[Federal Register Volume 62, Number 176 (Thursday, September 11, 1997)]
[Notices]
[Pages 47862-47863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24136]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39020; File No. SR-NSCC-97-11]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of Proposed Rule Change Relating to Limited Cross-Guaranty Agreements

September 4, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 3, 1997, the 
National Securities Clearing Corporation (``NSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which items have been 
prepared primarily by NSCC. The Commission is publishing this notice 
and order to solicit comments from interested persons and to grant 
accelerated approval of the proposed rule change.
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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 purpose of the proposed rule change is to obtain Commission 
approval of the limited cross-guaranty agreements between NSCC and each 
of the International Securities Clearing Corporation (``ISCC''), the 
Government Securities Clearing Corporation (``GSCC''), and the MBS 
Clearing Corporation (``MBSCC'').

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

    In its filing with the Commission, NSCC 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. NSCC 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 NSCC.
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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 obtain Commission 
approval of the limited cross-guaranty agreements between NSCC and each 
of ISCC, GSCC, and MBSCC. NSCC represents that the limited cross-
guaranty agreements are substantially similar to the form of limited 
cross-guaranty agreement previously approved by the Commission in 
filings made by GSCC, ISCC, and MBSCC.\3\
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    \3\ See Securities Exchange Act Release No. 37616 (August 28, 
1996), 61 FR 46887 (order approving proposed rule changes riled by 
MBSCC, GSCC, and ISCC seeking authority to enter into limited cross-
guaranty agreements).
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    The limited cross-guaranty agreements between the clearing agency 
counterparties provide a guarantee that can be invoked in the event of 
a default of a common member. The guarantee is applicable only to the 
extent that the common member has unsatisfied obligations at one 
clearing agency and excess resources at another clearing agency. The 
guarantee is limited to the amount of the defaulting common member's 
resources remaining at the guaranteeing clearing agency. The agreements 
also set forth each clearing agency's priority structure with respect 
to the order in which it will make guaranty payments to other clearing 
agencies with which it has entered into a limited cross-guaranty 
agreement.\4\ The agreements also provide that demand for payment must 
be made within six months of the suspension of the common member.
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    \4\ Such priority schedule may be amended by later limited 
cross-guaranty agreements with other entities by delivery of an 
amended priority schedule to the counterparty.
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    NSCC amended its rules in File No. SR-NSCC-93-07 to accommodate 
limited cross-guaranty agreements.\5\ NSCC Rule 25 provides that in 
addition to a member's other obligations to NSCC under its rules, each 
member is obligated to NSCC for an amount equal to any guaranty payment 
NSCC is required to make to a cross-guaranty party pursuant to the 
terms of any clearing agency cross-guaranty agreement.
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    \5\ Securities Exchange Act Release No. 33548 (January 31, 
1994), 59 FR 5638 (order approving proposed rule change). The 
proposed rule change incorporated the limited guaranty provisions 
into NSCC's rules and approved NSCC's limited cross-guaranty 
agreement with The Depository Trust Company.
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    NSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act because it promotes the 
safeguarding of

[[Page 47863]]

securities and funds in the clearing agency's custody or control or for 
which it is responsible and fosters cooperation and coordination with 
other entities engaged in the clearance and settlement of securities 
transactions.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NSCC 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. NSCC will notify the Commission of any written 
comments it receives.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Section 17A(b)(3)(F) \6\ of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible and to foster cooperation and coordination 
with persons engaged in the clearance and settlement of securities 
transactions. The Commission believes that the proposal is consistent 
with NSCC's obligations to assure the safeguarding of securities and 
funds in its custody or control or for which it is responsible because 
the agreement should reduce NSCC's risk of loss due to a member's 
default.\7\ The agreement should also mitigate the systemic risks posed 
to the national clearance and settlement system as a result of a 
defaulting common member and thus should foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
    \7\ This order also approves future limited cross-guarantee 
agreements into which NSCC or OCC may enter which other clearing 
agencies provided that the form of such agreements are substantially 
similar to the form of agreement approved in this filing.
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    NSCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after publication of notice because it will permit NSCC to put a risk 
reduction mechanism into place in an expedient fashion.

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, NW., Washington DC 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, NW., 
Washington, DC 20549. Copies of the filing will also be available for 
inspection and copying at the principal office of NSCC. All submissions 
should refer to File No. SR-NSCC-97-11 and should be submitted by 
October 2, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-NSCC-97-11) be and 
hereby is approved.

    \8\ 15 U.S.C. 78s(b)(2).
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    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24136 Filed 9-10-97; 8:45 am]
BILLING CODE 8010-01-M