[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64778-64779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31084]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37996; File No. SR-GSCC-96-11]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change To Extend the Maximum Term for Next-Day and 
Forward Settling Repurchase and Reverse Repurchase Agreements

November 27, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 9, 1996, the 
Government Securities Clearing Corporation (`'GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-GSCC-96-11) as described in Items I and II below, 
which Items have been prepared primarily by GSCC. The Commission is 
publishing this notice and order to solicit comments from interested 
persons and to grant accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    GSCC proposes to amend the eligibility requirements for its netting 
services to include next-day and forward settling repurchase and 
reverse repurchase agreements (``repos'') with terms that do not exceed 
360 calendar days. Under GSCC's current rules, only repos with terms 
that do not exceed 195 calendar days are eligible for netting services.

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 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.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its rule change filing implementing netting and risk management 
services for repos, GSCC added a number of provisions to its Rule 11, 
including the requirements that a repo must meet in order to be 
eligible for netting services.\3\ One such requirement is that the 
number of calendar days between the scheduled settlement date for the 
close leg and the business day on which the data on the trade is 
submitted is not greater than the ``maximum number of Business Days 
established by the Corporation for such purpose and published in a 
schedule made available to Members, unless the Board determines a 
different timeframe to be appropriate * * *.'' \4\
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    \3\ Securities Exchange Act Release No. 36491 (November 17, 
1995), 60 FR 61577 [File No. SR-GSCC-95-02] (order approving 
proposed rule change implementing netting services for the non-same-
day-settling aspects of repo transactions).
    \4\ GSCC Rule 11, Section 2(i).
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    In the above mentioned filing, GSCC initially proposed that the 
maximum number of days between scheduled settlement and data submission 
should be no more than 364 calendar days.\5\ After discussion with 
Commission staff, GSCC revised its rule filing to limit the maximum 
number of days allowable between scheduled settlement and data 
submission to 195 calendar days.\6\ Until recently, the maximum 
permitted term for repos as set forth in GSCC's schedule was 180 
calendar days.
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    \5\ Letter from Jeffrey F. Ingber, General Counsel and 
Secretary, GSCC, to Jerry W. Carpenter, Assistant Director, Division 
of Market Regulation (``Division''), Commission (July 28, 1995).
    \6\ Letter from Jeffrey F. Ingber, General Counsel and 
Secretary, GSCC, to Christine Sibille, Special Counsel, Division, 
Commission (September 14, 1995).
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    In response to rising repo volumes and at the request of GSCC's 
members, GSCC proposes to extend the maximum allowable number of 
calendar days that a repo term may span and still be eligible for 
netting services to 360 calendar days. According to GSCC, its members 
will benefit from the inclusion of longer-term repos in its netting 
service because the inclusion of more repo transactions into the net 
should reduce costs as well as clearance and settlement risks.
    The decision to extend the allowable repo term was made following 
evaluation of GSCC's risk management procedures that pertain to repo 
transactions. These procedures have been employed since November 1995 
when repos were first included in GSCC's netting service. This period 
of analysis has enabled GSCC to conclude that the risk management 
procedures currently in place are sufficient to hedge against any 
exposure created by longer repo terms. Nevertheless, GSCC will continue 
to monitor and evaluate all aspects of repo netting services.
    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \7\ and the rules and 
regulations promulgated thereunder because it promotes the prompt and 
accurate clearance and settlement of securities transactions and 
safeguards securities and funds in GSCC's custody or control.
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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 will have an 
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 relating to the proposed rule change have not yet 
been received. Members will be notified of the rule change filing, and 
comments will be solicited by an important notice to members. GSCC will 
notify the Commission of any written comments received by GSCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Section 17A(b)(3)(F) of the Act \8\ requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions and to assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible. The 
Commission believes that the proposed rule change is consistent with 
GSCC's obligations under the Act because the proposal permits GSCC to 
provide the benefits of centralized, automated settlement to a border 
segment of repo's involving government securities.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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    As stated in previous orders, the Commission believes that GSCC has 
put into place adequate risk management procedures to limit the 
settlement risk associated with repo transactions.\9\ The Commission 
believes that GSCC has adequately analyzed the application of these 
risk management procedures to the risks associated with longer term 
repo transactions and therefore will be able to adequately safeguard 
itself and its participants from the risks associated

[[Page 64779]]

with the inclusion of longer term repo transactions in the netting 
system.
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    \9\ See, e.g., Securities Exchange Act Release No. 36491, supra 
note 3.
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    GSCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication of notice of the filing because 
accelerated approval will allow GSCC to immediately expand its netting 
services to include repos with terms between 196 and 360 calendar days. 
This will permit more participants that conduct repo transactions to 
benefit from the positive effects of netting. Furthermore, the 
Commission has not received any comment letters and does not expect to 
receive any comment letters on the proposal.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549. 
Copies of the submissions, 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 filings will also be available for 
inspection and copying at the principal office of GSCC. All submissions 
should refer to the file number SR-GSCC-96-11 and should be submitted 
by December 27, 1996.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (File No. SR-GSCC-96-11) be, and 
hereby is, approved on an accelerated basis.

    \10\ 15 U.S.C. 78s(b)(2) (1988).
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    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. 96-31084 Filed 12-5-96; 8:45 am]
BILLING CODE 8010-01-M