[Federal Register Volume 60, Number 110 (Thursday, June 8, 1995)]
[Notices]
[Pages 30324-30325]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-14001]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35787; File No. 600-23]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Approving Application for Extension of Temporary 
Registration as a Clearing Agency

May 31, 1995.
    On February 3, 1995, Government Securities Clearing Corporation 
(``GSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a request pursuant to Section 19(a) \1\ of the 
Securities Exchange Act of 1934 (``Act'') that the Commission grant 
GSCC full registration as a clearing agency under Section 17A of the 
Act \2\ or in the alternative extend GSCC's temporary registration as a 
clearing agency until such time as the Commission is able to grant GSCC 
permanent registration.\3\ On March 13, [[Page 30325]] 1995, GSCC filed 
with the commission an amended Form CA-1. The Commission published 
notice of GSCC's request in the Federal Register on April 24, 1995.\4\ 
No comments were received. This order extends GSCC's temporary 
registration as a clearing agency through November 31, 1995.

    \1\ 15 U.S.C. 78s(a)(1) (1988).
    \2\ 15 U.S.C. 78q-1 (1988).
    \3\ Letter from Charles A. Moran, President, GSCC, to Brandon 
Becker, Director, Division of Market Regulation, Commission 
(February 3, 1995) (``Registration Letter''). On May 24, 1988, the 
Commission granted GSCC's initial application for registration as a 
clearing agency pursuant to Sections 17A and 19(a) of the Act and 
Rule 17Ab2-1 (17 CFR 240.17Ab2-1 (1994)) thereunder for a period of 
three years. Securities Exchange Act Release No. 25740 (May 24, 
1988), 53 FR 19639. The Commission subsequently extended GSCC's 
registration until May 31, 1995. Securities Exchange Act Release 
Nos. 29067 (April 11, 1991), 56 FR 15652 and 32385 (June 3, 1993), 
58 FR 32405.
    \4\ Securities Exchange Act Release No. 35618 (April 17, 1995), 
60 FR 20131.
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    GSCC provides automated clearance and settlement services to its 
members for their transactions in government securities.\5\ One of the 
primary reasons for GSCC's registration was to provide comparison 
services for transactions in government securities. GSCC offers its 
members netting and comparison services including services for next-day 
settling trades, forward settling trades, auction takedown activity, 
the multilateral meeting of trades, the novation of netted trades, and 
the daily marking-to-the-market. In connection with GSCC's clearance 
and settlement services, GSCC provides a centralized loss allocation 
procedure and maintains margin to offset netting and settlement risks.

    \5\ ``Government securities'' means securities issued or 
guaranteed by the United States (``U.S.''), U.S. government agencies 
and instrumentalities, and U.S. government-sponsored corporations. 
15 U.S.C. 3(a)(42) (1990).
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    As a part of GSCC's request for full clearing agency registration, 
GSCC has requested that the Commission remove GSCC's exemption from the 
participation standards of Sections 17A(b)(3)(B) and 17A(b)(4)(B) of 
the Act.\6\ The Commission recently has approved two proposed rule 
changes that increase the categories of those eligible for membership 
in GSCC's netting system,\7\ as well as a proposed rule change which 
establishes minimum financial standards for insurance companies 
applying for GSCC membership.\8\ In addition, GSCC has asserted that 
its current selection process for its board of directors, which permits 
any GSCC member to nominate candidates for election to the Board and to 
vote for candidates so nominated, assures fair representation.\9\ GSCC 
further has stated that it recognizes future membership growth may 
require GSCC to adjust the selection process to ensure fair member 
representation on the Board.\10\

    \6\ At the time of GSCC's initial registration, the Commission 
determined that GSCC's rules did not enumerate the statutory 
categories of membership as required by Section 17A(b)(3)(B) and the 
financial standards for applicants and members as contemplated by 
Section 17A(b)(4)(B) of the Act. 15 U.S.C. 78q-1(b)(3)(B), 78q-
1(b)(4)(B) (1988). In addition, the Commission determined that while 
the composition of GSCC's Board of Directors reasonably reflected 
GSCC's anticipated initial membership, it would be appropriate to 
reevaluate whether GSCC's process for selecting its Board of 
Directors complied with the fair representation requirements in 
Section 17A(b)(3)(C) of the Act before granting full registration as 
a clearing agency. 15 U.S.C. 78q-1(b)(3)(C) (1988).
    \7\ Securities Exchange Act Release Nos. 34935 (November 3, 
1994), 59 FR 56100 (order approving establishment of new categories 
of netting system membership for futures commission merchants) and 
32722 (August 5, 1993), 58 FR 42993 (order approving establishment 
of new categories of netting system membership for dealer 
(``Category 2'') and interdealer brokers, issuers of government 
securities, insurance companies, registered clearing agencies, and 
registered insurance companies). A Category 2 dealer netting member 
has a lower net worth threshold but more stringent margin 
requirements than for other (``Category 1'') dealer netting members. 
Since establishment of the new membership categories, a futures 
commission merchant and two Category 2 dealers have been admitted to 
netting system membership under the new categories.
    \8\ Securities Exchange Act Release No. 35640 (April 24, 1995), 
60 FR 21014 (order approving establishment of minimum financial 
requirements for insurance companies seeking GSCC membership).
    \9\ Registration Letter, supra note 3.
    \10\ Id.
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    GSCC has made substantial progress toward satisfying the 
requirements enumerated in Section 17A(b) of the Act. However, the 
Commission believes that GSCC's exemptions from the participation 
standards set forth in Sections 17A(b)(3)(B) and 17A(b)(4)(B) of the 
Act should be continued at this time. Although GSCC has made 
advancements to encourage participation by the establishment of new 
membership categories, the Commission notes GSCC has had little 
practical experience with the utilization of the new categories. To 
date only two of these new categories for membership, the futures 
commission merchant and the Category 2 dealer netting member, have been 
employed, and within these categories only there new GSCC members have 
been added.\11\ Furthermore, during the continued temporary approval 
period, GSCC will gain experience with its new procedures described 
above, and the Commission will be able to better evaluate GSCC's 
compliance with Section 17A of the Act.\12\

    \11\ Supra note 7.
    \12\ The Commission also will continue GSCC's exemption from the 
fair representation standards for Section 17A(b)(3)(C) during the 
temporary registration period. Prior to granting permanent 
registration, the Commission will continue to evaluation GSCC's 
criteria for selecting its Board of Directors to ensure that the 
selection criteria is sufficiently flexible and assures adequate 
representation among GSCC's membership consistent with Section 
17A(b)(3)(C) of the Act.
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    It is therefore ordered that GSCC's temporary registration as a 
clearing agency (File No. 600-23) be and hereby is extended through 
November 31, 1995 subject to the terms set forth above.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\13\

    \13\ 17 CFR 200.30-3(a)(50)(i) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-14001 Filed 6-7-95; 8:45 am]
BILLING CODE 8010-01-M