[Federal Register Volume 61, Number 174 (Friday, September 6, 1996)]
[Notices]
[Pages 47229-47231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22723]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37623; File Nos. SR-SCCP-96-07]


Self-Regulatory Organization; Stock Clearing Corporation of 
Philadelphia; Notice of Filing and Order Granting Accelerated Approval 
on a Temporary Basis of a Proposed Rule Change Seeking Permanent 
Approval of the Participants Fund Formulas

August 29, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 20, 1996, the Stock 
Clearing Corporation of Philadelphia (``SCCP'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-SCCP-96-07) as described in Items I and II below, 
which items have been prepared primarily by SCCP. The Commission is 
publishing this notice and order to solicit comments from interested 
persons and to grant accelerated approval of the proposed rule change 
through December 31, 1996.
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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

    The proposed rule change seeks permanent approval of SCCP's 
participants fund formulas. The Commission previously granted partial 
temporary approval to a proposed rule change establishing SCCP's 
participants fund formulas as part of the conversion of SCCP's money 
settlement system from a next-day funds settlement (``NDFS'') to a 
same-day funds settlement (``SDFS'') system.\2\
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    \2\ Securities Exchange Act Release No. 36875 (February 22, 
1996), 61 FR 7846 [File No. SR-SCCP-95-06] (order granting partial 
temporary approval and partial permanent approval of a proposed rule 
change to convert the settlement system to a same-day funds 
settlement system).
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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 that 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.\3\
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    \3\ The Commission has modified the text of the summaries 
submitted by SCCP.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    On February 22, 1996, SCCP converted its processing environment 
from an NDFS system to an SDFS system. In an effort to reduce risk in 
an SDFS settlement environment, SCCP and the Philadelphia Depository 
Trust Company (``Philadep'') implemented a new system and new controls 
with enhanced processing capabilities. The Commission approved SCCP's 
SDFS system on a permanent basis for all aspects of the filling except 
the participants fund formulas.\4\
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    \4\ Supra note 2.
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    SCCP Rule 4, governing SCCP's participants fund, and the procedures 
regarding the participants fund formulas were amended to provide for an 
all cash participants fund. The all cash requirement applies to both 
the required deposit and any additional or voluntary deposits made by 
participants.
    Particpants that choose to make voluntary deposits in most 
situations are able to increase their level of activity at SCCP and 
receive interest rebates from SCCP for deposits in excess of $50,000.
    Pursuant to Rule 4 and SCCP's procedures, SCCP calculates 
participants' required cash deposits pursuant to the following 
formulas:

    (a) Inactive Account: $5,000.\5\
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    \5\ Securities Exchange Release No. 37554 (August 9, 1996), 61 
FR 42929 [File No. SR-SCCP-96-03] (order granting temporary approval 
of a proposed rule change to establish a separate participant 
category for inactive accounts through December 31, 1996).

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[[Page 47230]]

    (b) Full Service (``CNS'') Account--The contribution of a CNS 
Participant is based upon the larger of: (1) the participant's 
monthly average of trading activity during the preceding three 
months, $1,000 for every twenty-five trading units of one hundred 
shares; or (2) the participant's aggregate dollar amount of all long 
trades at their execution price for the prior three months 
multiplied by two percent. The required contributions are rounded 
upward to $5,000 increments, and the average is a rolling average.
    (c) Regional Interface Operations (``RIO'') Account--The 
contribution of a RIO Participant is based on the participant's 
monthly average of trading activity during the preceding three 
months, $1,000 for every twenty-five trading units of one hundred 
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.
    (d) Layoff Account--The contribution of a Layoff Participant is 
set at a uniform rate of $25,000. A Layoff Participant is defined as 
a participant account whereby the participant elects to settle with 
a clearing corporation other than SCCP for trades not executed on 
the Philadelphia Stock Exchange.
    (e) Specialist Margin Account--The contributions of a Specialist 
Margin Participant is set at a uniform rate of $35,000.
    (f) Non-Specialist Margin Account--The contribution of a Non-
Specialist Margin Participant is set at a uniform rate of $35,000.

    SCCP recalculates each participants's participants fund deposit 
requirement at the end of each month based on the previous three months 
prior to the most recent month. SCCP notifies its participants of any 
required deposit increases and the amount of such additional deposit 
within ten business days of the end of the month. Participants whose 
deposit requirements decreased are notified at least quarterly although 
they may inquire and withdraw excess deposits monthly. Participants may 
leave excess cash deposits in the participants fund.
    During the pendency of the temporary approval period, SCCP has more 
fully considered the adequacy of the participants fund formulas and the 
risk profile of SCCP and its participants in an SDFS environment. SCCP 
has provided material to the Commission to demonstrate the 
effectiveness of the risk management controls of the SDFS system in 
monitoring and reducing risk. The temporary approval period for the 
participants fund formulas expires on August 31, 1996. Therefore, SCCP 
requests that the Commission permanently approve SCCP's SDFS program in 
its entirety.
    SCCP believes the proposed rule change is consistent with Section 
17A of the Act and the rules and regulations thereunder because the 
rule proposal assures the safeguarding of securities and funds in its 
custody or control or for which SCCP is responsible.

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

    SCCP does not believe that the proposed rule change will impose any 
inappropriate 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 relating to the proposed rule change have been 
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

    Section 17a(b)(3)(F) of the Act \6\ requires that the rules of a 
clearing agency 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. At this time, the Commission believes that 
SCCP's proposed rule change relating to the participants fund formulas 
is consistent with SCCP's obligations under Section 17A(b)(3)(F) to 
assure the safeguarding of securities and funds in its custody or 
control because SCCP's participants fund formulas, in conjunction with 
SCCP's other sources of liquidity (i.e., lines of credit), provide 
certain protections for SCCP and its participants from financial loss 
associated with member defaults and insolvencies.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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    However, the Commission continues to have concerns about the 
adequacy of SCCP's participants fund formulas in providing a sufficient 
source of cash liquidity and the formulas' conformity with the 
standards set forth by the Division of Market Regulation 
(``Division'').\7\ The Commission believes that clearing agencies 
operating SDFS systems must have sufficient liquidity from a 
combination of cash and lines of credit to ensure that settlement 
occurs at the end of the business day even if a participant fails to 
settle with the clearing agency or if the clearing agency experiences a 
systems problem. The Commission further believes that a clearing agency 
must have immediate access to an amount of cash which will enable the 
clearing agency to fund settlement for most participant failures or 
systems problems without having to immediately draw on its lines of 
credit (i.e., a clearing agency's lines of credit should be its 
secondary source of liquidity and not its primary source). The 
Commission is concerned with the level of cash provided by SCCP's 
formulas and whether that level of cash liquidity is sufficient given 
the demand for liquidity under an SDFS environment and SCCP's use of 
the participants fund to finance specialist purchases.\8\ For these 
reasons, the Commission is approving the proposed rule change through 
December 31, 1996. During the period of temporary approval, the 
Commission and SCCP will continue to monitor and to analyze the 
adequacy of SCCP's participants fund formulas.
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    \7\ Securities Exchange Act Release No. 16900 (June 17, 1980), 
45 FR 41920 (order publishing standards to be used by the Division 
in reviewing the grant of full registration of clearing agencies).
    \8\ For a complete description of SCCP's financing program, 
refer to Securities Exchange Act Release No. 20221 (September 23, 
1983), 48 FR 45167 (order approving full registration of SCCP, et 
al.).
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    SCCP has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication of notice of filing because the proposed 
rule change will allow SCCP to continue to apply its participants fund 
formulas when the current temporary approval expires on August 31, 
1996.

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 Room, 450 Fifth Street, N.W., Washington, 
D.C. 20549. Copies of such

[[Page 47231]]

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-96-07 and should be submitted by September 27, 1996.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-SCCP-96-07) be, and hereby 
is, temporarily approved through December 31, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22723 Filed 9-5-96; 8:45 am]
BILLING CODE 8010-01-M