[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Notices]
[Pages 48186-48187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23312]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37639; File No. SR-DCC-96-09]


Self-Regulatory Organizations; Delta Clearing Corp.; Notice of 
Filing of Proposed Rule Change Regarding Securities Eligible as Margin

September 4, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 2, 1996, Delta 
Clearing Corp. (``DCC'') 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 
DCC. On August 16, 1996, DCC filed an amendment to its 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 John Grebenstein, Executive Director, DCC, to 
Michele Bianco, Division of Market Regulation, Commission (August 
16, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change will amend DCC's rules to allow 
participants the option of posting margin with DCC in the form of U.S. 
Treasury notes or U.S. Treasury bonds to amend the haircuts applicable 
to securities deposited as margin.

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

    In its filing with the Commission, DCC 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. DCC 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 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

    Currently, DCC participants may post margin in either U.S. Treasury 
bills or in central bank funds (e.g., Federal funds).\4\ The purpose of 
the proposed rule change is to amend DCC's procedures for the clearance 
and settlement of over-the-counter options and of repurchase and 
reverse repurchase agreements to allow participants the option of 
posting margin either in central bank funds or in U.S. Treasury bills, 
notes, or bonds.
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    \4\ With respect to options, participants also can post margin 
in the form of cover (i.e., Treasury securities that would be 
deliverable upon exercise of an option).
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    DCC participants trade and maintain inventories in a wide range of 
U.S. Treasury securities. However, participants do not always maintain 
inventory in U.S. Treasury bills that are eligible as DCC margin 
collateral. Consequently, participants incur additional costs in order 
to satisfy DCC's requirement that margin collateral be supplied in U.S. 
Treasury bills.
    DCC also believes that expanding the allowable margin collateral to 
include U.S. Treasury notes and bonds will improve participants' 
ability to meet margin calls in a timely fashion because they will be 
able to select from a greater portion of the securities in their 
securities inventories to meet their margin requirements. DCC also 
believes that because the U.S. Treasury securities markets is extremely 
liquid that DCC's acceptance of U.S. Treasury notes and bonds as 
collateral will not impede DCC's ability to liquidate if necessary and 
thus not increase the risk to DCC or to the national clearance and 
settlement system.
    Furthermore, DCC believes that with the appropriate ``haircut'' 
margin calls met using U.S. Treasury notes and bonds will pose no 
additional risk to the system. As its haircuts, DCC is proposing to use 
the Commission's schedule for valuation of government securities as set 
forth in the Commission's uniform net capital rule.\5\ DCC believes 
that this approach is conservative because the Commission's schedule 
provides for a larger percentage reduction in the valuation of U.S. 
Treasury securities with greater maturities. The magnitude of the 
reduction in value is consistent with DCC's methodology of assuming a 
three standard deviation movement in the

[[Page 48187]]

yield of the security based on the last one hundred day period's 
closing prices. DCC's clearing bank, Bank of New York, will accept 
these securities without further haircut. However, if the Bank of New 
York alters its haircut schedule such that this proposed rule change is 
not acceptable to it, DCC will submit a proposed rule change seeking 
Commission approval to amend its rule to conform to the Bank of New 
York haircut schedule.
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    \5\ 17 CFR 240.15c-1 (1996). The schedule for valuation of 
government securities is set forth in paragraph (c)(2)(vi)(A) of 
Rule 15c3-1.
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    DCC believes that the proposed rule change is consistent with 
Section 17A of the Act and the rules and regulations thereunder 
applicable to DCC. In particular, Section 17A(b)(3)(F) of the Act \6\ 
which requires that a clearing agency be organized and its rules be 
designed to promote the prompt and accurate clearance and settlement of 
securities transactions and to remove impediments to and to perfect the 
mechanism of a national system for the prompt and accurate clearance 
and settlement of securities transactions. DCC believes the proposed 
rule change will permit wider utilization of the system by providing 
participants with the opportunity to meet efficiently margin 
requirements consistent with DCC's obligations to safeguard funds and 
securities.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    DCC does not believe that the proposed rule change will impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.

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

    Written comments were neither solicited nor 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 reasons 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 the 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 DCC. All submissions should refer to the file 
number SR-DCC-96-09 and should be submitted by October 3, 1996.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23312 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M