[Federal Register Volume 63, Number 67 (Wednesday, April 8, 1998)]
[Notices]
[Pages 17249-17250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9129]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39824; File No. SR-DCC-98-03]


Self-Regulatory Organizations; Delta Clearing Corp.; Notice of 
Filing and Order Granting Accelerated, Temporary Approval of a Proposed 
Rule Change Relating to Margin Requirements for Overnight Repurchase 
Agreements

April 1, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 20, 1998, Delta 
Clearing Corp. (``DCC'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which items have been primarily prepared by DCC. 
The Commission is publishing this notice and order to solicit comments 
on the proposed rule change from interested persons and to grant 
accelerated approval of the proposed rule change through March 31, 
1999.
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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 extend the temporary 
approval for DCC's rules regarding the collection of margin for 
overnight repurchase and reverse repurchase agreements (``overnight 
repos'').

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

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

    DCC seeks an extension of the temporary approval of its rules 
relating to the collection of margin for overnight repos. On April 2, 
1997, the Commission granted approval of DCC's overnight repo margining 
rules through September 30, 1997.\3\ On September 30, 1997, the 
Commission granted accelerated approval of DCC's overnight repo 
margining rules through March 31, 1998.\4\
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    \3\ Securities Exchange Act Release No. 38471 (April 2, 1997), 
62 FR 17257.
    \4\ Securities Exchange Act Release No. 39174 (October 7, 1997), 
62 FR 52368.
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    Prior to the proposed rule change, DCC calculated each 
participant's margin requirement for all repos, including overnight 
repos, at the end of each business day and required margin to be 
deposited by 11:00 a.m. the next business day. DCC does not believe 
that this procedure is appropriate for overnight repos because 
overnight repos terminate on the following day. As a result, DCC 
amended its procedures for calculating and collecting margin for 
overnight repos.\5\
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    \5\ For a detailed description of DCC's overnight repo margin 
procedures, refer to Securities Exchange Act Release No. 38471 
(April 2, 1997), 62 FR 17257.
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    These procedures require each participant which engages in 
overnight repos to deposit with DCC as core margin either $1 million or 
a greater amount as determined by DCC at the end of each week based 
upon the participant's daily overnight repo exposures during the eight 
prior weeks.\6\ If DCC determines as a result of any weekly calculation 
that a participant is required to maintain a higher core margin amount 
on deposit with DCC, DCC will notify the participant of such higher 
core margin requirement by 3:00 p.m. on that date of the calculation, 
and the participant is required to deposit by 11:00 a.m. on the 
following business day margin whose value equals or exceeds the 
participant's additional margin requirement. Such deposit must be in 
cash or U.S. Treasury securities.
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    \6\ Overnight repos are defined as repo agreements whose off-
date is the immediately succeeding business day following the on-
date for such transactions. Term repos are defined as repos 
agreements whose off-date is two or more business days following the 
on-date for such transactions.
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    In addition to the weekly calculation described above, DCC 
calculates on each business day each participant's mark-to-market 
exposure from overnight repos. If a participant's exposure from 
overnight repos exceeds 65 percent of the participant's core margin 
requirement, DCC requires the participant to deposit additional margin 
equal to the amount of such excess. Such additional margin must be 
deposited with DCC no later than 5:00 p.m. on the applicable business 
day. If additional margin is required, DCC may apply towards a 
participant's exposures on overnight repos excess margin maintained by 
the participant with DCC which is not then being used to collateralize 
other margin obligations to DCC. However, DCC may not apply a 
participant's core margin amount maintained with DCC towards other 
margin obligations to DCC arising from options transactions or term 
repos.
    In connection with the proposed rule change, DCC agreed that during 
the temporary approval period, the Commission may request reports 
detailing the operation of the margining system for overnight repos. 
DCC instituted the new margining system on July 1, 1997, and has been 
periodically providing reports to the Commission since that time.
    DCC believes the proposed extension of the temporary approval of 
the proposed rule change is consistent with the requirements of Section 
17A of the Act\7\ and the rules and regulations promulgated thereunder 
because the proposed rule change will better enable DCC to safeguard 
the funds and securities under its possession and control by giving DCC 
procedures to help assure that it has adequate collateral to address a 
participant's default or insolvency.
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    \7\ 15 U.S.C. 78q-1
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DCC does not believe that the proposed rule change will impact 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

    Comments were neither solicited nor received.

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

    Section 17A (b)(3)(F) \8\ of the Act requires, among other things, 
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. The 
Commission believes that DCC's proposed rule change is consistent with 
this obligation because the proposal provides for: (1) a minimum core 
margin requirement to reflect DCC's exposure to each participant's 
overnight repo activity and (2) an intraday margin requirement that is 
triggered if a participant's mark-to-market exposure is valued at more 
than 65 percent of the core requirement. Therefore, the

[[Page 17250]]

Commission believes that the proposal should provide to DCC margin in 
an amount that will assist DCC in meeting its obligation to safeguard 
securities and funds.
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    \8\ 15 U.S.C. 78q-1(b)(3)(F)
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    Currently, DCC has operated its new margining system for only nine 
months. Therefore, the Commission believes that it is appropriate to 
extend temporary approval of the proposal in order that the Commission 
and DCC will have opportunity to further monitor the effectiveness of 
the new system in practice. Accordingly, the Commission is temporarily 
approving the proposed rule change through March 31, 1999. During this 
temporary approval period, upon the Commission's request DCC will 
submit reports detailing its analysis of its overnight repo margining 
system.
    DCC 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 
the date of publication of notice of filing because accelerated 
approval will allow DCC to continued to use its overnight repo 
margining procedures without interruption when the current temporary 
approval period expires on March 31, 1998.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file 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 DCC. All 
submissions should refer to the File No. SR-DCC-98-03 and should be 
submitted by April 29, 1998.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DCC-98-03) be, and hereby 
is, approved through March 31, 1999.

    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. 98-9129 Filed 4-7-98; 8:45 am]
BILLING CODE 8010-01-M