[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Pages 56591-56592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28005]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37868; File No. SR-GSCC-96-09]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Approving Proposed Rule Change Relating to the 
Establishment of a Mechanism for Returning Certain Excess Clearing Fund 
Collateral to Members on a Daily Basis

October 25, 1996.
    On August 11, 1996, the Government Securities Clearing Corporation 
(``GSCC'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change (File No. SR-GSCC-96-09) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on September 19, 1996.\2\ 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\ Securities Exchange Act Release No. 37678 (September 13, 
1996), 61 FR 49367.
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I. Description

    The proposed rule change establishes a mechanism for returning 
certain excess clearing fund collateral to members on a daily basis 
rather than on the current monthly basis. GSCC's clearing fund is 
designed to protect GSCC from the exposure presented by fluctuations in 
the value of a defaulting member's net settlement position from the 
most recent marking-to-market until liquidation of that position.\3\ 
The daily mark-to-market mechanism, which is applicable to forward net 
settlement positions, is designed to bring net settlement positions 
from contract value to current market value.
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    \3\ The clearing fund collateral pool also allows GSCC to have 
on deposit from each netting member assets to satisfy losses 
resulting from a member's default; permits GSCC to maintain a total 
asset amount sufficient to satisfy potential losses to it and its 
members resulting from the default of more than one member or the 
failure of a defaulting member's counterparties to pay their pro 
rata allocation of loss; and provides GSCC with liquidity to meet 
its payment and delivery obligations.
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    Members' clearing fund deposit requirements are calculated daily 
based on the level of members' historical and

[[Page 56592]]

current day's net activity. However, GSCC's rules currently provide for 
the return of excess clearing fund collateral to members only once a 
calendar month on the second business day of each month. This 
methodology applies regardless of the level of a member's excess 
clearing fund collateral. The proposed rule change allows members to 
request the return of excess collateral on any business day under the 
following circumstances: (1) The amount of the member's excess clearing 
fund collateral is at least $5 million; (2) the member is not on class 
2 or class 3 surveillance status; and (3) the collateral will be 
returned only to the extent that GSCC retains a cushion of excess 
collateral of not less than the greater of (a) ten percent of the 
member's clearing fund deposit requirement (i.e., GSCC must retain 110% 
of the member's clearing fund deposit requirement) or (b) $1 million 
more than the amount of collateral needed to cover the member's current 
clearing fund deposit requirement.

II. Discussion

    Section 17A(b)(3)(F) \4\ of the Act requires that the rules of a 
clearing agency be designed to safeguard securities and funds in its 
custody or control. While the proposal will permit members with large 
amounts of excess clearing fund to have daily access to such funds, 
which should increase such members' liquidity and thus assist them in 
fulfilling their settlement obligations, the proposal will only allow 
the return of excess clearing fund under certain conditions, including 
that GSCC retains a cushion of excess clearing fund. Such conditions 
should help to ensure that GSCC has sufficient clearing fund on hand to 
meet its settlement obligations. Thus, the proposal is consistent with 
GSCC's obligation to safeguard securities and funds in its possession.
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    \4\ 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-96-09) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28005 Filed 10-31-96; 8:45 am]
BILLING CODE 8010-01-M