[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Page 56591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28000]



[[Page 56591]]

[Release No. 34-37870; File No. SR-GSCC-96-08]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Approving a Proposed Rule Change Relating to 
Repurchase Agreement Netting Service

October 25, 1996.

    On August 1, 1996, the Government Securities Clearing Corporation 
(``GSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change (File No. SR-GSCC-96-08) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').1 On August 9, 1996, GSCC filed an amendment to the 
proposed rule change.2 Notice of the proposal was published in the 
Federal Register on September 12, 1996.3 No comment letters were 
received. For the reasons discussed below, the Commission is granting 
approval of the proposed rule change.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ Letter from Jeffrey F. Ingber, General Counsel and 
Secretary, GSCC, to Christine Sibille, Senior Counsel, Division of 
Market Regulation, Commission (August 6, 1996).
    \3\ Securities Exchange Act Release No. 37647 (September 5, 
1996), 61 FR 48189.
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I. Description

    The proposed rule change permits GSCC to reimburse interdealer 
broker netting members (``IDBs'') for two costs related to their 
participation in GSCC's netting system for repurchase and reverse 
repurchase transactions (``repo'') involving government securities as 
the underlying instruments.4 Currently, IDB and non-IDB netting 
members may submit data on brokered repos to GSCC for clearance and 
settlement. GSCC compares, nets, and settles repo close legs and repo 
start legs submitted prior to start date (i.e., non-same-day-settling 
start legs).
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    \4\ Earlier this year, the Commission approved a proposed rule 
change filed by GSCC which provided for participation by IDBs in 
GSCC's repo netting system. Securities Exchange Act Release No. 
37482 (July 25, 1996), 61 FR 40275.
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    Because GSCC currently does not settle intraday start legs, the 
parties to brokered repos assume the responsibility for the settlement 
of such legs outside of GSCC. As a result, IDBs will incur clearance 
charges for the settlement of intraday start legs of brokered 
repos.5 Under the proposed rule change, GSCC will absorb IDBs' 
clearance charges related to the settlement of intraday repo start 
legs, up to a dollar amount deemed reasonable by it.
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    \5\ Clearance charges are costs charged by clearing agent banks 
to their broker-dealer customers related to the settlement of 
securities movements obligations. Clearance charges may include both 
fixed charges and pass through charges such as the costs of Fedwire.
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    In addition, IDBs may incur overnight financing costs resulting 
from securities delivered too late in the day to redeliver before the 
close of Fedwire.6 In such instances, GSCC will reimburse this 
cost to the IDB if the cost was incurred unavoidably and without fault 
by the IDB. GSCC will only absorb such charges up to a dollar amount 
deemed reasonable by it.
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    \6\ Overnight financing costs are costs charged by clearing 
agent banks to their broker-dealer customers related to the 
financing by banks of securities held from one business day until 
the next business day in customers' clearing accounts.
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    In certain circumstances, these cost reimbursements also will be 
available to a division or separate operating unit within a dealer 
netting member. To be eligible, such division or unit must operate in 
an overall manner as a broker and must abide by the requirements 
imposed on IDBs that participate in the repo netting process.

II. Discussion

    Section 17A(b)(3)(F) 7 of the Act requires that the rules of a 
clearing agency be designed to remove impediments to and to perfect the 
mechanism of a national clearance and settlement system. Although GSCC 
provided for participation by IDBs in its repo netting system earlier 
this year, IDBs, like all other GSCC repo netting members, must assume 
the responsibility for the settlement of intraday start legs outside of 
GSCC. By providing a method whereby IDBs can use in an economic fashion 
the facilities of GSCC to settle their brokered repos, the proposal 
should encourage IDBs to submit their repo transactions to GSCC. As a 
result, more repos should be settled through the facilities of a 
registered securities clearing agency (i.e., GSCC) which should, 
consistent with the requirements of Section 17A(b)(3)(F), further the 
establishment of a national clearance and settlement system.
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    \7\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular 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 change (File No. SR-GSCC-96-08) be and hereby is 
approved.

    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) (1996).
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Margaret H. MacFarland,
Deputy Secretary.
[FR Doc. 96-28000 Filed 10-31-96; 8:45 am]
BILLING CODE 8010-01-M