[Federal Register Volume 61, Number 97 (Friday, May 17, 1996)]
[Notices]
[Pages 24989-24990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12469]



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

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37205; File No. SR-MBSCC-95-08]


Self-Regulatory Organizations; MBS Clearing Corporation; Order 
Approving Proposed Rule Change Relating to Eligibility Changes for 
Settlement Balance Order Settlement

May 13, 1996.
    On October 17, 1995, MBS Clearing Corporation (``MBSCC'') filed a 
proposed rule change (File No. SR-MBSCC-95-08) with the Securities and 
Exchange Commission (``Commission'') pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Act'') relating to eligibility 
changes for Settlement Balance Order (``SBO'') settlement.\1\ On 
November 1, 1995, MBSCC filed an amendment to the proposed rule 
change.\2\ Notice of the proposal was published in the Federal Register 
on December 13, 1995, to solicit comments from interested persons.\3\ 
On January 30, 1996, and April 15, 1996 MBSCC filed additional 
amendments to the proposed rule change.\4\ No comments were received. 
As discussed below, this order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b) (1988).
    \2\ Letter from Anthony H. Davidson, Attorney, MBSCC, to Michele 
Bianco, Division of Market Regulation (``Division''), Commission 
(November 1, 1995).
    \3\ Securities Exchange Act Release No. 36557 (December 6, 
1995), 60 FR 64083.
    \4\ Letters from Anthony H. Davidson, Attorney, MBSCC, to 
Michele Bianco, Division, Commission (January 30, 1996) and to Jerry 
Carpenter, Associate [sic] Director, Division, Commission (April 12, 
1996). The January 30, 1996, amendment adds a definition of related 
participant to MBSCC's Procedures consistent with language in 
MBSCC's original filing. The April 15, 1996, amendment provides that 
a participant requesting a waiver from the eligibility requirements 
must provide MBSCC with certain assurances. The amendments were 
technical amendments that did not require republication of notice.
---------------------------------------------------------------------------

I. Description

    The proposed rule change modifies MBSCC's procedures to provide 
that MBSCC will reject trades destined for SBO settlement between 
multiple accounts of a participant as well as between a participant's 
account and an account of a related participant.\5\ As a

[[Page 24990]]

result of being rejected, such trades must settle on a trade-for-trade 
basis. A participant may request a waiver of this restriction by 
providing to MBSCC such assurances as MBSCC may request.\6\ These 
assurances may include but are not limited to (i) a letter describing 
the reason for the request and the applicable accounts for which relief 
is sought and containing a representation that the use of multiple 
accounts is not for the purpose of influencing MBSCC's clearance and 
settlement process or (ii) an opinion of counsel relating to the use of 
multiple accounts that is satisfactory to MBSCC.\7\
---------------------------------------------------------------------------

    \5\ ``Related participant'' is any affiliate (as defined in Rule 
12b-2 of the Act) or entity that is used or intended to be used in 
whole or in part to contravene the purposes of the proposed rule 
change. Letter from Anthony H. Davidson, Attorney, MBSCC, to Michele 
Bianco, Division, Commission (November 1, 1995).
    \6\ MBSCC has received two requests for a waiver. Letter from 
John J. Rioux, Vice President and Assistant General Counsel, J.P. 
Morgan & Co. Incorporated, to George Parasole, Director of Member 
Services, MBSCC (February 1, 1996) and letter from Edward K. 
McCarthy, General Counsel, Liberty Brokerage Inc., to George 
Parasole, Director of Member Services, MBSCC (February 7, 1996).
    \7\ Letter from Anthony H. Davidson, Attorney, MBSCC, to Jerry 
Carpenter, Assistant Director, Division, Commission (April 15, 
1996).
---------------------------------------------------------------------------

II. Discussion

    The Commission believes the proposal is consistent with the 
requirements of Section 17A of the Act.\8\ Specifically, Section 
17A(b)(3)(F) \9\ states that the rules of a clearing agency must be 
designed to assure the safeguarding of securities and funds which are 
in the custody or control of the clearing agency or for which it is 
responsible and to protect investors. Under the SBO processing, MBSCC 
makes cash adjustments to account for variances in the par amount of 
securities delivered by participants as permitted by the Public 
Securities Association guidelines.\10\ MBSCC believes that the ability 
to include trades among related accounts could cause a perception that 
participants might influence the amount of their cash adjustments 
through submissions of internal trades. Specifically, MBSCC believes it 
could be possible for a participants to create and submit to MBSCC for 
SBO settlement fictitious trades between related accounts that would 
permit the participant to share in a positive cash balance adjustment. 
By reducing the possibility that a participant can manipulate SBO 
settlement in such a manner, the proposed rule change should further 
MBSCC's ability to safeguard the funds in its custody or control and to 
protect investors.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78q-1 (1988).
    \9\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
    \10\ Such guidelines permit the over delivery or under delivery 
of two percent of the par amount of securities to be delivered. 
MBSCC's cash adjustment procedures pro rate the resulting positive 
or negative balances to the MBSCC participants with netted out 
positions.
---------------------------------------------------------------------------

III. Conclusion

    For the reasons stated above, the Commission finds that MBSCC's 
proposal is consistent with Section 17A of the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-MBSCC-95-08) be and 
hereby is approved.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78s(b)(2) (1988).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\ 17 CFR 200.30(a)(12) (1995).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-12469 Filed 5-16-96; 8:45 am]
BILLING CODE 8010-01-M