[Federal Register Volume 60, Number 231 (Friday, December 1, 1995)]
[Notices]
[Pages 61719-61720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-29319]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36508; File No. 600-23]


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

November 27, 1995.
    On February 3, 1995, the 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\ The Commission published notice of GSCC's 
request in the Federal Register on October 26, 1995.\4\ No comments 
were received. This order extends GSCC's 

[[Page 61720]]
temporary registration as a clearing agency through November 30, 
1996.\5\

    \1\ 15 U.S.C. 78s(a) (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 (``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'').
    \4\ Securities Exchange Act Release No. 36398 (October 20, 
1995), 60 FR 54895.
    \5\ 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 November 30, 1995. 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, repurchase transactions (``repos''), the multilateral netting 
of trades, the novation of netted trades, and daily marking-to-the-
market. In connection with GSCC's clearance ad 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) \6\ 
and with the fair representation requirements in Section 17A(b)(3)(C). 
GSCC has requested that the Commission rescind 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 February Registration Letter, GSCC 
also stated that it believes its current method of selecting its Board 
of Directors assures members fair representation.\8\

    \6\ The Commission determined that GSCC's rules did not provide 
for all the statutory categories of membership required by Section 
17A(b)(3)(B) or the financial standards for such 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).
    \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 
establishing 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 Category 2 dealers and interdealer brokers, 
issuers of government securities, insurance companies, registered 
clearing agencies, and registered investment companies). Under 
GSCC's rules, a Category 2 dealer netting member has a lower net 
worth threshold but more stringent margin requirements than Category 
1 dealer members.
    \8\ 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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    GSCC has made substantial progress toward satisfying the 
requirements enumerated in Section 17A(b) of the Act. The Commission 
believes that while GSCC's new categories of membership are not 
extensively used at this time, GSCC is in compliance with the 
requirements of Sections 17A(b)(3)(B) and 17A(b)(4)(B) of the Act.\9\ 
Therefore, the Commission is eliminating GSCC's exemption from the 
provisions of Sections 17A(b)(3)(B) and 17A(b)(4)(B).

    \9\ Currently, GSCC has one Category 2 dealer netting member and 
one futures commission merchant. None of the other membership 
categories discussed supra in note 7 are being used.
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    GSCC has recently introduced clearance and settlement services for 
certain repurchase agreement transactions.\10\ Because institutional 
entities are much more involved in the repo market than in the cash 
market, GSCC expects much greater utilization of its nontraditional 
membership categories (e.g., those membership categories for entities 
other than dealers and banks) in the coming years. The Commission 
believes that as the number of members in these nontraditional 
categories grows, GSCC should continue to review its criteria for 
membership in the various categories.

    \10\ Securities Exchange Act Release No. 36491 (November 17, 
1995).
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    The Commission will continue GSCC's exemption from the fair 
representation standards of Section 17A(b)(3)(C) during the temporary 
registration period. Prior to granting permanent registration, the 
Commission will evaluate GSCC's criteria for selecting its Board of 
Directors to ensure that the selection criteria is sufficiently 
flexible to assure adequate representation of members in each of GSCC's 
membership categories 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 30, 1996, subject to the terms set forth above.
    For the Commission by the Division of Market Regulation, pursuant 
to delegated authority.\11\

    \11\ 17 CFR 200.30-3(a)(50)(i) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-29319 Filed 11-30-95; 8:45 a.m.]
BILLING CODE 8010-01-M