[Federal Register Volume 63, Number 76 (Tuesday, April 21, 1998)]
[Notices]
[Pages 19774-19775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39860; File No. SR-GSCC-98-01]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Relating to 
Funds-Only Settlement Payment Procedures

April 14, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),1 notice is hereby given that on February 17, 
1998, the Government Securities Clearing Corporation (``GSCC'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
items have been prepared primarily by GSCC. 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

    The proposed rule change will amend GSCC's rules regarding funds-
only settlement (``FOS'') payments procedures to permit GSCC to retain 
significant FOS payments it owes to a member to offset such amounts 
against any significant clearing fund deposit obligation the member 
owes to GSCC.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Purposed 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), and (C) below, of the most significant aspects of such 
statements.2
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    \2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Two important elements of GSCC's risk management process are the 
daily calculation and collection of clearing fund deposit deficiency 
amounts and of mark to the market margin. The amount of a member's 
clearing fund deposit generally is the sum of (1) the absolute value of 
its average FOS amounts, (2) the highest of several margin calculations 
using the absolute value of each of the member's net settlement 
positions, and (3) the highest of two volatility calculations using the 
market value of each repo transaction that comprises its outstanding 
net settlement position.3 The mark to the market collections 
are included as part of GSCC's FOS payment procedures and are 
calculated and collected on every forward settling position (i.e., a 
position not scheduled to settle the next day). The calculated mark to 
the market amount is collected from a member with a debit and paid to a 
member with a credit.4
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    \3\ GSCC's Rule 4, Clearing Fund, Margin, and Loss Allocation.
    \4\ For example, if the contract value exceeds the market value, 
the mark to the market amount will be collected from the buyer and 
paid to the seller. Conversely, if the market value exceeds the 
contract value, the mark to the market amount will be collected from 
the seller and paid to the buyer.
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    At times, GSCC is obligated to pay a member a FOS amount on a day 
on which that member also has a clearing fund deficiency call. Pursuant 
to its rules, GSCC is required to make the FOS payment to such a member 
prior to the time the member must make its clearing fund deficiency 
payment to GSCC.5 This results in exposure to GSCC and its 
members for a period of time due to the potential that the member will 
fail after it has received a FOS payment from GSCC but before it has 
satisfied the clearing fund deficiency call. The proposed rule change 
will permit GSCC to retain FOS payments it owes to a member and to 
offset such amounts against any clearing fund deposit obligation the 
member owes to GSCC.6
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    \5\ GSCC is authorized to pay FOS obligations to members by 
10:00 a.m. eastern time (``ET''). Members must satisfy clearing fund 
deficiences by the later of two hours after the receipt of GSCC's 
call or 10:00 a.m. ET. However, if the notification is not made 
earlier than two hours before the close of the cash FedWire, members 
may satisfy the calls on the next business day.
    \6\ GSCC does not plan to exercise the offset right unless it 
has a significant FOS obligation to a member (i.e., $5 million or 
more) and the member has a significant clearing fund deficiency 
(i.e., $5 million or more).
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    Under the proposed amendment to Rule 13 Section 5, GSCC will be 
entitled to retain the lesser of the FOS amount or the amount of the 
clearing fund call (or the entire FOS amount if the difference between 
the amounts is zero) and apply it to the member's clearing fund deposit 
requirement. If a member pays all or a portion of its clearing fund 
deficiency in any type of eligible collateral by a preestablished time 
before GSCC's deadline to make its own FOS payments to 
members,7 GSCC will only be entitled to offset its FOS 
obligation to the member against the member's remaining clearing fund 
deficiency. Pursuant to GSCC's existing rules, a member will have the 
right to substitute eligible collateral for any cash that GSCC applies 
to its clearing fund deposit as a result of an offset.
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    \7\ GSCC currently plans to set the preestablished time at 
fifteen minutes before GSCC's deadline to make its own FOS payments 
to members.
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    GSCC believes that the proposed rule change is consistent with 
Section 17A(b)(3)(F) because the proposed rule change should enhance 
its risk management process by increasing settlement efficiency and 
reducing payment related risks to GSCC and its members.\8\
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    \8\ 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 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

    Written comments relating to the proposed rule change have not yet 
been solicited or received. GSCC will notify members 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

    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

[[Page 19775]]

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 GSCC consents, the Commission will:
    (A) By order approve such filing or
    (B) Institute proceedings to determine whether the rule filing 
should be disapproved.

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 NW., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the rule filing that are filed with the 
Commission, and all written communications relating to the rule filing 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with provisions of 5 U.S.C. 552, 
will be available for inspection and copying in the Commission's Public 
Reference Room in Washington, D.C. Copies of such filing will also be 
available for inspection and copying at the principal office of GSCC. 
All submissions should refer to the File No. SR-GSCC-98-01 and should 
be submitted by May 12, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.3-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10421 Filed 4-20-98; 8:45 am]
BILLING CODE 8010-02-M