[Federal Register Volume 62, Number 66 (Monday, April 7, 1997)]
[Notices]
[Pages 16634-16635]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8791]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38461; File No. SR-MBSCC-97-03]
Self-Regulatory Organizations; MBS Clearing Corporation; Notice
of Filing of a Proposed Rule Change Relating to the Establishment of
the Comparison Only System
April 1, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 18, 1997, the MBS
Clearing Corporation (``MBSCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change (File No. SR-
MBSCC-97-03) as described in Items I, II, and III below, which items
have been prepared primarily by MBSCC. 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. 78s(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 modifies MBSCC's rules to establish the
Comparison Only System (``COS'') and to create a new category of
participant, a ``limited purpose participant'', eligible to use this
system.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, MBSCC 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. MBSCC 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 MBSCC.
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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 modify MBSCC's rules
to establish the COS and to create a new category of participant, a
limited purpose participant, eligible to use this system.
As a result of interest expressed by the Federal National Mortgage
Association and other organizations, the proposed COS, which will be a
limited system for principals to compare trade data, was developed by
MBSCC. The mortgage-backed securities marketplace has unique
characteristics that affect how trades are compared and how industry
participants communicate with each other. For example, the average time
between a mortgage-backed securities trade and settlement date is much
longer than that in the government bond and equity markets, forty-five
to ninety days compared to one and three days, respectively. The
objective of MBSCC's proposed system is to improve market
communications for the comparison of trade data by providing qualified
entities with an automated alternative to manually initiating verbal
confirmations and then exchanging hardcopy trade confirmations and/or
contract letters.
Under current MBSCC rules, MBSCC processes securities through the
Comparison and Clearing System (``CCS'') for qualified participants.
CCS provides a centralized process to compare and confirm trades
electronically, risk management services to continually assess the
current value of each underlying trade and to ensure that all
participants meet their margin requirements, and a netting facility
that provides a multilateral netting service which creates netted
receive and deliver obligations.
The proposed COS is a more limited system than the CCS in that it
will only provide a centralized process to compare and confirm trades
electronically. COS will be a system restricted to those that trade in
a principal capacity where specified trade data must exactly and
promptly compare between like contra-sides. Because the COS is limited
to comparison, participants will not be required to put up margin or
meet specific net worth financial requirements.
COS will require a limited purpose participant to submit financial
information to demonstrate its financial ability to meet its cash
balance debit obligations to MBSCC, which are limited to the fees for
using the COS and any late fees imposed. It is expected that these fees
will be significantly lower than those imposed on participants in the
CCS; therefore, no basic deposit fee will be required of COS
participants. MBSCC will bill the limited purpose participant on a
monthly basis. The bill will be payable to MBSCC via the federal funds
wire.
Each limited purpose participant will be required to maintain
specified data processing and communications
[[Page 16635]]
equipment to be able to process transactions through the facilities of
MBSCC and be able to receive reports, notices, and other communications
relating to transactions prepared by MBSCC. Any current MBSCC
participant trading a COS eligible security in a principal capacity
will be able to participate in COS if the counterparty is a limited
purpose participant or the security traded is not eligible in CCS.
Under COS, a trade will be negotiated by the parties. Trade terms
will then be submitted electronically by the parties to MBSCC for
comparison. The submitted trade terms will then be compared in MBSCC's
AM or PM processing pass. For a trade to compare in COS, certain trade
data will have to match exactly.\3\ If a trade compares, MBSCC will
issue a purchase and sale report go each side of the trade. The
purchase and sale report will serve as the sole binding confirmation of
the trade. The trade will then be settled outside of the MBSCC system.
Trade terms that do not compare will be reported as unmatched on a
transaction summary report sent to the parties. Individually or
jointly, the parties must then resolve or delete the unmatched trade by
taking one or more of the following on-line actions: deletes, DK's
(don't know), affirms, and new input. Unmatched trades will remain on a
transaction summary report until resolved. MBSCC's current rule on CCS
unmatched items will similarly be applied to COS unmatched items.
Specifically, until the unmatched item is resolved or deleted, the
participant(s) will be subject to the imposition of late fees by MBSCC.
For purposes of computing the late fees, each missed processing pass
after a two pass grace period will result in a separate assessment
against the participant(s). If the unmatched trade is resolved, MBSCC
will compare and confirm it with a purchase and sale report as
described above.
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\3\ Specifically, the trade data will be buyer versus seller,
buyer account, seller account, class code or CUSIP/pool number,
price, trade type, trade date, settlement date, and par value.
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MBSCC believes that the proposed rule change is consistent with the
requirements of Section 17A(3)(F) of the Act \4\ and the rules and
regulations thereunder because it will facilitate 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 on Burden on Competition
MBSCC does not believe that the proposed rule change will have an
impact on 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
No written comments relating to the proposed rule change have been
solicited or received. MBSCC will notify the Commission of any written
comments received by MBSCC.
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 MBSCC 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. 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 MBSCC.
All submissions should refer to the file number SR-MBSCC-97-03 and
should be submitted by April 28, 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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-8791 Filed 4-4-97; 8:45 am]
BILLING CODE 8010-01-M