[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28085-28086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13402]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38646; File No. SR-DCC-96-13]


Self-Regulatory Organizations; Delta Clearing Corp.; Order 
Granting Approval of a Proposed Rule Change Relating to the Definitions 
of Trading Limits and Maximum Potential System Exposure

May 15, 1997.
    On November 26, 1996, Delta Clearing Corp. (``DCC'') filed a 
proposed rule change (File No. SR-DCC-96-13) with the Securities and 
Exchange Commission (``Commission'') pursuant to Section 19(b) of the 
Securities Exchange Act of 1934 (``Act'').\1\ On January 10, 1997, DCC 
filed an amendment to the proposed rule change. Notice of the proposal 
was published in the Federal Register on January 30, 1997, to solicit 
comments from interested persons.\2\ No comments were received. As 
discussed below, this order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b).
    \2\ Securities Exchange Act Release No. 38197 (January 23, 
1997), 62 FR 4557.
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Description

    The proposed rule change amends DCC's procedures and provides for 
the issuance of Policy Statement 96-02 in order to revise DCC's current 
method of limiting its exposure to participants.\3\ The term ``trading 
limit'' in DCC's procedures is replaced with the ``exposure limit.'' 
Section 204 and 2204 and the definitions of ``exposure limit'' in 
Section 101 and 2101 are amended to clarify that each participant has 
one exposure limit applicable to both repurchase agreement (``repo'') 
and option transactions.
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    \3\ Policy Statement 96-02 described such items as the processes 
for rejecting trades and notification of the affected participants.
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    The consequences of a participant exceeding its exposure limit are 
clarified so that a participant may continue to effect trades for 
clearance and settlement in the repo clearing

[[Page 28086]]

system or the options clearing system if DCC determines that the risk 
involved is de minimis (i.e., the additional exposure is less than 5%). 
Previously, if a participant exceeded its trading limit, DCC was 
required to reject the participant's trades. Now, if a participant 
exceeds its exposure limit twice or more in one month, the revised rule 
obligates DCC to review with the participant and the insurer, if 
necessary, whether to change the participant's exposure limit.
    The definition of maximum potential system exposure (``MPSE'') in 
the procedures also is revised to clarify and to limit the 
circumstances under which margin funds due and owing from participants 
may be deducted for purposes of determining MPSE. DCC will continue to 
include as a credit in calculating MPSE those margin funds due and 
owing from such participants at or before the immediately succeeding 
settlement time (1) That were called for by DCC in the ordinary course 
of entering trades into the options or repo clearing systems, (2) that 
were reflected in the daily margin report, and (3) that were not an 
additional margin requirement pursuant to Section 603 or 2603 of DCC's 
procedures.

II. Discussion

    Section 17A(b)(3)(F) of the Act requires that a clearing agency's 
rules be designed to ensure the safeguarding of securities and funds in 
its custody or control or for which it is responsible.\4\ The 
Commission believes that DCC's proposal is consistent with the Act in 
that the proposed rule change should provide DCC with greater 
flexibility to manage and to address credit and liquidity difficulties 
among its participants.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    DCC's procedures will allow participants to effect trades for 
clearance and settlement in the repo clearing system or in the options 
clearing system above their exposure limits only if DCC determines that 
the risk involved is below a defined de minimis amount. While this 
provision gives DCC some flexibility in determining whether to reject 
or accept a participant's trades, it does so in a limited and prudent 
manner. Furthermore, the unification of each participant's exposure 
limit for its options and repo transactions should allow DCC to improve 
its understanding of the overall risk each participant poses to DCC. In 
addition, the limitation on the types of margin that may be used as a 
credit for MPSE calculations should reduce the possibility that routine 
margin calls designed to reduce DCC's credit exposure inadvertently 
compound DCC's exposure. By enhancing DCC's risk management system, the 
proposal assists DCC in safeguarding securities and funds in its 
possession and control.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and 
particularly with Section 17A(b)(3)(F) of the Act and the rules and 
regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\5\ that the proposed rule change (File No. SR-DCC-96-13) be and 
hereby is approved.

    \5\ 15 U.S.C. 78s(b)(2).
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    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. 97-13402 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M