[Federal Register Volume 60, Number 174 (Friday, September 8, 1995)]
[Notices]
[Pages 46878-46879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22241]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36172; File No. SR-NSCC-95-12]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Limiting the Use 
of Letters of Credit to Collateralize Clearing Fund Contributions

August 31, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 21, 1995, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-NSCC-95-12) as described below. The Commission is 
publishing this notice to solicit comments 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

    The proposed rule change increases the minimum cash clearing fund 
contribution for those members that use letters of credit as clearing 
fund collateral and sets a limit on the amount of a member's required 
clearing fund contribution that may be collateralized with letters of 
credit.\2\

    \2\ The proposed rule change was originally filed on October 27, 
1989, and was approved temporarily through December 31, 1990. 
Securities Exchange Act Release No. 27664 (January 31, 1990), 55 FR 
4297 [File No. SR-NSCC-89-16]. Subsequently, the Commission granted 
a number of extensions to the temporary approval to allow the 
Commission and NSCC sufficient time to review and assess the use of 
letters of credit as clearing fund collateral. Most recently, the 
Commission extended temporary approval through September 30, 1995. 
Securities Exchange Act Release No. 34745 (September 29, 1994), 59 
FR 50949 [File No. SR-NSCC-94-18].
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\3\

    \3\ The Commission has modified the text of the summaries 
prepared by NSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    NSCC is seeking permanent approval of a proposed rule change that 
modifies the amount of a member's required clearing fund deposit that 
may be collateralized by letters of credit. Specifically, the proposed 
rule change increases the minimum cash contribution for any member that 
uses letters of credit from $50,000 to the greater of $50,000 or 10% of 
that member's required clearing fund deposit up to a maximum of 
$1,000,000. In addition, the rule change provides that only 70% of a 
member's required clearing fund deposit may be collateralized with 
letters of credit. The rule change also adds headings to the clearing 
fund formula section of NSCC's rules for purposes of clarity and 
includes other nonsubstantive drafting changes. The effect of the 
proposed rule change is to increase the liquidity of the clearing fund 
and to limit NSCC's exposure to unusual risks resulting from the 
reliance on letters of credit.
    The current status of NSCC's clearing fund \4\ as a result of the 
change in the required clearing fund deposit is that approximately 
31.46% of the clearing fund is in cash, approximately 29.32% of the 
clearing fund is in securities, and approximately 39.22% of the 
clearing fund is in letters of credit.\5\

    \4\ These statistics are current as of July 31, 1995. 
Conversation between Anthony H. Davidson, Esq., NSCC, and Margaret 
R. Blake, Attorney, Division of Market Regulation, Commission 
(August 23, 1995).
    \5\ In October of 1989 when the Commission initially granted 
temporary approval of NSCC's proposal, letters of credit accounted 
for 76% of the total dollar value of required clearing fund 
deposits. By May 28, 1993, letters of credit accounted for less than 
30%. During the period from June 1, 1992, to May 28, 1993, letters 
of credit accounted for an average of 30.49% of the total dollar 
value of required clearing fund deposits, and for no month during 
that period did the portion of letters of credit used for required 
clearing fund deposits rise above 34%. Letter from Karen L. 
Saperstein, Vice President/Director of Legal & Associate General 
Counsel, NSCC, to Jerry W. Carpenter, Branch Chief, Division of 
Market Regulation, Commission (June 10, 1993).
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    When NSCC first filed this change the impetus was to improve NSCC's 
liquidity resources by requiring additional deposits of cash and cash 
equivalents. Since that time, NSCC has obtained additional liquidity 
resources through a line of credit with a major New York clearinghouse 
bank. NSCC currently has a three hundred million dollar line of credit 
that can be used for liquidity purposes, and the letters of credit in 
the NSCC clearing fund are available as collateral for this line of 
credit. Accordingly, NSCC believes that 

[[Page 46879]]
it has adequate liquidity resources and requests permanent approval of 
the change limiting the use of letters of credit to no more than 70% of 
a member's deposit.
    NSCC believes that the proposal is consistent with its requirements 
under Section 17A of the Act \6\ because it enhances NSCC's ability to 
safeguard securities and funds in its custody or under its control.

    \6\ 15 U.S.C. 78q-1 (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NSCC 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

    No new written comments have been solicited or received.\7\ NSCC 
will notify the Commission of any written comments it receives.

    \7\ Since the initial filing of the proposed rule change NSCC 
has received one letter of comment. In the letter Wedbush Morgan 
Securities, Inc. opposed NSCC's proposal because they believed it 
would increase the cost of posting collateral. Letter from Edward W. 
Wedbush, President, Wedbush Morgan Securities, Inc., to David F. 
Hoyt, Assistant Secretary, NSCC (November 9, 1989).
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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 reason 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 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 NSCC. All submissions 
should refer to File No. SR-NSCC-95-12 and should be submitted by 
September 29, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\

    \8\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-22241 Filed 9-7-95; 8:45 am]
BILLING CODE 8010-01-M