[Federal Register Volume 64, Number 131 (Friday, July 9, 1999)]
[Notices]
[Pages 37181-37183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-17416]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41589; File No. SR-GSCC-98-05]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Expanding the Automated Customer Account 
Transfer Service To Include Government Securities

July 1, 1999.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 11, 1998, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on February 3, 
1999, 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 and order to solicit comments from interested 
persons and to grant accelerated approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Under the proposed rule change, GSCC will establish an interface 
with the National Securities Clearing

[[Page 37182]]

Corporation (``NSCC'') to make government securities eligible for fully 
automated processing through the Automated Customer Account Transfer 
Service (``ACATS'').

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), and (C) below, of the most significant aspects of such 
statement.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by GSCC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purposed of, and 
Statutory Basis for, the Proposed Rule Change

    On November 10, 1998, the Commission approved a proposed rule 
change by NSCC to expand the types of eligible ACATS participants and 
kinds of assets (i.e., government and mortgage-backed securities) that 
can be transferred through ACATS.\3\ However, the ACATS service does 
not currently provide operationally for the transfer of any government 
securities included in a customer's account.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 40657 (November 10, 
1998), 63 FR 63952 [File No. SR-NSCC-98-06]. ACATS complements New 
York Stock Exchange (``NYSE'') and National Association of 
Securities Dealers (``NASD'') rules which require NYSE and NASD 
members to use automated, clearing agency customer account transfer 
services and to effect customer account transfers within specified 
time frames.
---------------------------------------------------------------------------

    In order to broaden the types of assets which can be transferred 
through ACATS, NSCC has requested that GSCC establish with it an 
interface that will enable account transfers involving netting-eligible 
government securities to be processed using GSCC's existing netting and 
settlement processes.
    Key operational aspects of the proposed interface are:
    (1) The ACATS participant that will be transferring the securities 
and the ACATS participant that will be receiving the securities each 
must either be a GSCC netting member or clear through a GSCC netting 
member.
    (2) The instructions for the securities transfers will be provided 
by the ACATS participants to NSCC and then from NSCC to GSCC.\4\ GSCC 
will receive these instructions after the close of business on the 
business day prior to the account transfer date on a locked-in basis 
from NSCC.\5\
---------------------------------------------------------------------------

    \4\ The receiving ACATS participant would submit a transfer 
request in automated fashion to NSCC for processing. NSCC would 
assign a control number and send ACATS control reports to both the 
delivering and receiving ACATS participants, as it does today. The 
delivering ACATS participant would submit customer account asset 
details to NSCC, and these would be reported to the receiving ACATS 
participant for validation. NSCC then would submit trade input to 
GSCC using GSCC's existing input format prior to its 10:00 p.m. 
submission deadline.
    \5\ ACATS transactions will be incorporated into all existing 
GSCC output, including print image reports and machine readable 
output. GSCC members will have the ability to monitor account 
transfer transaction details and net transfer positions moving 
through the NSCC/ACATS account.
---------------------------------------------------------------------------

    (3) Two trades would be submitted for each account transfer in each 
eligible government security: a trade that moves securities from the 
GSCC member delivering the securities (``delivering member'') to an 
omnibus NSCC/ACATS account established on GSCC's system, and a trade 
that moves securities from the omnibus NSCC/ACATS account to the GSCC 
member receiving the securities (``receiving member''). These trades 
will be included in the net settlement position established by GSCC for 
each of the two members in the particular security.
    (4) Account transfers essentially are free transactions; however, 
because GSCC's IONS \6\ system was not designed to process free trades, 
all ACATS deliver and receive transactions will be processed at 
settlement at a nominal value of one penny.
---------------------------------------------------------------------------

    \6\ IONS refers to GSCC's Industry Owned Netting System.
---------------------------------------------------------------------------

    (5) The delivering member will be debited in the form of a mark-to-
market payment (``ACATS mark payment'') the full current market value 
of the securities being transferred separate from the account transfer. 
The receiving member will be credited that amount. The delivering 
member will effectively receive its money back once the securities are 
delivered to GSCC and GSCC pays for them through its normal settlement 
mechanism.
    With regard to this last operational aspect, if GSCC pays a 
receiving member an ACATS credit mark payment before realizing that the 
delivering member is insolvent and will not pay the ACATS debit mark 
payment to GSCC, the receiving member would be obligated under GSCC's 
rules to return the ACATS credit mark payment to GSCC. In the 
alternative, GSCC would have the authority under its rules to 
recompense itself by retaining an equivalent amount of the receiving 
member's clearing fund margin. GSCC will not guarantee settlement of 
the ACATS transaction until the delivering member has satisfied its 
ACATS debit mark in connection with the transaction.
    If the receiving member becomes insolvent after receiving an ACATS 
credit mark payment and before taking in the securities and paying for 
them in completion of the ACATS transfer, GSCC makes clear under its 
rules that it has no responsibility to return the ACATS mark payment to 
the delivering member. If the delivering member delivers the securities 
to GSCC, GSCC will pay the delivering member for them and then sell the 
securities in the secondary market to recoup its money. GSCC would not 
take a position as to whether there had been a bona fide movement of 
customer securities.
    GSCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to GSCC because the proposed rule change will increase 
efficiency in processing government securities.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rule change will have an 
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

    Written comments relating to the proposed rule change have not been 
solicited or received. 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

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of Section 
17A(b)(3)(F).\7\ Section 17A(b)(3)(A)(F) requires that the rules of a 
clearing agency 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 GSCC's 
obligations under section 17A(b)(3)(F) of the Act. ACATS will provide a 
more efficient method for the transfer of government

[[Page 37183]]

securities included in a customer's account.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78q-1(b)(3)(F)(1988).
---------------------------------------------------------------------------

    GSCC has requested that the Commission approve the proposed rule 
change subsequent to the thirtieth day after publication of the notice 
of the filing because it is currently operational capable of taking 
trade information from NSCC. The Commission finds good cause for 
approving the proposed rule change prior to the thirtieth day after the 
publication of notice because such approval will allow GSCC's interface 
with ACATS to immediately become operative with NSCC's expanded ACATS 
system. The Commission points out that this proposed rule change was 
discussed in NSCC's rule filing regarding the new ACATS system to which 
no written comments were received.\8\
---------------------------------------------------------------------------

    \8\ Securities Exchange Act Release Nos. 40487 (September 28, 
1998), 63 FR 53479 and 40657 (November 10, 1998), 63 FR 63952.
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Intersted 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, 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 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-98-05 and should be submitted by July 
30, 1999 in the Federal Register.
    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-GSCC-98-05) be and hereby is 
approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-17416 Filed 7-8-99; 8:45 am]
BILLING CODE 8010-01-M