[Federal Register Volume 60, Number 207 (Thursday, October 26, 1995)]
[Notices]
[Pages 54895-54896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26547]



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SECURITIES AND EXCHANGE COMMISSION
[Release 34-36398; File No. 600-23]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of an Application for Full Clearing 
Agency Registration and an Application for Extension of Temporary 
Registration as a Clearing Agency

October 20, 1995.
    Notice is hereby given that on February 3, 1995, the Government 
Securities Clearing Corporation (``GSCC'') filed with the Securities 
and Exchange Commission (``Commission'') an application, pursuant to 
sections 17A and 19(a) of the Securities Exchange Act of 1934 
(``Act''),\1\ requesting that the Commission grant GSCC full 
registration as a clearing agency or in the alternative extend GSCC's 
temporary registration as a clearing agency until such time as the 
Commission grants GSCC permanent registration.\2\ The Commission is 
publishing this notice to solicit comments from interested persons on 
GSCC's application.

    \1\ 15 U.S.C. 78q-1, 78s(a) (1988).
    \2\ Letter from Charles A. Moran, President, GSCC, to Brandon 
Becker, Director, Division of Market Regulation (``Division''), 
Commission (February 3, 1995) (``February Registration Letter''). 
GSCC supplemented the February Registration letter in its letter 
from Charles A. Moran, President, GSCC, to Brandon Becker, Director, 
Division, Commission (September 15, 1995) (``September Registration 
Letter'').
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    On May 24, 1988, the Commission approved, pursuant to Sections 17A 
and 19(a) of the Act and Rule 17Ab2-1(c) thereunder,\3\ the application 
of GSCC for registration as a clearing agency for a period of three 
years.\4\ The Commission subsequently has extended GSCC's registration 
until November 30, 1995.\5\

    \3\ 17 CFR 240.17Ab2-1 (1994).
    \4\ Securities Exchange Act Release No. 25740 (May 24, 1988), 53 
FR 19639.
    \5\ Securities Exchange Act Release Nos. 29067 (April 11, 1991), 
56 FR 15652; 32385 (June 3, 1993), 58 FR 32405; and 35787 (May 31, 
1995), 60 FR 30324.
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    GSCC provides clearance and settlement services for its members' 
transactions in government securities. GSCC offers its members services 
for next-day settling trades, forward settling trades, auction takedown 
activity, the multilateral netting of trades, the novation of netted 
trades, and 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.
    At the time of GSCC's initial temporary registration, the 
Commission granted GSCC exemptions from compliance with the 
participation standards in Sections 17A(b)(3)(B) and 17A(b)(4)(B) and 
with the fair representation requirements in Section 17A(b)(3)(C).\6\ 
GSCC has requested that the Commission remove GSCC's exemption from the 
participation standards in Sections 17A(b)(3)(B) and 17A(b)(4)(B). As 
more fully set forth in the February Registration Letter, GSCC believes 
that it has adequately addressed the Commission's concerns regarding 
GSCC's membership eligibility standards by establishing new categories 
of membership.\7\ In the May 

[[Page 54896]]
31, 1995, order extending GSCC's temporary registration as a clearing 
agency,\8\ the Commission noted that GSCC's new categories of 
membership had not been extensively used. As discussed below, GSCC is 
in the process of introducing services for trades in repurchase 
agreements involving government securities (``repos''). Because 
institutional entities are more significant participants in the repo 
market than in the cash market, GSCC expects much greater utilization 
of these and other nontraditional membership categories (e.g., those 
membership categories for entities other than dealers and banks) in the 
coming years. In the February Registration Letter, GSCC stated that it 
believes its current method of selecting its board of directors assures 
members fair representation.\9\ The Commission is reviewing GSCC's 
request to remove the exemptions.

    \6\ The Commission determined that GSCC's rules did not 
enumerate the statutory categories of membership as required by 
Section 17A(b)(3)(B) or the financial standards for applicants and 
members as contemplated by Section 17A(b)(4)(B). 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) before granting full 
registration as a clearing agency. 15 U.S.C. 78q-1(b)(3)(C) (1988).
    \7\ Since the Commission's original order granting GSCC 
temporary registration, the Commission has approved two proposed 
rule changes that increased the categories of those eligible for 
membership in GSCC's netting system. 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 and interdealer brokers, issuers of 
government securities, insurance companies, registered clearing 
agencies, and registered insurance companies).
    \8\ Supra note 5.
    \9\ GSCC's current selection process for its board of directors 
permits any GSCC member to nominate candidates for election to the 
Board and to vote for candidates so nominated. In the February 
Registration Letter, GSCC stated that it recognizes future 
membership growth may require GSCC to adjust the selection process 
to ensure fair member representation on the Board.
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    In addition to the accomplishments cited by GSCC in the February 
Registration Letter, GSCC asserts that it has made significant progress 
towards offering a comprehensive set of services to the Government 
securities marketplace through the implementation of its comparison 
service for repos \10\ and through its proposed rule change that would 
grant GSCC the authority to implement netting, settlement, and 
guarantee services for the non-same-day-settling aspects of overnight 
and term repos.\11\ Furthermore, GSCC represents that it and the Board 
of Trade Clearing Corporation have made progress toward establishing a 
cross-margining arrangement for the benefit of market participants that 
are active in both the cash and futures Government securities markets.

    \10\ In the September Registration Letter, GSCC represents that 
since May 12, 1995, the repo comparison service has grown to include 
43 participants with an average daily volume of 2,330 repos compared 
with an average value of $74.1 billion. The average daily comparison 
rate for these repos is 93 percent. For a complete description of 
GSCC's comparison service for repos, refer to Securities Exchange 
Act Release No. 35557 (March 31, 1995), 60 FR 17598 (order approving 
the GSCC comparison service for repos).
    \11\ For a description of GSCC's proposal regarding the 
implementation of netting, settlement, and guarantee services for 
the non-same-day-settling aspects of overnight and term repos, refer 
to Securities Exchange Act Release No. 36252 (September 19, 1995), 
60 FR 49649 [File No. SR-GSCC-95-02] (notice of filing of proposed 
rule change).
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    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing application by November 16, 1995. 
Such written data, views, and arguments will be considered by the 
Commission in granting registration or instituting proceedings to 
determine whether registration should be denied in accordance with 
Section 19(a)(1) of the Act.\12\ Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Reference should be made to File No. 600-23. Copies of the amended 
application for registration and all written comments will be available 
for inspection at the Commission's Public Reference Room, 450 Fifth 
Street, NW., Washington, DC 20549.

    \12\ 15 U.S.C. 78s(a)(1) (1988).

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

    \13\ 17 CFR 200.30-3(a)(16) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-26547 Filed 10-25-95; 8:45 am]
BILLING CODE 8010-01-M