[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Notices]
[Pages 48190-48191]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23343]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37658; File No. SR-GSCC-96-07]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of Amendments to a Proposed Rule Change
Relating to the Rights and Responsibilities of Interdealer Broker
Netting Members
September 6, 1996.
On July 2, 1996, the Government Securities Clearing Corporation
(``GSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-GSCC-96-07)
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ relating to the rights and responsibilities of
interdealer broker (``IDB'') netting members. GSCC amended the filing
on July 23, 1996.\2\ Notice of the proposed rule change, as amended,
was published in the Federal Register on August 20, 1996.\3\ On August
16, 1996, and on August 21, 1996,\4\ GSCC filed amendments No. 2 and 3
to the filing. Amendment 2 and amendment No. 3 are described in Items
I, II, and III below, which items have been prepared primarily by GSCC.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ Letter from Karen Walraven, Vice President and Associate
General Counsel, GSCC, to Jerry W. Carpenter, Assistant Director,
Division of Market Regulation (``Division''), Commission (July 18,
1996).
\3\ Securities Exchange Act Release No. 37565 (August 14, 1996),
61 FR 43103.
\4\ Letters from Karen Walraven, Vice President and Associate
Counsel, GSCC, to Jerry W. Carpenter, Division, Commission (August
12, 1996, and August 15, 1996).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of amendment No. 2 is to clarify that Category 1 IDB
have no liability for losses resulting from nonmember brokered
transactions. The purpose of amendment No. 3 to the proposed rule
change is to require that at least thirty percent of a Category 1 IDB's
clearing fund deposit consist of cash or eligible netting securities
and that no more than seventy percent of its clearing fund deposit be
met by pledging eligible letters of credit.
[[Page 48191]]
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 that 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.\5\
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\5\ The Commission has modified the text of the summaries
submitted by GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Currently, GSCC's rules provide that if a loss resulting from a
defaulting member relates to brokered transactions, ten percent of the
loss is allocated collectively to IDBs regardless of their activity
with the defaulting member. The proposed rule change as initially filed
proposed amending GSCC's rules to eliminate the collective loss
allocation and instead to allocate fifty percent of the loss from
either a member or nonmember brokered transactions to Category 1 and
Category 2 IDBs based on the level of their trading activity with the
defaulting member.\6\ However, pursuant to GSCC's rules, only Category
2 IDBs may enter into nonmember brokered transactions. Amendment No. 2
clarifies that the loss from a nonmember brokered transaction will be
allocated among Category 2 IDBs pro rata based on the level of their
trading activity with the defaulting member.
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\6\ A member brokered transaction is a brokered transaction
where both the buyside and sellside counterparties to the IDB are
netting members. A nonmember brokered transaction is a brokered
transaction where either the buyside or sellside counterparty to the
IDB is a nonmember.
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The purpose of amendment No. 3 to the proposed rule change is to
require that at least thirty percent of a Category 1 IDB's clearing
fund deposit consist of cash or eligible netting securities and that no
more than seventy percent of the clearing fund deposit be met by
pledging eligible letters of credit. Unlike other participants which
are required to deposit ten percent of their clearing fund requirement
in cash, Category 1 IDBs need only deposit $100,000 in cash which is
two percent of their proposed fixed $5,000,000 deposit requirement. As
originally filed, GSCC's proposed rule change permitted Category 1 IDBs
to meet the non-cash component of their required clearing fund deposit
(i.e., $4.9 million) all or in part by pledging eligible letters of
credit to GSCC. However, in amendment No. 3 GSCC states that for
Category 1 IDBs, the non-cash component of their clearing fund
requirement should be consistent with the composition requirements of
other netting members, and therefore, no more than seventy percent of a
Category 1 IDB's required clearing fund deposit may be met by pledging
eligible letters of credit. At least thirty percent of their clearing
fund requirement must consist of cash or eligible netting securities.
Both Category 1 IDBs, because of their increased volumes due to the
implementation and expansion of repo brokering services, and Category 2
IDBs, because they may enter trades with nonmembers, present increased
risk to GSCC and its other members. Therefore, GSCC believes that IDBs
should be subject to the same clearing fund deposit composition
requirements as other netting members, with the exception of the lower
cash requirement for Category 1 IDBs.
GSCC believes the proposed rule change, as amended, is consistent
with the requirements of Section 17A of the Act \7\ and the rules and
regulations thereunder because the proposal should facilitate the
prompt and accurate clearance and settlement of securities transactions
by IDBs in GSCC's netting system.
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\7\ 15 U.S.C. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
GSCC does not believe that the proposed rule change as amended will
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
Written comments were not solicited with respect to the proposed
rule change as amended, and none have been 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 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, 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 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-96-07 and should be submitted by
October 3, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23343 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M