[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Notices]
[Pages 48189-48190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23309]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37647; File No. SR-GSCC-96-8]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Relating to 
Repurchase Agreement Netting Service

September 5, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 1, 1996, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-GSCC-96-8) as described in Items I, II, and III 
below, which items have been prepared primarily by GSCC. On August 9, 
1996, GSCC 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.
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    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ Letter from Jeffrey Ingber, General Counsel and Secretary, 
GSCC, to Christine Sibille, Division of Market Regulation, 
Commission (August 6, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    GSCC proposes to reimburse two costs related to interdealer broker 
netting members' (``IDBs'') participation in GSCC's netting system for 
repurchase and reverse repurchase transactions (``repo'') involving 
government securities as the underlying instruments.

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

    In its filing with the Commission, GSCC 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. GSCC 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 statements GSCC 
submitted.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Recently, the Commission approved File No. SR-GSCC-96-04 to allow 
IDB netting members to participate in GSCC's netting service for 
repos.\4\ Under the rule, IDB and non-IDB netting members can submit 
data on brokered repos to GSCC in the same manner as they do for cash 
transactions.\5\ GSCC compares, nets, and settles repo close legs and 
repo start legs submitted prior to start date (i.e., non-same-day-
settling start legs) pursuant to GSCC's existing procedures for the 
netting and settlement of repos. The member parties to brokered repos 
assume the responsibility for the intraday settlement of start legs 
outside of GSCC.
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    \4\ Securities Exchange Act Release No. 37482 (August 1, 1996), 
61 FR 40275 (``Release No. 37482'').
    \5\ IDBs are restricted to submitting to GSCC data on offsetting 
repo transactions done with GSCC repo netting participants in order 
to ensure that the IDB will net out of the repo transaction.
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    This filing will amend GSCC's rules to accommodate IDB 
participation in repo netting and, more particularly, the ineligibility 
of intraday settling start legs for netting and settlement through 
GSCC. The first change relates to the clearance charges incurred by 
participating IDBs for the settlement of the start legs of brokered 
repos. The term clearance charges is a commonly used term that refers 
to costs charged by a clearing agent bank to a broker-dealer customer 
related to the settlement by that customer of its securities movement 
obligations. Such costs many include both fixed charges and pass 
through charges such as the costs of Fed Wire.
    As GSCC stated in its prior rule filing,\6\ its long-range plans 
for repo services entail the full and complete automation of all 
aspects of start and close leg processing, including the intraday 
settlement of repo start legs. GSCC believes that intraday settlement 
of start legs will be introduced next year. Once intraday settling 
start legs are netted by GSCC, participating IDBs will not incur any 
clearance cost for them because no movements of securities between IDBs 
and their dealer customers will be required. Rather, IDB's settlement 
obligations will be satisfied through the netting process.\7\ In order 
to not disadvantage IDBs that wish to participate in the repo netting 
process immediately, GSCC will absorb IDBs' clearance charges related 
to the settlement of intraday repo start legs. To protect itself from 
being obligated to pay for clearance charges that are significantly 
higher than those that are customary in the industry, GSCC will reserve 
the right to absorb such charges

[[Page 48190]]

only up to a dollar amount deemed reasonable by it.
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    \6\ Release No. 37482.
    \7\ Because IDBs will be permitted only to submit to GSCC data 
on offsetting repo transactions done with GSCC netting participants, 
their settlement obligations for the start legs will net out as they 
do with the close legs.
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    Also in order to not disadvantage IDBs participating in the initial 
brokered repo netting service, if an IDB incurs or causes GSCC to incur 
an overnight financing cost resulting solely from securities delivered 
late in the day that the IDB is not able to redeliver before the close 
of the Fed Wire, the IDB may submit a bill for this financing cost to 
GSCC. If GSCC determines that such cost was incurred unavoidably and 
without fault by the IDB, GSCC will absorb or reimburse the IDB for 
this cost and will allocate it as it normally allocates financing costs 
under its fee structure. The term ``overnight financing cost'' is a 
commonly used term that refers to the costs charged by a clearing agent 
bank to a broker-dealer customer related to the financing by the bank 
of securities held from one business day until the next business day in 
the customer's clearing account. To protect itself from being obligated 
to pay for overnight financing charges that are significantly higher 
than those that are customary in the industry, GSCC will reserve the 
right to absorb such charges only up to a dollar amount deemed 
reasonable by it.
    The Board of Directors of GSCC also has determined it appropriate 
to make these fee reimbursement provisions applicable to a division of 
a dealer netting member that: (1) Operates in an overall manner as a 
broker; (2) participates in the repo netting service through a separate 
GSCC account; and (3) abides by the restrictions imposed on IDBs that 
participate in the repo netting process.
    The proposed rule change is consistent with the requirements of 
Section 17A of the Act and the rules and regulations thereunder because 
it should facilitate the prompt and accurate clearance and settlement 
of securities transactions.\8\
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    \8\ 15 U.S.C. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC perceives no impact on competition by reason of the proposed 
rule change.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    GSCC has not solicited or received comment on the proposed rule 
change. Members will be notified of the rule change filing, and 
comments will be solicited by an Important Notice.

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 reasons for so 
finding or (ii) as to which GSCC 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, NW., Washington, DC 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, NW., Washington, 
DC 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of GSCC. All submissions should 
refer to the file number SR-GSCC-96-8 and should be submitted by 
October 3, 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. 96-23309 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M