[Federal Register Volume 62, Number 94 (Thursday, May 15, 1997)]
[Notices]
[Pages 26833-26840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12751]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38589; International Series Release No. 1077; File No. 
601-01]


Self-Regulatory Organizations; Morgan Guaranty Trust Company of 
New York, Brussels Office, as Operator of the Euroclear System; Notice 
of Filing of Application for Exemption From Registration as a Clearing 
Agency

May 9, 1997.

I. Introduction

    On March 5, 1997, Morgan Guaranty Trust Company of New York 
(``MGT''), Brussels office (``MGT-Brussels), as operator of the 
Euroclear System \1\ pursuant to a contract with Euroclear Clearance 
System Societe Cooperative, a Belgian cooperative (``Belgian 
Cooperative''), filed with the Securities and Exchange Commission 
(``Commission'') an application on Form CA-1 \2\ for exemption from 
registration as a clearing agency pursuant to Section 17A of the 
Securities Exchange Act of 1934 (``Exchange Act'') \3\ and Rule 17Ab2-1 
thereunder \4\ to the extent it performs the functions of a clearing 
agency with respect to U.S. government and agency securities \5\ for 
U.S. participants of the Euroclear System.\6\ The Commission is 
publishing this notice to solicit comments from interested persons.\7\
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    \1\ For purposes of this notice, the term ``Euroclear'' refers 
to MGT-Brussels in its capacity as operator of the Euroclear System. 
For a complete description of the structure of the Euroclear System, 
see Section II.
    \2\ Copies of the application for exemption are available for 
inspection and copying at the Commission's Public Reference Room.
    \3\ 15 U.S.C. 78q-1.
    \4\ 17 CFR 240.17Ab2-1.
    \5\ For purposes of its application, Euroclear proposes to 
define U.S. government and agency securities to include (i) 
``government securities'' as defined by Section 3(a)(42) of the 
Exchange Act (other than foreign-targeted U.S. government and agency 
securities and securities issued or guaranteed by an international 
organization such as the World Bank, which Euroclear classifies as 
internationally-traded securities that have been accepted for 
clearance and settlement in the Euroclear System for many years 
under circumstances that Euroclear believes cause its activities 
with respect to such securities to fall outside the scope of Section 
17A of the Exchange Act and (ii) mortgage-backed securities and 
collateralized mortgage obligations issued or guaranteed by the 
Federal Home Loan Mortgage Corporation (``FHLMC''), the Federal 
National Mortgage Association (``FNMA''), or the Government National 
Mortgage Association (``GNMA'').
    \6\ The Commission has been advised that MGT-Brussels is 
permitted to seek an exemption from clearing agency registration 
regarding its operation of the Euroclear System and that no further 
authorization from the Board of Directors of the Belgian Cooperative 
is required. Letter from Dr. Rolf-Ernst Breuer, Chairman of the 
Board of the Belgian Cooperative (March 6, 1997).
    MGT itself does not seek an exemption from registration as a 
clearing agency to the extent it performs the functions of a 
clearing agency with respect to U.S. government or agency 
securities. Sections 3(a)(23)(B) of the Exchange Act provides that a 
bank as defined under Section 3(a)(6) of the Exchange Act is 
excluded from the definition of the term clearing agency if it would 
be deemed to be a clearing agency solely by reason of functions 
performed by such institution as part of customary banking 
activities. MGT believes that as a bank it has the authority to 
perform clearing agency functions as part of its customary banking 
activities for U.S. government and agency securities outside the 
Euroclear context without registering with the Commission as a 
clearing agency or otherwise complying with Exchange Act provisions 
applicable to clearing agencies generally. Because MGT is not 
seeking an exemption from clearing agency registration for its 
activities outside the operation of the Euroclear System, the 
Commission is not addressing this issue.
    \7\ The descriptions set forth in this notice regarding the 
structure and operations of the Euroclear System, MGT-Brussels, and 
MGT have been largely derived from information contained in MGT-
Brussels' Form CA-1 application and publicly available sources.
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II. Structure of the Euroclear System

    MGT is a banking corporation organized under the laws of the State 
of New York. MGT-Brussels is the Brussels branch of MGT. MGT-Brussels 
is a division of MGT that has acted as the operator of the Euroclear 
System through its Euroclear Operations Centre since the creation of 
the Euroclear System in 1968. The Euroclear Operations Centre is a 
separate independent operational unit established within MGT-Brussels 
to operate the Euroclear System. Senior management of the Euroclear 
Operations Centre makes the decisions regarding the day-to-day 
operation of the Euroclear System.
    The Euroclear System was established in 1968 by MGT-Brussels, which 
was then both its owner and operator. In 1972, a package of rights 
described as the Euroclear System was sold to Euroclear Clearance 
System Public Limited Company, an English limited liability company 
(``ECS-PLC''). The goal of the sale was to broaden the international 
market's participation in the formulation of general policy for the 
Euroclear System. MGT-Brussels was retained as operator of the 
Euroclear System. ECS-PLC purchased the rights to receive the revenues 
generated by the Euroclear System services, to approve participants, to 
determine eligible securities, to establish fees, and to make other 
similar decisions. MGT-Brussels retained all of the assets and means 
necessary to operate the Euroclear System and granted a license to ECS-
PLC to use the Euroclear System trademarks.
    The Belgian Cooperative was established in 1987 to further 
facilitate communication between Euroclear and the international 
securities industry and to encourage participation in the Euroclear 
System. It received a license from ECS-PLC to exercise some of ECS-
PLC's rights as owner of the Euroclear System and to exercise such 
rights in relation to MGT-Brussels pursuant to an Operating Agreement. 
Neither ECS-PLC nor the Belgian Cooperative is an operating company. 
MGT-Brussels maintains all Euroclear System participant accounts on its 
own books, has established all subcustody accounts with Euroclear 
System subcustodians in its own name, and maintains all of the 
contractual relationships with Euroclear System participants and 
Euroclear System depositaries in its own name. It also provides all of 
the personnel, systems, trademarks, and operational capability used to 
deliver the Euroclear System services to Euroclear System participants. 
ECS-PLC and the Belgian Cooperative exercise their rights against MGT-
Brussels through their respective Boards of Directors (collectively, 
``Euroclear Boards''), which are composed of senior executives from 
large financial institutions. The Euroclear Boards meet four times a 
year to make policy decisions, such as setting admissions policy, 
determining categories of securities accepted, approving depositories, 
setting fees and

[[Page 26834]]

rebates, and approving major service developments. The Euroclear Boards 
are not involved in the day-today operation of the Euroclear System.
    MGT-Brussels, as operator of the Euroclear System, is regulated by 
the Belgian Banking and Finance Commission, the Board of Governors of 
the Federal Reserve System of the United States, and the New York State 
Banking Department. Examinations of MGT-Brussels may be performed by 
examiners from these regulatory agencies. In addition, MGT-Brussels has 
an external auditor that reports to the Belgian Banking and Finance 
Commission and the Audit Committee of MGT. In its capacity as operator 
of the Euroclear System, MGT-Brussels is also authorized as a service 
company by the Securities and Investment Board under the United Kingdom 
Financial Services Act, 1986.

III. Description of Euroclear System Operations

    Euroclear provides several services to its participants, including 
securities clearance and settlement, securities lending and borrowing, 
and custody.\8\
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    \8\ The contractual relationship between Euroclear and its 
participants is defined by the Terms and Conditions Governing the 
Use of Euroclear (``Terms and Conditions'') as supplemented by the 
Operating Procedures of the Euroclear System and other supplementary 
documents, all of which are governed by Belgian law. Among other 
things, the Terms and Conditions provide that Euroclear Participants 
agree that their rights to securities held through the Euroclear 
System will be defined and governed by Belgian law.
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A. Securities Clearance and Settlement

    The Euroclear System functions as a clearance and settlement system 
for internationally traded securities. Securities settlement through 
the Euroclear system can occur with other participants in the Euroclear 
System (``internal settlement''), with members of Cedel Bank, societe 
anonyme, Luxembourg (``Cedel''), the operator of the Cedel system 
(``Bridge settlement''), or with counterparties in certain local 
markets who are not members of the Euroclear System or of Cedel 
(``external settlement'').
    The annual volume of transactions settled in the Euroclear System 
has grown from about US$3 trillion in 1987 to over US$34.6 trillion in 
1996. The fastest growing segments of this activity have been 
repurchase and reverse repurchase agreements (``repos''), book-entry 
pledging arrangements, securities lending, and other collateral 
transactions \9\ involving non-U.S. government securities.\10\ Although 
the individual certificated or uncertificated government securities of 
these countries are immobilized or dematerialized with the central 
banks or central securities depositories (``CSDs'') in their home 
markets, book-entry positions with respect to such securities can be 
acquired, held, transferred, and pledged by book-entry on the records 
of Euroclear in any of the 35 currencies available in the Euroclear 
System because of the links to local custodian banks, central banks, 
CSDs, and national payment systems around the world.
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    \9\ Collateral transactions are designed to enable Euroclear 
System participants to reduce their financing costs, increase their 
yields on securities, reduce their credit and liquidity exposures, 
and manage market and operational risks. For example, a credit 
seeker that is long securities can reduce its financing costs by 
entering into a repo with a credit giver (i.e., selling the 
securities to the credit giver subject to an agreement to repurchase 
the securities at a future date). A credit seeker can also reduce 
its financing costs or increase its borrowing capacity by pledging 
the securities to a credit giver.
    \10\ Government securities issued in the domestic markets in the 
following countries are currently eligible for clearance and 
settlement in the Euroclear System: Argentina, Australia, Austria, 
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, 
Ireland, Italy, Malaysia, Mexico, the Netherlands, New Zealand, 
Norway, Portugal, South Africa, Spain, Sweden, Switzerland, 
Thailand, and the United Kingdom.
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1. Clearance and Settlement of Trades Between Participants in the 
Euroclear System
    Transactions between Euroclear System participants in the Euroclear 
System can be settled against payment or free of payment. Simultaneous 
delivery versus payment (``DVP'') also is provided for settlements 
against payment between Euroclear System participants. Upon receipt of 
valid instructions for a settlement between participants, the Euroclear 
System's computer system attempts to match instructions between 
corresponding counterparties on a continuous basis according to a 
defined set of matching criteria. Matching generally is required in 
order for the instructions to be settled, except for certain actions 
specifically taken by the participant (e.g., transfers between accounts 
maintained by a single participant). Matching of an instruction is 
attempted until it is either matched or cancelled.
    Internal settlement of DVP transactions is accomplished by book-
entry transfer and provides for simultaneous exchange of cash and 
securities. Settlement is final (i.e., irrevocable and unconditional) 
at the end of each of the securities settlement processing cycles of 
which there are currently three per day.\11\
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    \11\ Euroclear's internal securities processing consists of two 
overnight settlement cycles and one daylight settlement cycle.
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    The overnight securities settlement process is completed early in 
the morning of the business day in Brussels for which settlement is 
intended. Daylight securities settlement processing is completed in the 
afternoon of each business day with settlement dated for that day. The 
daylight settlement cycle, which is restricted to internal settlements, 
permits participants to resubmit previously unmatched instructions or 
unsettled transactions and permits the processing of new instructions 
for same day settlement. All daylight instructions not settled are 
automatically recycled for settlement in the next overnight securities 
settlement cycle.
2. Clearance and Settlement of Trades Between a Participant in the 
Euroclear System and a Cedel Member
    Participants also can send instructions authorizing receipt and 
delivery of securities between the Euroclear System and the Cedel 
system, both free of payment and against payment. Simultaneous DVP is 
possible for settlement of Euroclear System trades between a 
participant in the Euroclear System and a Cedel member because of the 
electronic ``bridge'' established between the two organizations.
    For settlement of trades between a Euroclear System participant and 
a Cedel member, prematching of instructions consists of nine daily 
comparisons of delivery and receipt instructions. During these 
comparisons, each clearance system electronically transmits a file of 
proposed deliveries and expected receipts to the other clearance 
system. This exchange of information allows each clearance system to 
report matching results to its participants.
    The bridge was enhanced in September 1993 to allow for multiple 
overnight transmissions of instructions between Cedel and the Euroclear 
System. The bridge provides finality for DVP cross-system trades 
occurring when the receiving clearance system confirms acceptance of a 
proposed delivery and that confirmation is received by the delivery 
clearance system.
3. Clearance and Settlement of Trades Between a Participant in the 
Euroclear System and a Counterparty in a Local Market
    Participants also can send instructions authorizing receipt and 
delivery of securities free of payment and against payment between the 
Euroclear System and certain domestic markets' clearance and settlement

[[Page 26835]]

structures. Where participants are expecting to receive or deliver 
securities outside the Euroclear System or Cedel, instructions are 
matched where possible in accordance with local market rules and 
procedures. Notification of matching in the local market is received by 
Euroclear from the local depositary. Instructions to deliver securities 
outside the Euroclear System are sent to the depositary having custody 
of the securities to forward the securities to the location designated 
by the counterparty or move the securities by book-entry transfer in 
the local clearance system.\12\
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    \12\ Securities held by participants in the Euroclear System are 
held by custodian banks or local clearing systems. Except where 
required by local law, Euroclear will not permit bank subsidiaries 
to serve as depositaries. All securities held by a depositary on its 
books for the Euroclear System are credited to a segregated custody 
account in the name of MGT-Brussels as operator of the Euroclear 
System. Depositaries receive instructions regarding the movement of 
Euroclear System securities directly from Euroclear. Euroclear 
participants do not directly deal with depositaries regarding the 
settlement of securities transactions within the Euroclear System or 
the custody of securities. See Section III.C infra.
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    Euroclear has two types of relationships, direct and indirect 
links, with local market clearance systems. A direct link is where 
Euroclear has its own account with the local clearance system and holds 
securities and sends instructions directly in that clearance system. 
With an indirect link, a intermediary (i.e., depositary) is used to 
perform Euroclear System settlement activities in the local market.\13\ 
For different instruments in certain markets, Euroclear may have both 
direct and indirect links.
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    \13\ Transactions with these counterparts are performed on a 
book-entry basis in the local clearing system, depositary, or 
authorized sub-custodian, or on the basis of a physical delivery.
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B. Securities Lending and Borrowing

    Securities lending and borrowing is utilized to increase settlement 
efficiency for the borrower and to allow lenders to generate income on 
securities held in the Euroclear System. Lenders receive a fee for 
securities lending and do not incur safekeeping fees for securities 
lent.
    With standard lending and borrowing, there is no linkage between a 
particular borrower and a particular lender. In effect, participants 
borrow securities from the lending pool.\14\ With reserved lending and 
borrowing, there is a linkage between the borrower and the lender, but 
the counterparty's identities are not disclosed.\15\ Consequently, with 
both standard and reserved lending and borrowing, borrowers' names and 
lenders' names are never revealed to one another.
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    \14\ A participant that is an automatic standard borrower is 
eligible to borrow securities to execute delivery instructions when 
there are insufficient eligible securities available in its 
securities clearance accounts to effect a settlement in the 
overnight securities settlement processing. A participant that is an 
opportunity standard borrower sends standard borrowing requests to 
Euroclear on a case-by-case basis according to expected borrowing 
needs.
    A participant that is an automatic standard lender makes 
securities available to the lending pool during each overnight 
securities settlement processing. Subsequent to each overnight 
securities settlement processing, securities borrowed from the 
lending pool are allocated back to the lenders according to a given 
set of priorities. If the lendable position from automatic standard 
lenders for a given issue is expected to be insufficient to meet 
estimated borrowing demand in the next overnight securities 
settlement process, opportunity standard lenders may be contacted by 
Euroclear to make additional securities available for borrowing.
    \15\ A participant that wishes to reserve securities for future 
borrowing can do so by submitting a reserved borrowing request to 
Euroclear. Reserved borrowing differs from standard borrowing in 
that once a reserve borrower's request matches a lendable supply the 
lender is committed to lend the securities and the borrower is 
obligated to borrow them. Reserved borrowing minimizes the risk of 
settlement failure resulting from an inability to obtain a standard 
borrowing in the overnight securities settlement process due to a 
lack of supply in the lending pool.
    An automatic reserved lender makes securities in its securities 
clearance accounts available on demand for reserved lending subject 
to the lender's selected options. When a reserved borrowing request 
is matched to securities automatically available for reserved 
lending, a reservation is initiated and the securities are blocked 
in the reserved lender's securities clearance account from the 
reservation date to the loan start date. Opportunity reserved 
lenders are contacted by Euroclear when the supply of lendable 
securities from automatic reserved lenders is not sufficient to 
cover reserved borrowing requests in a given issue.
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    Securities lending and borrowing is an integral part of the 
overnight securities settlement process. This integration permits 
Euroclear to determine the borrowing requirement and supply of lendable 
securities on a trade-by-trade basis throughout each overnight 
securities settlement processing. Generally, securities lending and 
borrowing is available only through the overnight securities settlement 
process.

C. Custody

    Securiites held by Euroclear participants are held through a 
network of depositaries. Depositaries may hold securities on their 
premises or deposit these securities with subcustodians or with local 
clearance systems. Depositaries of the Euroclear System may include 
custodian banks, including some MGT branches, central banks, local 
clearance systems, and Cedel. Depositaries are selected based upon 
their custody capabilities, financial stability, and reputation in the 
financial community. All depositaries and subdepositaries are appointed 
with the approval of the Board of the Belgium Cooperative and are 
reapproved on an annual basis. This network of depositories allows 
linkages with domestic markets to effect external deliveries and 
receipts of securities, thereby facilitating cross-border securities 
movements.
    Chase Manhattan Bank (``Chase'') currently acts as the Euroclear 
System's depositary in the United States for the limited purpose of 
holding positions in certain foreign and internationally-traded 
securities (e.g., such as the Regulation S portion of certain global 
bonds issued by foreign private issuers, Yankee bonds, and book-entry 
debt securities issued by the World Bank) which are represented by 
certificates immobilized in The Depository Trust Company (``DTC'') or 
by electronic book-entries on the records of a Federal Reserve 
Bank.\16\
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    \16\ Euroclear does not believe that its traditional business of 
clearing and settling transactions in foreign and internationally-
traded securities comes within the scope of the registration 
requirements of Section 17A of the Exchange Act and therefore is not 
seeking exemptive relief with respect to such business. For this 
purpose, foreign and internationally-traded securities include debt 
and equity securities issued by foreign private and governmental 
issuers that trade principally in their home markets and/or 
internationally, (including foreign domestic debt and equity 
securities, Yankee bonds, securities issued by international 
organizations such as the World Bank, American and global depositary 
shares, and securities denominated or settled in a currency other 
than U.S. dollars), as well as Euro and globally-distributed debt 
securities and global depositary shares issued by U.S. issuers in a 
registered international offering or pursuant to provisions of the 
Securities Act of 1933 and the rules and regulations thereunder, 
including Regulation S (17 CFR 230.901), Section 4(2) (15 U.S.C. 
77d(2)), Rule 144A (17 CFR 230.144A), or some other exemption 
(including foreign-targeted U.S. Government and agency securities). 
U.S. domestic debt and equity securities are not currently eligible 
for clearance and settlement in the Euroclear System.
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    Securities deposited in the Euroclear System may be in either 
physical (bearer or registered) or dematerialized form. Securities are 
held on the books of a depositary in an account in the name of MGT-
Brussels as operator of the Euroclear System. Where the depositary also 
is not the local clearing system, securities may be deposited in the 
local clearance system where the depositary is located.
    All securities accepted by a depositary are credited to a 
segregated custody account in the name of MGT-Brussels as operator of 
the Euroclear System at the depositary or local clearance system, or to 
the depositary's account at the local clearance system.
    Each Euroclear System participant has one or more securities 
clearance account(s) with associated transit accounts. Securities held 
by participants

[[Page 26836]]

in the Euroclear System are credited to the participants' securities 
clearance accounts or transit accounts. Euroclear System participants 
have the option to request the segregation of their own and client 
securities in separate securities clearance accounts.
    Securities in the Euroclear System are held in fungible bulk. Under 
Belgian law and pursuant to the terms and conditions, each participant 
is entitled to a notional portion, represented by the amounts credited 
to its securities clearance account(s) and transit account(s), of the 
pool of securities of the same type held in the Euroclear System.

D. Banking Services

    MGT-Brussels provides certain banking services to Euroclear 
participants, acting in its separate banking capacity and not as 
operator of the Euroclear System. Banking services provided include: 
provision of credit to Euroclear System participants, triparty repo 
\17\ and collateral monitoring, and securities lending guarantee.
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    \17\ A triparty repo arrangement generally consists of three 
parties, the borrower, the lender, and a collateral agent (i.e., 
MGT-Brussels). In this arrangement, the borrower initiates a repo by 
``selling'' securities to the lender in exchange for cash from the 
lender. Simultaneously with this transaction, the borrower agrees to 
repurchase these securities at a specified future date. The 
collateral agent maintains custody of the securities for the 
duration of the repo and handles all operation aspects of the 
transaction including distribution of income, substitutions, and 
mark to market securities valuations.
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1. Provision of Credit to Euroclear Participants
    MGT-Brussels offers credit facilities to Euroclear participants on 
an uncommitted basis under limits periodically determined by MGT. 
Credit decisions are made according to MGT credit guidelines. Credit 
facilities generally are required to be secured and are normally 
collateralized by participant assets within the Euroclear System. In 
order to secure credit, participants affirm to MGT-Brussels that they 
are not pledging client securities and that no other liens have been 
granted to third parties on such securities. In a limited number of 
circumstances, MGT-Brussels may agree to permit pledging of client 
securities, or the securities of related parties, where the 
participant's legal and regulatory regime permits, appropriate legal 
opinions are delivered, and certain other conditions are met.
    The valuation of securities held in participants's pledged 
securities clearance accounts to secure credit extensions from MGT-
Brussles is derived from the market value of the securities pledged, 
adjusted according to the type of instrument, currency, the rating of 
the issue, the issuer, and the country of the issuer. For debt 
securities, accrued interest is added to market value for the purpose 
of calculating collateral value.
2. Triparty Repo and Collateral Monitoring
    MGT-Brussels also offers monitoring services whereby participants 
can use the Euroclear System to facilitate repo settlement/collateral 
posting, substitution of securities, and margin monitoring.
3. Securities Lending Guarantee
    As part of the Euroclear securities lending and borrowing program, 
MGT guarantees securities lenders the return of securities lent or the 
cash equivalent if the borrower defaults on its obligation to return 
such securities.

E. Liens, Rights, and Obligations

    In addition to any pledge of specific accounts agreed to by a 
participant due to extensions of credit, all assets held in the 
Euroclear System are subject to rights of set-off and retention. 
Furthermore, participants's assets held in the Euroclear System (except 
for assets held for customers and identified as such pursuant to the 
Operating Procedures or by agreement with Euroclear) are subject to a 
statutory lien in favor of MGT-Brussels, as operator of the Euroclear 
System, pursuant to Belgian law.\18\ Participants also are subject to 
certain obligations toward Euroclear including obligations to cover any 
cash or securities debit balances that participants may incur.
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    \18\ Article 41 of the Belgian Law of April 6, 1995.
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IV. Euroclear's Request for Exemption

A. Introduction

    U.S. government and agency securities are the securities of choice 
for cross-border collateral and other transactions. Euroclear does not 
currently provide participants with the means to acquire, hold, 
transfer, or pledge interests in U.S. government or agency securities 
in the Euroclear System. In its exemption request, Euroclear therefore 
seeks an exemption from registration as a clearing agency pursuant to 
Section 17A of the Exchange Act and Rule 17Ab2-1 thereunder to the 
extent it performs the functions of a clearing agency with respect to 
U.S. government and agency securities for U.S. participants of the 
Euroclear System.
    Section 17A of the Exchange Act directs the Commission to promote 
Congressional objectives to facilitate the development of a national 
clearance and settlement system for securities transactions.\19\ 
Registration of clearing agencies is a key element of the regulation of 
clearing agencies in promoting these statutory objectives. Before 
granting registration to a clearing agency, Section 17A(b)(3) of the 
Exchange Act requires that the Commission make a number of 
determinations with respect to the clearing agency's organization, 
capacity, and rules.\20\ The Commission has published the standards 
applied by its Division of Market Regulation in evaluating applications 
for clearing agency registration.\21\ These requirements are designed 
to assure the safety and soundness of the clearance and settlement 
system.
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    \19\ 15 U.S.C. 78q-1. Section 17A(a)(1) provides:
    (1) The Congress finds that--
    (A) The prompt and accurate clearance and settlement of 
securities transactions, including the transfer of record ownership 
and the safeguarding of securities and funds related thereto, are 
necessary for the protection of investors and persons facilitating 
transactions by and acting on behalf of investors.
    (B) Inefficient procedures for clearance and settlement impose 
unnecessary costs on investors and persons facilitating transactions 
by and acting on behalf of investors.
    (C) New data processing and communications techniques create the 
opportunity for more efficient, effective, and safe procedures for 
clearance and settlement.
    (D) The linking of all clearance and settlement facilities and 
the development of uniform standards and procedures for clearance 
and settlement will reduce unnecessary costs and increase the 
protection of investors and persons facilitating transactions by and 
acting on behalf of investors. For legislative history concerning 
Section 17A, See, e.g., Report of Senate Comm. on Housing and Urban 
Affairs, Securities Acts Amendments of 1975: Report to Accompany S. 
249, S. Rep. No. 75, 94th Cong., 1st Sess. 4 (1975); Conference 
Comm. Report to Accompany S. 249, Joint Explanatory Statement of 
Comm. of Conference, H.R. Rep. No. 229, 94th Cong., 1st Sess., 102 
(1975).
    \20\ 15 U.S.C 78q-1(b)(3). See also Section 19 of the Exchange 
Act, 15 U.S.C. 78s, and Rule 19b-4, 17 CFR 240.19b-4, setting forth 
procedural requirements for registration and continuing Commission 
oversight of clearing agencies and other self-regulatory 
organizations.
    \21\ Securities Exchange Act Release No. 16900 (June 17, 1980), 
45 FR 41920 (``Standards Release''). See also, Securities Exchange 
Act Release No. 20221 (September 23, 1983), 48 FR 45167 (omnibus 
order granting registration as clearing agencies to The Depository 
Trust Company, Stock Clearing Corporation of Philadelphia, Midwest 
Securities Trust Company, The Options Clearing Corporation, Midwest 
Clearing Corporation, Pacific Securities Depository, National 
Securities Clearing Corporation, and Philadelphia Depository Trust 
Company).
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    Section 17A(b)(1), moreover, provides that the Commission:

    * * *may conditionally or unconditionally exempt any clearing 
agency

[[Page 26837]]

or security or any class of clearing agencies or securities from any 
provisions of [Section 17A] or the rules or regulations thereunder, 
if the Commission finds that such exemption is consistent with the 
public interest, the protection of investors, and the purposes of 
[Section 17A], including the prompt and accurate clearance and 
settlement of securities transactions and the safeguarding of 
securities and funds.\22\

    \22\ 15 U.S.C. 78q-1(b)(1).
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    The Commission reviews every application for exemption against the 
standards for clearing agency registration.
    Euroclear notes that the Commission previously has granted 
exemptions from clearing agency registration, subject to certain volume 
limits, reporting requirements, and other conditions, to the Clearing 
Corporation for Options and Securities (``CCOS'') and to Cedel.\23\ The 
Commission also has published notice of an application by Cedel to 
amend its exemption from registration as a clearing agency to the 
extent it performs the functions of a clearing agency for U.S. domestic 
debt and equity securities.\24\
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    \23\ Securities Exchange Act Release Nos. 36573 (December 12, 
1995), 60 FR 65076 (CCOS) and 38328 (February 24, 1997), 62 FR 9225 
(Cedel). The Commission also has granted temporary registration and 
partial exemptions from certain provisions of Section 17A to the 
Government Securities Clearing Corporation (``GSCC''), Participants 
Trust Company (``PTC''), MBS Clearing Corporation (``MBSCC''), Delta 
Clearing Corp. (``Delta''), and the International Securities 
Clearing Corporation (``ISCC''). Securities Exchange Act Release 
Nos. 37983 (November 25, 1996), 61 FR 64183 (GSCC); 38452 (March 28, 
1997), 62 FR 16638 (PTC); 37372 (June 26, 1996), 61 FR 35281 
(MBSCC); 38224 (January 31, 1997), 62 FR 5869 (Delta); and 37986 
(November 25, 1996), 61 FR 64184 (ISCC). In granting these temporary 
registrations it was expected that the subject clearing agencies 
would eventually apply for permanent clearing agency registration.
    \24\ Securities Exchange Act Release No. 38329 (February 24, 
1997), 62 FR 9222.
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    Euroclear believes that providing it with an exemption from 
clearing agency registration would produce substantial benefits to its 
participants, would provide U.S. investors and the U.S. national 
clearance and settlement system with the same level of protection 
against custody, clearance, and settlement risks that full registration 
would provide, and would otherwise satisfy the statutory requirements 
for an exemption.

B. Participant Benefits

    Euroclear believes that the proposed exemption would promote the 
U.S. public interest by reducing risk to credit providers and by 
reducing costs to credit seekers. Euroclear believes that it is 
currently too costly for many international credit providers and credit 
seekers to use U.S. government or agency securities to reduce credit 
and liquidity risks in a number of international transactions.\25\ As a 
result, credit providers currently receive lower quality collateral or 
remain unsecured and are subject to a higher level of credit or 
liquidity risks in many international transactions. Credit seekers are 
subject to higher credit costs and lower credit limits than they would 
be if they used U.S. government or agency securities as collateral.
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    \25\ Euroclear has advised the Commission in its Form CA-1 that 
time zone differences between where a transaction occurs for which 
credit support is required and the U.S. (i.e., where transactions in 
U.S. government securities are settled) make it too costly to 
synchronize transactions in a way to utilize U.S. government 
securities to collateralize transactions that give rise to credit or 
liquidity risks. Furthermore, Euroclear believes that the lack of a 
securities intermediary with a critical mass of both securities and 
customers makes it too costly to have U.S. government securities in 
the right place at the right time to reduce such credit and 
liquidity risks.
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    Euroclear believes that if international credit providers suffer 
substantial losses or fail because of this condition, it could have 
repercussive effects in the United States because of the growing 
interdependency among the world's financial markets. Euroclear further 
believes that credit seekers from the United States also could face 
higher credit costs and lower credit limits at home and abroad because 
of the growing interdependency in worldwide financial markets.
    Euroclear believes that allowing its system to provide clearance 
and settlement services for interests in U.S. government and agency 
securities to U.S. entities would reduce these transaction costs and 
therefore would reduce the costs and risks of international financial 
transactions.
    Euroclear also believes that the proposed exemption would promote 
the U.S. public interest by increasing competition in the provision of 
clearance and settlement services for U.S. government and agency 
securities. Euroclear maintains that greater competition can be 
expected to result in lower costs and greater innovation by both U.S. 
and international clearing agencies.

C. Formal Registration Unnecessary or Inappropriate

    Euroclear believes that formal registration would subject it to 
substantial additional regulatory burdens without producing any 
material benefits for the U.S. public related to the fundamental goal 
of safe and sound custody, clearance, and settlement.\26\ Euroclear 
further believes that it would be a substantial and unnecessary burden 
to require it to regulate the actions of U.S. brokers and dealers, 
which it believes are already adequately regulated by the U.S. national 
securities exchanges, the NASD, and the Commission itself. Euroclear 
also believes that it would not have any market power over the custody, 
clearance, or settlement of U.S. government or agency securities and in 
fact would operate in a highly competitive, private sector environment. 
Finally, Euroclear believes that the recordkeeping, fingerprinting, and 
other requirements of Section 17 are effectively satisfied by the 
substantially similar recordkeeping, reporting, and other requirements 
of U.S. Federal, New York State, and Belgian banking laws.\27\
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    \26\ For example, registered clearing agencies are required to 
assume the rights and responsibilities of a self-regulatory 
organization (``SRO''), including the responsibility to police the 
actions of U.S. brokers, dealers, and other securities 
intermediaries, and to submit each of its proposed rule changes to 
the Commission. Euroclear believes that the rights and 
responsibilities of an SRO were designed primarily for U.S. national 
securities exchanges, like the New York Stock Exchange and the 
American Stock Exchange, and U.S. national securities associations, 
like the National Association of Securities Dealers (``NASD''), and 
were extended to registered clearing agencies mainly because the 
major clearing agencies at the time Section 17A was enacted were 
subsidiaries of national securities exchanges or other SROs.
    \27\ See e.g., 12 CFR Part 208 (Membership of State Banking 
Institutions in the Federal Reserve System [Regulation H]).
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D. Safety and Soundness Protections

    Sections 17A(b) (3) (A) and (F) of the Exchange Act require a 
clearing agency be organized and its rules be designed to facilitate 
the prompt and accurate clearance and settlement of securities 
transactions for which it is responsible and to safeguard securities 
and funds in its custody or control or for which it is responsible.\28\
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    \28\ 15 U.S.C. 78q-1(b) (3) (A) and (F).
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    Euroclear has represented to the Commission that its financial 
condition, operational safeguards, and the extent to which it is 
already subject to substantial U.S. regulatory oversight will provide 
U.S. investors and the U.S. national clearance and settlement system 
with the same level of protection against custody, clearance, and 
settlement risks that full registration would provide.
1. Financial Condition
    Euroclear has advised that Commission that MGT, which ultimately is 
the entity fiscally responsible for operations of the Euroclear System, 
is a U.S. bank that it is ``well-capitalized'' and ``well-managed'' as 
those terms are defined under applicable U.S. Federal banking

[[Page 26838]]

regulations.\29\ MGT has represented to the Commission that it has over 
$13.5 billion in total capital and a total capital ratio of more than 
11 percent \30\ and access to billions of dollars of additional 
liquidity in the capital markets. Its senior debt is rated AAA by 
Standard & Poor's \31\ and its long-term debt is rated Aa-1 by Moody's 
Investors Services.\32\
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    \29\ 12 CFR 208.33(b)(1) (definition of ``well-capitalized'') 
and 12 CFR 225.2(s) (definition of ``well-managed''). See also 12 
CFR 211.2(u) (definition of ``strongly capitalized'') and (x) 
(definition of ``well managed'').
    \30\ 12 CFR Part 208, Appendix A (defining total capital as the 
sum of ``tier 1'' and ``tier 2'' capital and total capital ratio as 
total capital divided by total risk-weighted assets).
    \31\ Standard & Poor's, ``Morgan (J.P.) & Company Inc.,'' Bank 
Ratings Analysis, April 1997, at 1.
    \32\ Moody's Investor Service, ``Opinion Update: Morgan Guaranty 
Trust Company of New York,'' Global Credit Research, February 7, 
1997, at 2.
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    Euroclear states that the financial condition of each of the 
securities intermediaries through which it would hold its positions in 
U.S. government and agency securities on behalf of Euroclear 
participants is similarly strong. It would hold its positions through 
an adequately-capitalized and well-managed U.S. bank, which would in 
turn hold matching positions through the Federal Reserve Bank of New 
York or PTC.
2. Operational Safeguards
    Euroclear believes that it has substantially similar subcustodian, 
recordkeeping, and auditing policies and procedures as those utilized 
by registered clearing agencies. MGT-Brussels is subject to annual on-
site examinations by the Federal Reserve Bank of New York and to 
periodic examinations by the New York State Banking Department and the 
Belgian Banking and Finance Commission. Euroclear also represents to 
the Commission that it has a leading-edge information technology 
division and sophisticated contingency recovery facilities and 
maintains substantial insurance against the loss or theft of physical 
securities.
3. U.S. Federal and Other Regulatory Oversight
    MGT-Brussels, as operator of the Euroclear System, is a division of 
the foreign branch of a U.S. bank and, accordingly, is subject to the 
comprehensive supervision and regulation of the Board of Governors of 
the Federal Reserve System. As noted above, the Federal Reserve Bank of 
New York conducts annual on-site examinations in Brussels and otherwise 
regulates MGT-Brussels' operations, including its operation of the 
Euroclear System. MGT-Brussels, also is subject to the comprehensive 
supervision of the New York State Banking Department and the Belgian 
Banking and Finance Commission and is authorized as a Service Company 
by the Securities and Investment Board under the U.K. Financial 
Services Act, 1986.

E. Fair Representation

    Section 17A(b)(3)(C) of the Exchange Act requires that the rules of 
a clearing agency provide for fair representation of the clearing 
agency's shareholders or members and participants in the selection of 
the clearing agency's directors and administration of the clearing 
agency's affairs. This section contemplates that users of a clearing 
agency have a significant voice in the direction of the affairs of the 
clearing agency.
    Although Euroclear participants do not have the right to appoint 
MGT directors or members of the Euroclear management, they all have the 
right to become members of the Belgian Cooperative and can use such 
membership to influence the range of Euroclear services and the level 
of fees charged to them by Euroclear. The Board of Directors of the 
Belgian Cooperative consists of 23 voting members, nominated from 
Euroclear participant organizations representing various financial 
sectors and geographical regions. Euroclear's goal was to fashion a 
Board with a cross-functional composition in order to ensure that 
important strategic and policy issues are viewed with a broad market 
perspective. The Board meets four times a year with Euroclear 
management to discuss major policy and operational issues regarding the 
Euroclear System, including new product development and the level of 
fees. Moreover, Euroclear believes that its participants are some of 
the world's leading banks, brokers, central banks, and other 
professional investors who are able to analyze the risks and benefits 
of clearing and settling transactions in the Euroclear System and to 
choose competitive substitutes for settling transactions in U.S. 
government or agency securities if they are not satisfied with the mix 
of risks and benefits in the Euroclear System.

F. Participant Standards

    Section 17A(b)(3)(B) of the Exchange Act enumerates certain 
categories of persons that a clearing agency's rules must authorize as 
potentially eligible for access to clearing agency membership and 
services. Section 17A(b)(4)(B) of the Exchange Act contemplates that a 
registered clearing agency have financial responsibility, operational 
capability, experience, and competency standards that are used to 
accept, deny, or condition participation of any participant or any 
category of participants enumerated in Section 17A(b)(3)(B), but that 
these criteria may not be used to unfairly discriminate among 
participants. In addition, the Exchange Act recognizes that a clearing 
agency may discriminate among persons in the admission to or the use of 
the clearing agency if such discrimination is based on standards of 
financial responsibility, operational capability, experience, and 
competence.
    Any broker-dealer, clearing agency, investment company, bank, 
insurance company, or other professional investor that demonstrates it 
meets Euroclear's financial and operational criteria may become a 
Euroclear System participant. They must demonstrate that they have 
adequate financial resources for their intended use of the Euroclear 
System and the ability to maintain this financial strength on an 
ongoing basis. They also must demonstrate that they have both the 
personnel and technological infrastructure to meet the operational 
requirements of the Euroclear System. Furthermore, they must show that 
they expect to derive material benefit from direct access to Euroclear 
and that they are reputable firms.

V. Proposed Exemption

A. Statutory Standards

    As noted above, Section 17A of the Exchange Act directs the 
Commission to develop a national clearance and settlement system 
through, among other things, the registration and regulation of 
clearing agencies.\33\ In fostering the development of a national 
clearance and settlement system generally and in overseeing clearing 
agencies in particular, Section 17A authorizes and directs the 
Commission to promote and facilitate certain goals with due regard for 
the public interest, the protection of investors, the safeguarding of 
securities and funds, and the maintenance of fair competition among 
brokers, dealers, clearing agencies, and transfer agents.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78q-1.
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    Section 17A(b)(1) authorizes the Commission to exempt applicants 
from some or all of the requirements of Section 17A if it finds such 
exemptions are consistent with the public interest, the protection of 
investors, and the purposes of Section 17A, including the prompt and 
accurate clearance and settlement of securities transactions and the 
safeguarding of securities and funds. The Commission has exercised its

[[Page 26839]]

authority to exempt an applicant entirely from clearing agency 
registration on two prior occasions and has granted temporary clearing 
agency registrations that included exemptions from specific Section 17A 
statutory requirements on five previous occasions.\34\
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    \34\ Supra note 23 and accompanying text.
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    As discussed above, applicants requesting exemption from clearing 
agency registration are required to meet standards substantially 
similar to those required of registrants under Section 17A in order to 
assure that the fundamental goals of Section 17A (e.g., safe and sound 
clearance and settlement) are furthered. Therefore, the Commission 
invites commenters to address whether granting MGT-Brussels' 
application, as operator of the Euroclear System, for exemption from 
clearing agency registration, subject to the conditions set forth 
below, would further the goals of Section 17A.

B. Conditions

    The Commission would expect to impose two types of conditions on 
the operation of the Euroclear System in conjunction with the grant of 
any exemption from clearing agency registration: limits on the volume 
of transactions in U.S. government and agency securities \35\ involving 
a U.S. participant or its affiliate; \36\ and informational 
requirements that will allow the Commission to monitor and control any 
possible adverse impact that the proposed activities of the Euroclear 
System could have on the safety and soundness of the U.S. national 
system for the clearance and settlement of eligible U.S. government 
securities.
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    \35\ The Commission proposes that the U.S. government and agency 
securities eligible for Euroclear processing will be the same as 
those securities permitted to be processed by Cedel. Accordingly, 
eligible securities will include (i) Fedwire-eligible U.S. 
government securities, (ii) mortgage backed pass-through securities 
that are guaranteed by the Government National Mortgage Association 
(``GNMAs''), and (iii) any collateralized mortgage obligation whose 
underlying securities are Fedwire-eligible U.S. government 
securities or GNMA guaranteed mortgage-backed pass through 
securities and which are depository eligible securities 
(collectively, ``eligible U.S. government securities''). The 
Commission is of the view that this definition should not include 
those U.S. government or agency securities currently processed by 
Euroclear that are foreign targeted securities and/or guaranteed by 
an international organization.
    \36\ The Commission is proposing that ``U.S. entity'' should 
include (i) any entity organized under the laws of the United States 
or any state or subdivision thereof that is registered or regulated 
pursuant to state or federal banking laws or state or federal 
securities laws and should include, without limitation, U.S. 
registered broker-dealers, U.S. banks (as defined by Section 3(a)(6) 
of the Exchange Act), and (ii) foreign branches of U.S. banks or 
U.S. registered broker-dealers.
     Additionally, the Commission is proposing that the term 
``affiliate'' should be defined as any Euroclear System participant 
having a relationship with a U.S. entity where the U.S. entity has 
an arrangement on file at Euroclear to prevent a settlement default 
or credit default with respect to the Euroclear System participant 
or where Euroclear knows that the U.S. entity has an arrangement to 
prevent a settlement default or credit default with respect to the 
Euroclear System participant.
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1. Volume Limits
    In granting Cedel and CCOS exemptions from clearing agency 
registration, the Commission placed a limit on the transactions in 
eligible U.S. government securities conducted by U.S. participants or 
their affiliates that can be processed through those systems.\37\ 
Euroclear similarly proposes to limit the average daily volume of 
transactions in U.S. government or agency securities involving U.S. 
participants \38\ or their affiliates that are settled through the 
Euroclear System to five percent of the average daily volume of total 
worldwide transactions in U.S. government and agency securities. 
Although Euroclear has proposed this volume limit, it has requested 
that due to its relatively strong capital position, its operational 
safeguards, and its comprehensive regulation by U.S. Federal and state 
authorities, this volume limit be transitional in nature. Accordingly, 
Euroclear also requests that the Director of the Division be granted 
delegated authority from the Commission to increase or eliminate the 
volume limit if the Division deems such action appropriate.
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    \37\ The CCOS exemptive order contained volume limitations of 
US$6 billion net daily settlement for U.S. government securities and 
US$24 billion for repurchase agreements and reverse repurchase 
agreements transactions in U.S. government securities. These limits 
are calculated on an average daily basis over a ninety day period. 
At that time, the CCOS volume limits were designed to limit CCOS's 
activity to approximately five percent of the average daily dollar 
value of transactions in U.S. government securities and in 
repurchase agreements and reverse repurchase agreements involving 
U.S. government securities. In the Cedel exemptive order, the 
Commission determined that a percentage-based formula was more 
appropriate. Accordingly, Cedel may not process more than 5% of the 
total average daily value of the aggregate volume in eligible U.S. 
government securities. The total average daily dollar value of 
eligible U.S. government securities volume is derived from the total 
daily value of securities activity through Fedwire, GSCC, MBSCC, 
PTC, and any other source that the Division deems appropriate to 
reflect the aggregate volume in eligible U.S. government securities. 
Cedel's average daily volume is derived from the value of eligible 
U.S. government securities that are processed through Cedel 
involving a U.S. counterparty or its affiliate. Based upon December 
31, 1996, information, this computation yields an average daily 
volume limit of approximately US$49 billion.
    \38\ For this purpose Euroclear proposes that ``U.S. 
participant'' would mean any participant of the Euroclear System 
having a U.S. residence (based on location of its executive office 
or principal place of business), including any foreign branch of 
such participant.
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    The Commission preliminarily believes the proposed volume limit 
appears to be appropriate in that it is large enough to allow Euroclear 
to commence operations in clearing and settling eligible U.S. 
Government securities transactions involving U.S. participants and to 
allow the Commission to observe the effects of the Euroclear System's 
activities on the U.S. securities market. Likewise, the Commission 
preliminarily believes that the proposed volume limit is sufficiently 
narrow in scope so that the safety and soundness of the U.S. markets 
would not be compromised if Euroclear or MGT experiences financial or 
operational difficulties.
2. Informational Requirements
    To facilitate the monitoring of compliance with the proposed volume 
limits under the proposed exemption, Euroclear would be required to 
provide information on a monthly basis regarding aggregate volume for 
all Euroclear System participants for transactions in eligible U.S. 
Government securities. Euroclear also would be required to notify the 
Commission if there is a material adverse change in any Euroclear 
System account maintained by MGT-Brussels for Euroclear System 
participants that also are members of affiliates of members of a U.S. 
registered clearing agency.\39\ Euroclear also would be required to 
respond to any Commission request for information about a U.S. 
participant or its affiliate about whom the Commission has concerns.
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    \39\ For purposes of the exemption, the Commission preliminarily 
believes that the term ``material adverse change'' would include 
defaults in settlement for credit reasons in a Euroclear System 
account, liquidation of collateral posted by a participant in that 
participant's Euroclear System account, or the limitation on the 
extensions of credit to a participant through the Euroclear System.
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    Euroclear specifically has agreed to promptly provide the Division 
with the following documents when made available to Euroclear System 
participants:
    (1) Any amendments to or revised editions of (a) the Terms and 
Conditions, (b) the Supplementary Terms and Conditions Governing the 
Lending and Borrowing of Securities through Euroclear, and (c) the 
Operating Procedures of the Euroclear System;
    (2) The annual report to shareholders of the Belgian Cooperative; 
and

[[Page 26840]]

    (3) The annual report on the internal controls, policies and 
procedures of the Euroclear System (``SAS-70 Report'').\40\
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    \40\ In addition, the Division will review the annual reports on 
Form 10-K and the quarterly reports on Form 10-Q for J.P. Morgan & 
Co. Incorporated, MGT's parent, which are already provided to the 
Commission.
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    Euroclear also has agreed to provide the Division with prompt 
notice upon the occurrence of any of the following events;
    (1) The termination of any Euroclear System participant;
    (2) The liquidation of any securities collateral pledged by a 
participant to secure an extension of credit made through the Euroclear 
System;
    (3) The institution of any proceedings to have any Euroclear System 
participant declared insolvent or bankrupt; or
    (4) The disruption or failure in the operations of the Euroclear 
System in whole or in part from its regular operating location or its 
contingency center.
    Finally, Euroclear also has agreed to provide the Commission with 
quarterly reports, calculated on a twelve-month rolling basis, of the 
following:
    (1) The average daily volume of transactions in eligible U.S. 
Government securities for U.S. participants and their affiliates that 
are subject to the volume limit described in IV.B.1 above; and
    (2) The average daily volume of transactions in eligible U.S. 
Government securities for all participants, whether or not subject to 
the volume limit described in Section IV.B.1 above.
    The Commission seeks comment on these proposed volume limits and 
the informational requirements. Specifically, commenters are requested 
to address the structure and the appropriate size of such limits. 
Commenters also are requested to address the types of information which 
should be provided to the Commission to help maintain the safety and 
soundness of the U.S. clearance and settlement systems and the U.S. 
securities markets. Finally, commenters are invited to comment on the 
specific information that Euroclear has agreed to provide to the 
Commission and on the occurrence of events for which Euroclear must 
notify the Commission.

C. Fair Competition

    Section 17A of the Exchange Act requires the Commission, in 
exercising its authority under that section, to have due regard for the 
maintenance of fair competition among clearing agencies.\41\ Therefore, 
the Commission must consider an applicant's likely effect on 
competition and on the U.S. securities markets in its review of any 
application for registration or exemption from registration as a 
clearing agency.
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    \41\ 15 U.S.C. 78q-1(a)(2).
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    Consistent with this approach, the Commission invites commenters to 
address whether granting Euroclear an exemption from registration would 
result in increased competition, including greater access to the U.S. 
securities market by foreign broker-dealers, banks, and clearing 
agencies. Such competition may result in the development of improved 
systems capabilities, new services, and perhaps lower costs to market 
participants. The Commission also invites commenters to address whether 
the proposal would impose any burden on competition that is 
inappropriate under the Exchange Act.

VI. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing application by June 16, 1997. Such 
written data, views, and arguments will be considered by the Commission 
in deciding whether to grant Euroclear's request for exemption from 
registration. Persons desiring to make written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Reference 
should be made to File No. 601-01. Copies of the application and all 
written comments will be available for inspection and copying at the 
Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, 
D.C. 20549.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(16).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12751 Filed 5-14-97; 8:45 am]
BILLING CODE 8010-01-M