[Federal Register Volume 61, Number 166 (Monday, August 26, 1996)]
[Notices]
[Pages 43800-43801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21604]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37582; File No. SR-NSCC-96-14]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Regarding the Use
of Letters of Credit as Clearing Fund Collateral
August 19, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ notice is hereby given that on July 25, 1996, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II, and III below, which items have
been prepared primarily by NSCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\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
With the proposed rule change, NSCC is seeking permanent approval
of certain clearing fund contributions requirements.
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.\2\
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\2\ The Commission has modified parts of these statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On January 31, 1990, the Commission approved on a temporary basis a
proposed rule change filed by NSCC which modified the amount of a
member's clearing fund required deposit that may be collateralized by
letters of credit.\3\ Specifically, the rule change increased the
minimum cash contribution for those members which use letters of credit
to collateralize their open account indebtedness from $50,000 to the
greater of $50,000 or 10% of their clearing fund required deposit up to
a maximum of $1,000,000. In addition, the rule change provided that
only 70% of a member's required deposit may be collateralized with
letters of credit. The rule change also added headings to the clearing
fund formula section for clarity and made other non substantive
drafting changes. The goal of the rule change was to increase the cash
liquidity of the clearing fund and to limit NSCC's exposure to any
unusual risk from the reliance on letters of credit. When NSCC first
filed this change the intent 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 three major New York clearing house banks.
Currently, NSCC has a four hundred million dollar line of credit
[[Page 43801]]
that can be used for liquidity purposes, and letters of credit in the
NSCC clearing fund are available as collateral for this line of credit.
As of June 28, 1996, NSCS's clearing fund had a total value of
$769,062,580 and consisted of approximately 39.4% cash, approximately
29.2% qualifying securities, and approximately 31.4% letters of credit.
Of NSCC's 379 members with clearing fund deposits, fifty-two members
use letters of credit to collateralize a portion of their clearing fund
required deposit. Only one member's use of a letter of credit reaches
the maximum permissible portion of its clearing fund required deposit.
Since NSCC began accepting letters of credit for clearing fund
purposes, NSCC has never drawn on a member's letter of credit for any
reason. NSCC believes that it has adequate liquidity resources and
requests permanent approval of the change limiting letters of credit
use to no more than 70% of the member's deposit.
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\3\ 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 to assess the use
of letters of credit as clearing fund collateral. Most recently, the
Commission extended temporary approval through September 30, 1996.
Securities Exchange Act Release No. 36360 (October 11, 1995), 60 FR
53945 [File No. SR-NSCC-95-12].
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Because the proposed rule change relates to NSCC's capacity to
safeguard securities and funds in its custody or control and to protect
the public interest, it is consistent with the requirements of Section
17A of the Act and the rules and regulations thereunder applicable to
NSCC.
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 written comments have been received since the last filing. NSCC
will notify the Commission of any written comments received.
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 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 provisions of 5
U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room in Washington, D.C. Copies of such
filing will also be available for inspection and copying at the
principal office of NSCC. All submissions should refer to the file
number SR-NSCC-96-14 and should be submitted by September 16, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-21604 Filed 8-23-96; 8:45 am]
BILLING CODE 8010-01-M