[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