[Federal Register Volume 61, Number 6 (Tuesday, January 9, 1996)]
[Notices]
[Pages 676-678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-264]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36671; File No. SR-SCCP-95-06]


Self-Regulatory Organizations; Stock Clearing Corporation of 
Philadelphia; Notice of Filing of a Proposed Rule Change to Convert the 
Settlement System for Securities Transactions to a Same-Day Funds 
Settlement System

January 3, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 3, 1995, the 
Stock Clearing Corporation of Philadelphia (``SCCP'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-SCCP-95-06) as described in Items I, II, and III 
below, which items have been prepared primarily by SCCP. On December 
19, 1995, SCCP filed an amendment to the proposed rule change.\2\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Letter from Keith Kessel, Compliance Officer, SCCP and 
Philadep to Peter R. Geraghty, Esq., Division of Market Regulation, 
Commission (December 14, 1995).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    SCCP proposes to amend Rules 4, 10 and 27 and adopt Rule 4(A) and 
certain SCCP Procedures.\3\ The proposed rule change reflects a planned 
industry conversion to an expanded same-day funds settlement (``SDFS'') 
environment.

    \3\ The text of these proposals is attached as Exhibit B to File 
No. SR-SCCP-95-06. The file is available for review in the 
Commission's Public Reference Room and at the principal office of 
SCCP.
---------------------------------------------------------------------------

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

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

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Introduction
    The proposed rule change sets forth the rules and procedures 
governing SCCP's SDFS system service. SCCP intends to support the 
Philadelphia Depository Trust Company (``Philadep'') to provide 
participants full SDFS depository and clearing services for all 
eligible securities. SCCP has made a substantial commitment to 
designing and building the data processing and computer network that 
will be the foundation for SCCP's SDFS system. Throughout this major 
industry conversion, SCCP has worked closely with Philadep, other 
registered clearing agencies, the Commission and the Board of Governors 
of the Federal Reserve System (``Federal Reserve'').
    In assessing the impact of an expanded SDFS environment, the 
operational requirements, risk, liquidity needs, among other matters, 
were evaluated on a joint SCCP/Philadep basis. Operationally, both 
wholly-owned subsidiaries of the Philadelphia Stock Exchange, Inc. 
(``PHLX'') are integrally-related. Both registered clearing agencies 
have a substantial overlap of participants as well as strategic 
business objectives.
    Many links or tie-ins between SCCP and Philadep exist by bylaw, 
rule and agreement. For example, pursuant to a long-standing joint 
agency agreement between SCCP and Philadep, SCCP, on behalf of 
Philadep, effects, among other things, daily money settlements on 
behalf of Philadep participants for securities received into and 
delivered out of their accounts; processing of CNS movements from one 
participant to another; processing of all SCCP/Philadep dividend and 
reorganization settlements; and the preparation, rendering and 
collection of bills to Philadep participants for depository services. 

[[Page 677]]

    In addition to these services, Philadep, on behalf of SCCP, 
facilitates book-entry movements through a joint SCCP and Philadep 
allocation system in order to assure continuous net settlements for the 
accounts of SCCP participants. Philadep also has contractually agreed 
to provide SCCP with the means to pledge collateral to banks so that 
SCCP may obtain secured loans from such respective banks.
    In addition to these arrangements, SCCP will make several 
modifications in its Rules and Procedures to accommodate SDFS. First 
and foremost, SCCP will revise Rule 10 related to money settlements to 
provide that all payments must be sent by Federal Funds instead of by 
next-day funds or check. Second, SCCP will modify Rule 27 to further 
clarify that SCCP will serve as the agent for money settlements of all 
participants transacting business with either SCCP or Philadep. SCCP 
Rule 27 currently provides that SCCP will act to effect daily money 
settlements on behalf of those organizations or entities which are 
participants of both SCCP and Philadep.
    SCCP and its participants have directly benefited from the 
interrelationship between SCCP and Philadep. They will continue to 
directly benefit from this relationship, most notably now in the risk 
management and control areas as described more fully in SR-Philadep-95-
08.
2. Revised Participants Fund
    To compensate for the risks in a SDFS environment and to respond to 
SCCP's liquidity needs, SCCP will modify its Participants Fund in its 
form and size. SCCP will maintain an all cash Participants Fund.
    The all cash requirement applies to both the minimum and any 
additional, voluntary deposits. If participants decide to make 
voluntary, additional deposits, they will accomplish two objectives: 
first, it allows them to increase the level of activities that may 
occur without potential disruption and, second, they will receive 
interest rebates from SCCP/Philadep for deposits in excess of $50,000.
    Each SCCP participant must deposit a minimum amount of $10,000.\4\ 
Whereas some inactive participants will only maintain a required 
deposit of $10,000, many participants will have to deposit additional 
amounts based upon the type and extent of their clearing and depository 
activities. In order to effect the transition of SCCP and its 
participants to the SDFS environment, SCCP will implement these changes 
on or before February 1996.

    \4\ See Exhibits B1 and B3 to File No. SR-SCCP-95-06. The file 
is available for review in the Commission's Public Reference Room 
and at the principal office of SCCP.
---------------------------------------------------------------------------

    SCCP will calculate the required cash deposit according to a 
participant's activity \5\ in accordance with the following formulae:

    \5\ For Participants that utilize the RIO interface for 
settlement, half of the SCCP Clearing Fund deposit requirement shall 
be allocated to Philadep's Participants Fund to protect against 
potential settlement defaults for securities not eligible for the 
RIO interface. Similarly, those Philadep Participants that clear and 
settle through CNS accounts at SCCP shall have their respective 
Philadep and SCCP Participants Fund deposits combined and then 
divided equally and allocated between Philadep and SCCP to satisfy 
the Fund deposit requirement at each clearing corporation.

    (a) Inactive Account \6\--The contributions of Inactive 
Participants are set at a uniform rate of $10,000. Inactive is 
defined as 20 or fewer trades on average per month.

    \6\ For SCCP Inactive Participants that are also Philadep 
Inactive Participants, the SCCP Participants Fund deposit shall be 
$5,000. For SCCP Inactive Participants that are also Philadep Active 
Participants, no additional SCCP Participants Fund deposit will be 
required.
---------------------------------------------------------------------------

    (b) Full Service (``CNS'') Account--The contributions of CNS 
Participants are based upon the larger of: (1) A participant's 
monthly average of trading activity during the preceding quarter, 
$1,000 for every 25 trading units of 100 shares (with a $10,000 
minimum and a $75,000 maximum contribution); or (2) a participant's 
aggregate dollar amount of all long trades at their execution price 
for each quarter divided by the number of days in such quarter times 
two percent (with a minimum $10,000 contribution and a maximum 
$1,000,000 contribution). The required contributions are rounded 
upward to $5,000 increments.
    (c) Regional Interface Operations (``RIO'') Accounts--The 
contribution of RIO Participants are based upon a participant's 
monthly average of trading activity during the preceding quarter, 
$1,000 for every 25 trading units of 100 shares (with a $10,000 
minimum and a $75,000 maximum contribution). The required 
contributions are rounded upward to $5,000 increments. RIO is 
defined as a participant account whereby the participant elects to 
settle with a clearing corporation other than SCCP or Philadep.
    (d) Layoff Account--The contributions of Layoff Participants are 
set at a uniform rate of $25,000. Layoff is defined as a participant 
account whereby the participant elects to settle with a clearing 
corporation other than SCCP or Philadep for trades not executed on 
the Philadelphia Stock Exchange.
    (e) Specialist Margin Account--The contributions of Specialist 
Margin Participants are set at a uniform rate of $35,000.
    (f) Non-Specialist Margin Account--The contributions of Non-
Specialist Margin Participants are set at a uniform rate of $35,000.
    (g) A participant shall be only responsible for making the 
highest deposit amount required by any single formula above. The 
formulae, therefore, are not additive.

    SCCP will recalculate the Participants Fund deposit requirements at 
the end of each month based on the previous three months prior to the 
most recent month. SCCP will notify its participants of any required 
deposit increases and the amount of such additional deposit within ten 
(10) business days of the end of the month. Participants whose deposit 
requirements have decreased will be notified at least quarterly, 
although they may inquire and withdraw excess deposits monthly. In this 
way, participants may leave excess cash deposits in the Participants 
Fund and reduce the level of monthly administration that would 
otherwise be necessary.
    SCCP estimates that at the time of implementing the foregoing 
modifications to the risk management controls, SCCP and Philadep will 
have combined liquidity resources of over $60 million, comprising $7 
million in combined cash deposits to the Participants Fund (under the 
revised formulae), $4.7 million in unrestricted capital and $50 million 
in lines of credit,\7\ altogether designed to support the new SDFS 
system. SCCP/Philadep will routinely monitor these amounts and assess 
the need to increase them over time based on SCCP and Philadep activity 
levels.

    \7\ As of the date of this filing, SCCP/Philadep has secured $30 
million in such credit lines and projects to secure $20 to $40 
million in additional lines.
---------------------------------------------------------------------------

    SCCP believes that the proposed rule change is consistent with 
Section 17A under the Exchange Act in that it promotes the prompt and 
accurate clearance and settlement of securities transactions in 
securities and funds. SCCP's Rules and Procedures are designed to 
promote efficiencies and protect Philadep and its participants in an 
expanded SDFS environment.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    SCCP does not believe that the proposed rule change will 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 written comments have been solicited or received. SCCP will 
notify the Commission of any written comments received by SCCP.

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 

[[Page 678]]
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 reasons for so finding, or (ii) as 
to which SCCP 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, N.W., Washington, D.C. 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 the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of SCCP. All 
submissions should refer to the file number SR-SCCP-95-06 and should be 
submitted by January 30, 1996.

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

    \8\ 17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-264 Filed 1-8-96; 8:45 am]
BILLING CODE 8010-01-M