[Federal Register Volume 62, Number 220 (Friday, November 14, 1997)]
[Notices]
[Pages 61158-61160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29930]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39309; File No. SR-GSCC-97-06]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Regarding Funds-Only Settlement Payment 
Procedures

November 7, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 16, 1997, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on September 
19, 1997 and on November 4, 1997, amended the proposed rule change as 
described in Items I and II below, which items have been prepared 
primarily by GSCC. The Commission is publishing this notice to solicit 
comments from interested persons and to grant accelerated approval of 
the proposal.
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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 proposed rule change will amend GSCC's rules to provide netting 
members with the option of making funds-only settlement payments to 
GSCC by authorizing banks to accept payment directions directly from 
GSCC.

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

    In its filing with the Commission, GSCC 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. GSCC has prepared summaries, set forth in sections (A), 
(B),

[[Page 61159]]

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 
prepared by GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The main purpose of the proposed rule change is to amend GSCC's 
rules concerning netting members' funds-only settlement payments to 
GSCC. Under the proposed rule change, netting members will have the 
option of satisfying their funds-only settlement obligations with GSCC 
by way of an automatic debit (``auto debit'') arrangement. GSCC has 
informed the Commission that other clearing agencies, such as The 
Options Clearing Corporation, use such agreements to facilitate their 
funds-only settlement process.
    Under GSCC's current rules, a netting member with an obligation to 
pay a funds-only settlement amount to GSCC on a particular business day 
instructs a depository institution acceptable to GSCC, currently The 
Bank of New York, to make such payment to GSCC on its behalf. These 
payment procedures oblige GSCC each day to monitor continuously its 
account at the depository institution to determine whether every 
netting member with a funds-only settlement obligation to GSCC has made 
its payment in a timely manner.
    The proposed auto debit arrangement will supplement the current 
approach to payment processing. Under the proposed rule change, netting 
members will have the option to satisfy funds-only settlement 
obligations pursuant to payment instructions given directly by GSCC to 
their banks. Each netting member choosing this option will enter into 
an agreement with GSCC and a bank acceptable to both the member and 
GSCC.\3\ The bank will be required to meet the financial, operational 
capability, and other requirements set forth in GSCC's rules for 
eligibility to issue letters of credit on behalf of members for 
clearing fund purposes. GSCC believes that because the bank will 
maintain accounts on behalf of both the member and GSCC, it will be 
able to make and to collect funds-only settlement payments efficiently 
by posting debit and credit entries to the applicable accounts on its 
own books.
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    \3\ GSCC submitted a draft form of the agreement as Exhibit A to 
its filing, which is available for review and copying at the 
Commission's Public Reference Room and through GSCC.
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    Pursuant to the auto debit agreement, the bank generally will make 
payment to GSCC's account by 9:00 a.m.\4\ on behalf of netting members 
owing funds to GSCC. If the bank does not intend to make any payments 
on behalf of members, it will so inform GSCC by 8:00 a.m. Therefore, 
GSCC effectively will be guaranteed payment by 8:00 a.m. unless it 
receives a notice of dishonor from the bank. GSCC believes that the use 
of the auto debit arrangement will promote the timely receipt of funds 
payments by GSCC and will reduce the operational duties GSCC encounters 
in monitoring its current funds-only settlement payment process.
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    \4\ All times cited herein are New York time.
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    In connection with the auto debit arrangement, GSCC has proposed 
changes to certain of its other procedures. First, GSCC will begin 
requiring all netting members to make funds-only settlement payments to 
GSCC by 9:00 a.m. and will enforce this deadline with the assistance of 
its new fine schedule described in File No. SR-GSCC-97-04 as of January 
2, 1998. In December of this year, the earlier opening of the cash 
FedWire at 12:30 a.m. is scheduled to take effect. GSCC previously 
received authorization from the Commission to require netting members 
to make funds-only settlement payments to GSCC by 9:00 a.m.\5\ However, 
because of its concern that members would not be able to meet this 
deadline on a consistent basis, GSCC has kept the deadline at 10:00 
a.m.
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    \5\ Securities Exchange Act Release No. 33237 (November 22, 
1993), 58 FR 63414 [File No. SR-GSCC-91-04].
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    Second, the proposed rule change will eliminate the extra hour for 
the payment to GSCC of funds-only settlement amounts currently in 
effect for netting members whose offices are located outside of the New 
York City time zone. GSCC believes that this extra hour is no longer 
necessary because of members' increased ability to make efficient and 
timely payments due to the earlier opening of the cash FedWire and the 
availability of the auto debit arrangement.
    Finally, under the proposed rule change, GSCC will move the 
deadline for it to pay a netting member any funds-only settlement 
payment it owes from 11:00 a.m. to 10:00 a.m. GSCC believes that it is 
equitable for netting members also to benefit from the availability of 
the earlier opening of the cash FedWire and the efficiencies of the 
auto debit arrangement.
    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act \6\ because it will 
increase settlement efficiency and reduce payment related risks to 
GSCC.
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    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rule change will have any 
impact or impose any burden on competition.

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

    Written comments relating to the proposed rule change have not yet 
been solicited or received. Members will be notified of the rule change 
filing and comments will be solicited by an important notice. GSCC will 
notify the Commission of any written comments received by GSCC.

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

    Section 17A(b)(3)(F) of the Act \7\ requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds in its custody or control or for which it is responsible. The 
Commission believes that the proposed rule change is consistent with 
this obligation because the auto debit arrangement will allow GSCC to 
increase its control over the payment of funds-only settlement 
payments. As a result, the amount of time and energy GSCC currently 
spends monitoring netting members' payments of their funds-only 
settlement obligations should be reduced and the risk of nonpayment or 
late payment of such obligations should be reduced.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the publication of notice of 
filing. Approving prior to the thirtieth day after publication of 
notice will allow GSCC to immediately begin implementing the auto debit 
arrangement which should result in increased efficiency in the 
clearance and settlement process for GSCC's netting members that use 
the arrangement. The Commission also notes that use of the auto debit 
arrangement will not be mandated by GSCC.

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

[[Page 61160]]

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 also will be available for inspection and copying 
at the principal office of GSCC. All submissions should refer to File 
No. SR-GSCC-97-06 and should be submitted by December 5, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-GSCC-97-06) 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. 97-29930 Filed 11-13-97; 8:45 am]
BILLING CODE 8010-01-M