[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Notices]
[Pages 55678-55679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27610]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37851; File Nos. SR-MCC-96-04; SR-MSTC-96-04]


Self-Regulatory Organizations; Midwest Clearing Corporation; 
Midwest Securities Trust Company; Order Approving Proposed Rule Changes 
Relating to Nominations for Board Membership, the Risk Assessment 
Committees, Appeals Process, Audits and Financial Reports, and 
Temporary Sponsored Participants and Accounts

October 22, 1996.

I. Introduction

    On June 26, 1996, the Midwest Clearing Corporation (``MCC'') and 
Midwest Securities Trust Company (``MSTC'') submitted to the Securities 
and Exchange Commission (``SEC'' or ``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ 
proposed rule changes (SR-MCC-96-04 and SR-MSTC-96-04) to amend certain 
rules in response to MSTC's withdrawal from the securities dispository 
business and MCC's withdrawal from the securities clearance and 
settlement business.
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    \1\ 15 U.S.c. 78s(b)(1) (1988).
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    The proposed rule changes were published for comment in the Federal 
Register on August 20, 1996, to solicit comments from interested 
persons.\2\ No comments were received on the proposed rule changes. For 
the reasons discussed below, the Commission is approving the proposed 
rule changes.
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    \2\ Securities Exchange Act Release No. 37555 (August 9, 1996), 
61 FR 43105.
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II. Description of the Proposals

    On December 26, 1995, MSTC and MCC filed proposed rule changes 
relating to MSTC's withdrawal from the securities depository business 
and MCC's withdrawal from the securities clearance and settlement 
business.\3\ Subsequent to the Commission's approval of the filings, 
MSTC commenced and orderly wind-down of its operations and a transition 
of all of its participants to other service provides, and MCC ceased 
operations for all of its participants except its Sponsored 
Participants.
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    \3\ For a complete discussion of MCC's and MSTC's withdrawal 
from the clearing and depository businesses, refer to Securities 
Exchange Act Release No. 36684 (January 5, 1996), 61 FR 1195 (File 
Nos. SR-CHX-95-27, SR-DTC-95-22, SR-MCC-95-4, SR-MSTC-95-10, and 
NSCC-95-15), (order approving MCC's and MSTC`s withdrawal from the 
clearance and settlement and securities depository businesses).
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    In connection with the withdrawal from the clearance, settlement, 
and depository businesses, MSTC and MCC are amending their By-Laws to 
eliminate the requirement that they provide participants with 
information relating to the nomination and election of board 
members.\4\ Additionally, MSTC and MCC are deleting the provisions in 
their rules relating to their respective Risk Assessment Committee.\5\ 
Because of the elimination of the Risk Assessment Committees, MSTC and 
MCC are amending their respective rules to eliminate the requirement 
that MSTC and MCC consult with the Risk Assessment Committee before 
ceasing to act for a participant and to replace subsequent references 
to the Risk Assessment Committee with references to a panel of board 
members.
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    \4\ MSTC is amending Article III, Section 2 of its By-Laws, and 
MCC is amending Article 3, Section 3.2 of its By-Laws.
    \5\ MSTC is deleting Article I, Rule 4 and amending Article V, 
Rule 2. MCC is deleting Article I, Rule 4 and amending Article VIII. 
Rule 2.
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    MSTC and MCC are amending their respective appeal processes to 
conform their appeal procedure to similar procedures currently used by 
the Chicago Stock Exchange (``CHX'') for emergency suspensions. 
Specifically, the amendments eliminate a second level of internal 
appeals and adjust some of the time periods set forth in the rules.\6\
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    \6\ MSTC is amending Article VII, Rule 8, Section 3 and deleting 
Section 5, and MCC is amending Article X, Rule 8, Section 3 and 
deleting Section 5.
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    MSTC and MCC are deleting their respective rules relating to audits 
and financial reports, such as the production of independent financial 
statements or internal accounting controls.\7\

[[Page 55679]]

Additionally, MSTC and MCC are deleting their respective rules relating 
to Temporary Sponsored Participants and Accounts.\8\
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    \7\ MSTC is deleting Article VII, Rule 5, and MCC is deleting 
Article X, Rule 5.
    \8\ MSTC is Article VIII, Rules 1 through 5, and MCC is amending 
Article XI, Rules 1, 2(a), 2(b), 2(c), 3(a), 3(b), 3(c), 5(d), 7(a) 
through 7(e), 7(g), 7(i), 10(a), 11(a), 11(d)(3) through 11(d)(6), 
and 11(e) through 11(i) and deleting Rules 5(c), 7(f), and 7(h).
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    MSTC and MCC believe that the rule changes are consistent with 
Section 17A \9\ of the Act because the amendments will facilitate the 
prompt and accurate clearance and settlement of securities transactions 
and are designed to assure the safeguarding of securities and funds 
which are in their control or for which they are responsible.
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    \9\ 15 U.S.C. 78q-1 (1988).
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III. Discussion

    Section 17A(b)(3)(F) of the Act \10\ requires that the rules of a 
clearing agency be designed to remove impediments to and perfect the 
national system for the clearance and settlement of securities 
transactions. The Commission believes that MSTC's and MCC's By-law 
amendments in response to MSTC's withdrawal from the securities 
depository business and MCC's withdrawal from the securities clearance 
and settlement business are consistent with their obligations under 
Section 17A(b)(3)(F) of the Act. Specifically, eliminating rules 
relating to nominations for board membership, the Risk Assessment 
Committee, the appeals process, audits and financial reports, and 
Temporary Sponsored Participants and Accounts, will eliminate 
duplicative and obsolete rules without any substantive effect.
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    \10\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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    The Commission believes that MSTC's and MCC's amendments to their 
By-Laws to eliminate the requirement that participants receive 
information relating to the nomination and election of board members 
should remove rules that are currently obsolete in light of MSTC's and 
MCC's withdrawal from the securities depository business and securities 
clearance and settlement businesses. Specifically, because MSTC no 
longer has any active participants, it is no longer appropriate to 
require MSTC to provide participants with information relating to the 
nomination and election of board members. Additionally, membership in 
the CHX is a prerequisite to being accepted by MCC as a Sponsored 
Participant. Therefore, all of MCC's Sponsored Participants are CHX 
members, and as CHX members, MCC's Sponsored Participants receive 
information relating to the nomination and election of the CHX board of 
governors pursuant to CHX rules.
    The Commission believes that it is appropriate for MSTC and MCC to 
delete the provisions in their rules relating to their respective Risk 
Assessment Committees. Specifically, in light of MSTC's withdrawal from 
the securities depository business and MCC's withdrawal from the 
securities clearance and settlement business, it is no longer necessary 
to maintain a Risk Assessment Committee that serves as an appellate 
review board and independent consultant to management.
    Because MSTC has no members and because all MCC participants are 
also required to be CHX floor members, the Commission believes that it 
is appropriate for MSTC and MCC to amend their respective ceasing to 
act appeal processes to conform to similar procedures currently used by 
the CHX for emergency suspensions. Additionally, all MCC participants 
would still be subject to the CHX's rules regarding emergency 
suspensions.
    The Commission believes that eliminating MSTC's and MCC's 
respective rules relating to audits and financial reports, and 
Temporary Sponsored Participants and Accounts is consistent with the 
Act because, in light of MSTC's and MCC's withdrawal from the 
securities depository business and securities clearance and settlement 
business, it is no longer necessary to produce independent financial 
statements or maintain internal accounting controls. For example, 
currently, there are no internal operations at MSTC, and MCC no longer 
maintains independent positions of securities. MCC merely acts as a 
conduit for Sponsored Participants to enable them to hold their 
positions at the National Securities Clearing Corporation. As a result, 
it is no longer necessary to produce independent financial statements 
or maintain internal accounting controls. Additionally, MSTC's and 
MCC's financial statements would still be reflected as part of the 
consolidated annual audited financials of their parent, the CHX.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that MSTC's and 
MCC's proposed rule changes are consistent with the requirements of the 
Act and in particular with Section 17A of the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule changes (File Nos. SR-MSTC-96-04 and SR-MCC-96-
04) be, and hereby are, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27610 Filed 10-25-96; 8:45 am]
BILLING CODE 8010-01-M