[Federal Register Volume 61, Number 246 (Friday, December 20, 1996)]
[Notices]
[Pages 67371-67372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32335]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38048; File No. SR-GSCC-96-13]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Relating to the 
Eligibility of Treasury Inflation Protection Securities for Netting 
Services

December 13, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 21, 1996, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which items have 
been prepared primarily by GSCC. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 789s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The proposed rule change will make the U.S. Department of 
Treasury's Treasury Inflation Protection Security eligible for 
clearance and settlement at GSCC.

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

    The purpose of the proposed rule change is to make the Treasury 
Inflation Protection Security eligible for clearance and settlement at 
GSCC. The Treasury Inflation Protection Security is a marketable, book-
entry inflation protection security that is being issued by the 
Department of the Treasury,\3\ GSCC believes that in order to maximize 
the desirability of the Treasury Inflation Protection Security from a 
trading perspective and to ensure that their introduction does not 
result in any increased clearance and settlement risk for the 
marketplace, GSCC should be able to compare, net, and settle these 
securities. Therefore, GSCC is planning to make the Treasury Inflation 
Protection Security eligible for its netting process prior to the U.S. 
Department of Treasury's first auction of the Treasury Inflation 
Protection Security, which is scheduled for the January 1997 auction of 
the ten-year note. Other maturities will be issued later.
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    \3\ The Department of Treasury has proposed amendments to 31 CFR 
Part 356 (Uniform Offering Circular for the Sale and Issue of 
Marketable Book-Entry Treasury Bills, Notes, and Bonds) to 
accommodate the issuance of the Treasury Inflation Protection 
Security. Department of Treasury Circular, Public Debt Service No. 
1-93 (September 23, 1966), 61 FR 50924 (September 27, 1996).
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    The Treasury Inflation Protection Security provides inflation 
protection by adjusting semiannually the principal amount of investors' 
holdings by multiplying the stated value at issuance (i.e., par amount) 
by an index ratio. The applicable index will be the U.S. City Average 
All Items Consumer Price Index for All Urban Consumers (``CPI'') 
published by the Bureau of Labor Statistics of the U.S. Department of 
Labor. The Treasury Inflation Protection Security will be redeemed at 
maturity at the greater of its inflation adjusted principal or its par 
amount.
    The Treasury Inflation Protection Security will be issued with a 
stated fixed rate of interest based on the rate determined at auction. 
Although the interest rate is fixed, because the interest rate is paid 
on a varying amount of principal, the coupon payments will also be 
variable. This will be the first time that GSCC has made a variable-
rate security eligible for netting.
    For GSCC to process the Treasury Inflation Protection Security, the 
following enhancements must be made to GSCC's automated system.
    1. Creation and maintenance of a database of historical CPI 
indexes. This data is necessary for determining accrued interest, which 
is used in valuing positions for settlement purposes and for forward 
margin and clearing fund calculations.
    2. Modification of the security database to permit GSCC to 
designate the Treasury Inflation Protection Security as a variable rate 
security.
    3. Modifications to participant input and output formats to take 
into account different and additional data elements.
    After these enhancements have been made, GSCC plans to test with 
GSCC members before ``going live'' with the new service in order to 
ensure that participants are able to properly provide and receive data 
regarding transactions in these new securities.
    GSCC worked with the Public Securities Association to determine a 
uniformly acceptable method for the industry to reflect the inflation 
index in the calculation of final money on Treasury Inflation 
Protection Security transactions. Consistent with these discussions, 
participants will submit transactions using a price that has not been 
adjusted for inflation. GSCC will compare and report transactions based 
on its Final Settlement Money formula. Final Settlement Money will 
equal the original par value multiplied by the CPI index ratio 
multiplied by the unadjusted price plus the inflation adjusted accrued 
interest. Inflation adjusted accrued interest will equal the original 
par value multiplied by the inflation ratio multiplied by the CPI index 
ratio multiplied by the interest rate multiplied by the term.
    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act \4\ and the rules and 
regulations thereunder because it is designed to promote the prompt and 
accurate clearance and settlement of securities transactions.
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    \4\ 15 U.S.C. 78q-1(b) (3) (F).
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(B) Self-Regulatory Organization's Statement of 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 solicited or received. Members will be notified of the rule change 
filing, and comments will be solicited by an important notice. GSCC 
will notify the

[[Page 67372]]

Commission of any written comments it receives.

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

    Within thirty-five days of the date of publication of this notice 
in the Federal Register or within such longer period (i) as the 
Commission may designate up to ninety days of such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which GSCC consents, the Commission will:
    (A) By order approve such proposed rule change or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of the submission, 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. Sec. 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 filing will also be available 
for inspection and copying at the principal office of GSCC. All 
submissions should refer to the file number SR-GSCC-96-13 and should be 
submitted by January 13, 1997.

    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. 96-32335 Filed 12-19-96; 8:45 am]
BILLING CODE 8010-01-M