[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