[Federal Register Volume 61, Number 211 (Wednesday, October 30, 1996)]
[Notices]
[Page 56072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27808]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37861; File No. SR-DCC-96-09]


Self-Regulatory Organizations; Delta Clearing Corp.; Order 
Granting Approval of a Proposed Rule Change Relating to Securities 
Eligible for Margin

October 24, 1996.
    On July 2, 1996, Delta Clearing Corp. (``DCC'') filed a proposed 
rule change (File No. SR-DCC-96-09) with the Securities and Exchange 
Commission (``Commission'') pursuant to section 19(b) of the Securities 
Exchange Act of 1934 (``Act'').\1\ On August 16, 1996, DCC filed an 
amendment to the proposed rule change.\2\ Notice of the proposal was 
published in the Federal Register on September 12, 1996, to solicit 
comments from interested persons.\3\ No comments were received. As 
discussed below, this order approves the proposed rule change.
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    \1\ 15 U.S.C. Sec. 78s(b) (1988).
    \2\ Letter from John Grebenstein, Executive Director, DCC, to 
Michele Bianco, Division of Market Regulation, Commission (August 
16, 1996).
    \3\ Securities Exchange Act Release No. 37639 (September 4, 
1996), 61 FR 48186.
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I. Description
    DCC's proposal expands the permissible forms of margin that may be 
deposited by participants to include U.S. Treasury notes and bonds. 
Previously, DCC allowed only U.S. Treasury bills or central bank funds 
as margin collateral for trades in over-the-counter options and for 
repurchase and reverse repurchase (``repo'') agreements. With respect 
to options, participants also can continue to post margin in the form 
of cover (i.e., Treasury securities that would be deliverable upon 
exercise of an option).
    The proposal also changes the haircuts applicable to Treasury 
securities deposited as margin collateral. Previously, such securities 
were valued at the lesser of the market value or the par value if 
deposited as margin for options trades or 95% of the market value of 
deposited as margin for repo trades. Under the proposal, DCC will use 
the Commission's schedule for valuation of government securities as set 
forth in the Commission's uniform net capital rule.\4\
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    \4\ 17 CFR 240.15c3-1 (1966). The schedule for valuation of 
government securities is set forth in paragraph (c)(2)(vi)(A)(1) of 
Rule 15c3-1.
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II. Discussion

    Section 17A(b)(3)(F) of the Act requires that a clearing agency's 
rules be designed to ensure the safeguarding of securities and funds in 
its custody or control or for which it is responsible.\5\ While DCC 
participants trade and maintain inventory in a wide range of U.S. 
Treasury Securities, they do not always maintain inventory in U.S. 
Treasury bills. As a result, participants have incurred costs in 
meeting DCC's requirements that only U.S. Treasury bills could be 
posted as margin collateral. By expanding the types of collateral DCC 
will accept for margin purposes, the likelihood that participants will 
be able to fulfill their margin obligations from inventory is greatly 
increased. Furthermore, the combination of the highly liquid nature of 
U.S. Treasury notes and bonds and the haircuts imposed by DCC should 
allow DCC to accept these securities as margin collateral without 
adding additional risk to DCC's clearing and settlement operations.
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    \5\ U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and 
particularly with Section 17A(b)(3)(F) of the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-DCC-96-09) be and 
hereby is approved.

    \6\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27808 Filed 10-29-96; 8:45 am]
BILLING CODE 8010-01-M