[Federal Register Volume 62, Number 81 (Monday, April 28, 1997)]
[Notices]
[Pages 22983-22984]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10793]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38536; File No. SR-MBSCC-97-02]


Self-Regulatory Organizations; MBS Clearing Corporation; Notice 
of Filing of a Proposed Rule Change Relating to the Valuation of 
Securities Deposited as Collateral in the Participants Fund To Satisfy 
Daily Margin Requirements

April 22, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ notice is hereby given that on February 12, 1997, MBS 
Clearing Corporation (``MBSCC'') filed with the Securities and Exchange 
Commission (``Commission') the proposed rule change (File No. SR-MBSCC-
97-02) 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 method of determining the 
value of securities deposited as collateral in the participants fund to 
satisfy the MBSCC margin requirement.

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

[[Page 22984]]

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 
submitted by MBSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    MBSCC's rules allow participants to satisfy their margin 
requirements by depositing approved forms of collateral such as cash, 
securities,\3\ and letters of credit into the participants fund. 
According to MBSCC, historically, participants preferred using letters 
of credit as collateral to satisfy their margin requirement. Securities 
had represented only a small portion of participant fund deposits. 
However, recently securities have become the dominant form of 
acceptable collateral used by participants to satisfy their margin 
requirements. In 1996, securities constituted approximately 73 percent 
of total deposits to the participants fund. As a result of this 
increased use of securities, MBSCC reappraised the value attributed to 
this form of collateral.
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    \3\ Securities acceptable as collateral included direct 
obligations of the United States (Treasury Bills, Treasury Notes, 
and Treasury Bonds) (``Treasury securities'') and mortgage-backed 
securities (Government National Mortgage Association securities, 
Federal National Mortgage Association securities, and Federal Home 
Loan Mortgage Corporation securities).
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    Currently, mortgage-backed securities are credited at the lesser of 
par or current market value, while Treasury securities are valued at 
current market value. Both types of securities are revalued daily and 
analyzed for pending maturity.
    The proposed rule change will amend MBSCC's valuation of securities 
by using the security's remaining maturity to determine the value 
attributable to the security. When a security has a remaining maturity 
of greater than one year, the proposed rule change requires MBSCC to 
value mortgage-backed securities at the lesser of par or 95 percent of 
the current market value and Treasury securities at 95 percent of their 
current market value. If a security's remaining maturity is less than 
one year, the proposed rule change requires MBSCC to value mortgage-
backed securities at the lesser of par or the current market value and 
Treasury securities at the current market value. MBSCC will continue to 
revalue securities daily and analyze them for pending maturity before 
the depositing participant is credited.\4\
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    \4\ Because par value for mortgage-backed securities is $100, 
the proposed rule change will apply a five percnet haircut only to 
those mortgage-backed securities that have a current market value of 
$105 or less. For example, a mortgage-backed security with a current 
market value exceeding $105 is and will continue to be revalued to a 
par value of $100. However, a mortgage-backed security with a 
current market value of $105 will now be revalued to $99.75 or 95 
percent of current market value. Similarly, a mortgage-backed 
security with a current market value of $99 will be revalued to 
$94.05.
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    MBSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act.\5\ and the rules and 
regulations promulgated thereunder because it will assure the 
safeguarding of securities and funds which are in the custody or 
control of the clearing agency or for which it is responsible.
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    \5\ 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 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

    No written comments relating to the proposed rule change have been 
solicited or received. MBSCC will notify the Commission of any written 
comments received the 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 the self-regulatory organization 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 Section, 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 File No. SR-MBSCC-97-02 and should be 
submitted by May 16, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-10793 Filed 4-25-97; 8:45 am]
BILLING CODE 8010-01-M