[Federal Register Volume 62, Number 183 (Monday, September 22, 1997)]
[Notices]
[Pages 49547-49548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25027]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39065; File No. SR-DCC-97-03]


Self-Regulatory Organizations; Delta Clearing Corp.; Order 
Approving Proposed Rule Change Regarding the Clearing of the Off-Date 
Portion of Repurchase Agreements

September 12, 1997.
    On March 11, 1997, Delta Clearing Corp. (``Delta'') filed with the 
Securities and Exchange Commission (``Commission'') and on May 7, 1997, 
and May 29, 1997, amended a proposed rule change (File No. SR-DCC-97-
03) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ Notice of the proposal was published in the Federal 
Register on June 18, 1997.\2\ No comment letters were received. For the 
reasons discussed below, the Commission is approving the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 38736 (June 11, 1997), 
62 FR 33145.
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I. Description

    The proposed rule change amends Delta's 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 portion has been cleared outside 
of Delta. Delta's Repo Procedures now 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 by Delta of matching 
trade reports from the parties to the trade or from 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 that has been specifically authorized by 
Delta for such purpose.
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    Section 2401 of the Repo Procedures sets forth time periods for 
participants to report on-date transactions to enable Delta to clear 
such transactions by settlement time. Section 2401 is amended to 
provide that the time periods for reporting transactions set

[[Page 49548]]

forth in the first paragraph of Section 2401 do not apply to novated 
repos. Instead, as a condition for Delta to assume on such business day 
the obligation to clear the off-date portion, novated repos must be 
reported to Delta by 5:00 p.m. on any business day prior to the 
settlement day of the off-date portion. However, 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 also is amended to require that overnight repo 
transactions 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. See infra note 5.
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    Section 2507 is 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 are 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, Section 2904 is added to the Repo Procedures to provide 
that Delta may accept novated repos for clearance. Section 2904 
provides 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 Repo Procedures relating to margin. 
If Delta assumes by 5:00 p.m. 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 will have to be deposited by the 
participant on or before 11:00 a.m. on the next day. 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 is 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 an 
intraday mark-to-market calculation based on overnight repos.
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II. Discussion

    Section 17A(b)(3)(F) \6\ of the Act requires that a clearing agency 
be organized and its rules be designed to promote the prompt and 
accurate clearance and settlement of securities transactions. The 
Commission believes that the proposed rule change is consistent with 
section 17A(b)(3)(F). The proposal will allow more trades to be cleared 
through Delta's clearance and settlement system. Such trades will 
receive the benefit of Delta's guarantee and automated settlement 
capabilities. Because of Deltas netting of transactions, the proposal 
also may reduce the number of securities movements needed to settle 
transactions. By reducing the number of trades settled ex-clearing, the 
proposal should assist in the prompt and accurate clearance and 
settlement of repo transactions consistent with section 17A(b)(3)(F).
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DCC-97-03) be and hereby is 
approved.

    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. 97-25027 Filed 9-19-97; 8:45 am]
BILLING CODE 8010-01-M