[Federal Register Volume 62, Number 117 (Wednesday, June 18, 1997)]
[Notices]
[Pages 33145-33147]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15934]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38736; File No. SR-DCC-97-03]


Self-Regulatory Organizations; Delta Clearing Corp.; Notice of 
Filing of Proposed Rule Change Regarding Novated Repos

June 11, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ notice is hereby given that on March 11, 1997, Delta 
Clearing Corp.

[[Page 33146]]

(``Delta'') filed with the Securities and Exchange Commission 
(``Commission'') and on May 7, 1997, and May 29, 1997, amended the 
proposed rule change as described in Items I, II, and III below, which 
items have been prepared primarily by Delta. 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

    Delta seeks approval of amendments to its Procedures for Repurchase 
Agreements and Reverse Repurchase Agreements (``Repo Procedures'') to 
permit Delta to clear the off-date portion of a repurchase agreement 
(``repo'') transaction whose on-date leg has been cleared outside of 
Delta.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, Delta included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments that it received on the proposed rule change. 
The text of these statements may be examined at the places specified in 
Item IV below. Delta 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.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Delta proposes to modify its Repo Procedures to provide that Delta 
may assume the obligation to clear solely the off-date portion of a 
repo transaction (``novated repo'') subject to (1) the receipt of Delta 
of matching trade reports from the parties to the trade or from an 
authorized broker,\3\ as applicable and (2) Delta's confirmation of the 
prior execution and clearance of the on-date portion of such repo 
transaction.
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    \3\ Pursuant to Delta's rules, Delta will clear and settle repo 
transactions that have been entered into directly between two 
participants or entered into by two participants through the 
facilities of a broker (``authorized broker'') that has been 
specifically authorized by Delta for such purpose.
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    Section 2401 sets forth time periods for participants to report on-
date transactions to enable Delta to clear such transactions by 
settlement time. Section 2401 of the Repo Procedures will be amended to 
provide that the time periods for reporting transactions set forth in 
the first paragraph of Section 2401 do not apply to novated repos. 
However, in the case of a novated repo where Delta does not clear the 
on-date portion of a repo transaction, it is not necessary for 
participants to report such transactions prior to settlement time. 
Instead, the proposed amendment will provide that novated repos shall 
be reported to Delta by 5:00 p.m. on any business day prior to the 
settlement day of the off-date portion as a condition for Delta to 
assume on such business day the obligation to clear the off-date 
portion. However, Section 2401 will also provide that if the settlement 
day of the off-date portion is the next business day following the 
business day on which a novated repo is reported to Delta, such novated 
repo must be reported to Delta prior to 2:15 p.m. so that Delta will be 
able to collect margin related to the transaction in a timely 
manner.\4\
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    \4\ Section 2401 will also be amended to require that overnight 
repo transactions must be reported to Delta prior to 2:15 p.m. 
Overnight repos and novated repos reported one day prior to 
settlement will be margined in the same manner.
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    Participants or the authorized broker, as applicable, may but will 
not be required to report novated repos to Delta on or prior to the 
settlement day of the on-date portion of the repo transaction. For 
example, if participants execute and settle the on-date portion of a 
repo transaction on day one and submit matching trade reports to Delta 
on day two, Delta will assume the obligation to clear the off-date 
portion of such repo transaction provided that the trade is otherwise 
in compliance with Delta's Repo Procedures.
    Section 2507 will be added to the Repo Procedures to clarify that 
provisions relating to on-date settlement do not apply to novated 
repos. Similarly, Sections 2801 and 2802 will be amended to clarify 
that no delivery of collateral or payment of net money through Delta is 
required on the on-date of a novated repo.
    Finally, a new Section 2904 will be added to the Repo Procedures to 
provide that Delta may accept novated repos for clearance. Section 2904 
will provide that a participant's net exposure resulting from the 
assumption by Delta of a novated repo on any business day will be 
included for purposes of calculating the margin required to be 
deposited by the participant by 11:00 a.m. of the following business 
day pursuant to Article XXVI of the Procedures relating to margin. If 
Delta assumes by 5:00 p.m. on day two the obligation to clear the off-
date portion of a novated repo, any margin required from a participant 
as a result of the participant's net exposure resulting from Delta's 
assumption of such novated repo would have to be deposited by the 
participant on or before 11:00 a.m. on day three. However, if a novated 
repo has an off-date which is the next business day following the 
business day on which the novated repo is reported to Delta, such 
novated repo shall be treated as an overnight repo for margin 
collection purposes.\5\
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    \5\ Delta sends a Supplemental Daily Margin report to members at 
2:30 p.m. each day that indicates the amount of margin a member must 
deposit prior to 3:00 p.m. that day. The margin is based on a mark-
to-market calculation.
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    Participants often enter into repo transactions and immediately 
thereafter clear the on-date portion of the transaction between 
themselves. Participants that have entered into a repo transaction and 
have cleared the on-date portion between themselves may wish to have 
Delta assume the obligation to clear the off-date portion. This may be 
advantageous to the participants for credit, balance sheet netting, or 
other reasons. The proposed changes will allow participants to submit 
repo transactions for off-date clearing without having to reclear the 
on-date portion which has been previously executed and cleared outside 
Delta's clearing system. Delta does not believe that the proposed rule 
change to permit clearance of novated repos will expose Delta's 
clearing system to any risk which is different from the risk assumed on 
transactions where Delta clears both the on-date and off-date portion 
of the repo transaction.
    Delta believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to Delta and in particular with Section 17A(b)(3)(F) of the 
Act \6\ which requires that a clearing agency be organized and its 
rules be designed to promote the prompt and accurate clearance and 
settlement of securities transactions, to safeguard funds and 
securities in Delta's possession and control, and to remove impediments 
to and perfect the mechanism of a national system for the prompt and 
accurate clearance and settlement of securities transactions. Delta 
believes that permitting Delta to clear novated repos will permit wider 
utilization of the clearing system by participants.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).

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[[Page 33147]]

(B) Self-Regulatory Organization's Statement on Burden on Competition

    Delta does not believe that the proposed rule change will impose 
any burden on competition not necessary or appropriate in furtherance 
of the purpose of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants or Others

    Comments were neither solicited nor received.

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 rule 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 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 Delta. All 
submissions should refer to File No. SR-DCC-97-03 and should be 
submitted by July 9, 1997.

    For the Commission by the Division of Market Regulation pursuant 
to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-15934 Filed 6-17-97; 8:45 am]
BILLING CODE 8010-01-M