[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] ----------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- 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). --------------------------------------------------------------------------- Jonathan G. Katz, Secretary. [FR Doc. 95-14001 Filed 6-7-95; 8:45 am] BILLING CODE 8010-01-M