverse repurchase transactions involving government 
securities as the underlying instrument (``repos'').

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

    In its filing with the Commission, GSCC 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. GSCC 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 proposes to provide comparison, netting, and risk management 
services to participants in the government securities repo market. GSCC 
ultimately intends to provide services for the opening (``on'') and 
closing (``off'') legs of all overnight repos (also referred to as 
next-day repos), term repos (also referred to as forward setting 
repos), and open repos, including the same-day settling aspects of 
those repos. These services will include the tracking of rate changes 
and open repo interest, the provision to the funds borrower of coupon 
protection, the provision to all parties of a comprehensive audit trail 
for their repo activity from inception to settlement, and the 
monitoring and facilitation of collateral substitutions.
    Of paramount importance to GSCC is that it ensures that the types 
of services that it provides are appropriate for the repo market and 
beneficial to its participants. In this regard, several years ago, GSCC 
began discussing with its Board members and with the Public Securities 
Association's (``PSA'') Repo Committee how GSCC might best provide 
centralized and automated comparison, netting, risk management, and 
settlement services for the repo market.
    A Working Group of the PSA's Repo Committee, in a December 10, 
1992, letter to GSCC, encouraged GSCC to proceed with providing 
comparison services for repos while working on establishing an 
acceptable plan for the provision of netting services for repos. At 
that time, GSCC undertook several initiatives that helped establish a 
foundation for the safe and effective provision of services for repos. 
In particular, it significantly upgraded its technological 
capabilities. GSCC now has two physically remote data processing sites. 
At each site, GSCC maintains redundant hardware configurations. Each 
processing site is in an environment totally dedicated to GSCC and is 
capable of processing the day's business independent of the other. 
Also, GSCC is in the process of implementing a real time communications 
switch that will support interactive communication with members in 
order to facilitate their sending data to GSCC as trades occur.
    GSCC commenced its efforts to implement services for repos this 
past June by taking in data on repo transactions from certain member 
firms that are active in the repo market. The main objective of the 
tests was to collect live data that GSCC could use to evaluate the 
viability of its draft input specifications and to assess the impact of 
repo processing on existing systems and services. With these tests 
having been successfully concluded, GSCC now plans to implement the 
initial stage of the first phase of its planned repo services 
commencing in the first quarter of 1995.
    The comprehensive services to be provided by GSCC for repos will be 
offered in three phases. The first phase will involve the provision of 
comparison and netting services. This rule filing will provide 
authority for GSCC to implement the initial stage of the first phase, 
which is the provision of comparison services for overnight and term 
repos. Subsequent rule filings will be made for authority to implement 
both the next stage of the first phase of repo services, which is the 
provision of netting and risk management services for the non-same-day 
settling aspects of next-day forward settling repo transactions, and 
future phases of repo services.
    The second implementation phase of GSCC's planned repo services 
will focus on the provision of comparison, netting, and risk management 
services for open repos as well as the offering of additional services 
of benefit to industry participants, including the tracking of rate 
changes, the tracking and facilitation of collateral substitutions, and 
other enhancements to the comparison process designed to provide full 
service comparison for the repo product.
    The last phase of GSCC's planned implementation of repo services 
will focus on providing intraday netting and risk management services 
for the same-day settling aspects of repo transactions, including 
settlement of same-day settling start legs and close-outs of open 
repos.
    Encompassing repos in GSCC's automated comparison process will 
provide industry participants with many benefits, including: (1) 
Elimination of the need for physical confirmations, (2) timely 
comparison of repo trade data, (3) easier monitoring of the status of 
open repo transactions and of the modifications made to those 
transactions over their life (e.g., tracking of repo interest rate 
changes), (4) enhanced ability for identification and correction of 
errors, (5) easier recordkeeping, and (6) easier access to audit trail 
information.
    Again, Phase 1 comparison will involve the comparison of all 
overnight 

[[Page 6581]]
and term repo trades involving eligible securities whether or not the 
on leg occurs before, on, or after the submission date. Open repos will 
not be accepted during the first phase. GSCC will accept and compare 
data on all of the components of a repo transaction, including 
information on the on and off legs of a repo, with members providing 
such data via a single input. Same-day settling on and off legs will be 
compared but not netted.
    The Phase 1 comparison process for repos will be substantially 
similar to the comparison process offered by GSCC today. Each party to 
a repo will submit its transaction data to GSCC.\2\ If all mandatory 
data fields that are required to match do in fact match, a comparison 
will be generated by GSCC.\3\ If the data on a repo remains uncompared 
at end-of-day, the submitter of the repo data will receive a comparison 
request advisory. If a repo transaction has not yet been compared, it 
may be unilaterally canceled, and the submitter will receive 
notification of the cancellation. To cancel a repo that has been 
compared, bilateral agreement is required. Trade data on repo 
transactions that remain uncompared shall be deleted from GSCC's 
Comparison System the later of (1) The processing cycle after the 
second business day after the repo start date or (2) the processing 
cycle after the second business day after the date of submission of 
such data.

    \2\The proposed rule change will establish a new schedule of 
required data submission items applicable to all trades. In addition 
to the items on the schedule of required match data, a member must 
submit the broker reference number, contra submitting member's 
executing firm, executing firm, external reference number, price or 
rate, pricing method, and trade date.
    \3\The following items must match for a trade to compare: (1) 
contra member identifying information, (2) CUSIP number, (3) 
member's identifying number, (4) par amount (quantity), (5) 
settlement amount, (6) settlement date, and (7) transaction type 
(i.e., buy, sell, repo, or reverse). In addition, these required 
match data items must match only for repo transactions: (1) start 
amount (i.e., the contract value for the start leg of the repo 
transaction) and (2) start date (i.e., the settlement date for the 
start leg of a repo transaction).
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    As is the case now for non-repo transactions, comparison of a repo 
trade will occur immediately upon the receipt by GSCC from two members 
of matching data. GSCC comparison output will continue to be available 
on an on-line basis.
    To be eligible for comparison, both submitting members must be 
deemed eligible for repo comparison processing by GSCC. GSCC will make 
such a determination based on the demonstration by a member of its 
ability to submit designated input to and receive designated output 
from GSCC.
    The implementation of Phase 1 comparison services for repos will 
require the following modifications to GSCC's comparison processes:
    (1) The ``transaction type'' data field will be expanded to include 
two additional transaction types: ``repo'' (designating the side of the 
repo transaction that is borrowing funds and lending securities) and 
``revr'' (designating the side of the repo transaction that is lending 
funds and borrowing securities). Repos and reverse repos will compare 
only with each other and not with buy and sell activity.
    (2) Two new mandatory match items for repo transactions will be 
introduced: start date and start amount. The repo start date will 
indicate the settlement date for the start leg of the repo. The repo 
start amount will contain the contract value for the start leg of the 
repo. Initially, a $1 per repo transaction tolerance for start amount 
will be established.
    (3) If a participating member does not submit the settlement 
amount, GSCC will calculate it using the start amount, repo rate, and 
the number of days from start date to settlement date. Initially, a $1 
per million tolerance will be established for settlement amount.
    (4) The repo rate will be a required submission field. If the 
settlement amount is not provided, this field along with the start 
amount and the repo term will be used to calculate the settlement 
amount.
    (5) Two optional data fields have been added to bolster the 
comparison process for repos, the give-up broker field and the 
secondary reference number field. Dealer members may use the give-up 
broker field to identify the broker, if any, used to conduct the repo. 
GSCC will provide members with a standardized list of brokers for this 
purpose. The secondary reference number field may be used by dealers to 
provide additional identification information on the repos.
    (6) Phased comparison of trade date (i.e., the comparison of a 
trade where the information submitted regarding trade date does not 
match based on a presumption that the earlier trade date submitted is 
the correct trade date) will not apply to repos in Phase 1. Also, par 
summarization (i.e., the comparison of a trade based on a match of 
either the total of the par amounts on two or more buy sides equaling 
the par amounts on one or more sell sides or the total of the par 
amounts on two or more sell sides equaling the par amounts on one or 
more buy sides) will not apply to repo transactions in Phase 1.
    (7) The $40 per million tolerance on final money that applies to 
buy/sells will not apply to repos. This tolerance is used by GSCC in 
its phased comparison process to account for commission differences.
    GSCC represents that its automated facilities are sufficient to 
implement the proposed comparison services for repos that are the 
subject of this filing and that the addition of these services will not 
diminish GSCC's ability to provide its current services for non-repo 
transactions in a safe, efficient, and timely manner.
    GSCC believes that the proposed rules change will allow GSCC to 
provide the benefits of centralized, automated comparison to a broader 
segment of government securities transactions. GSCC believes that the 
proposed rule change is consistent with the requirements of the Act, 
and specifically with Section 17A of the Act,\4\ and the rules and 
regulations thereunder.

    \4\15 U.S.C. 78q-1 (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rule will have an impact or 
impose a 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. Members will be notified of the rule filing and comments will 
be solicited by an Important Notice. GSCC will notify the Commission of 
any written comments received by GSCC.

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. 

[[Page 6582]]
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 No. SR-
GSCC-94-10 and should be submitted by February 23, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\

    \5\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2550 Filed 2-1-95; 8:45 am]
BILLING CODE 8010-01-M