[Federal Register Volume 64, Number 151 (Friday, August 6, 1999)]
[Notices]
[Pages 43006-43007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41673; File No. SR-EMCC-99-7]


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Regarding 
Clearing Agency Cross-Guaranty Agreements

July 30, 1999.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 4, 1999, the Emerging 
Markets Clearing Corporation (``EMCC'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change (File No. 
SR-EMCC-99-07) as described in Items I, II, and III below, which items 
have been prepared primarily by EMCC. 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 purpose of the proposed rule change is to implement clearing 
agency cross-guaranty agreements between EMCC and other clearing 
agencies.

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

    In its filing with the Commission, EMCC 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. EMCC 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 EMCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    EMCC's Rule 21 authorizes EMCC to enter into ``clearing agency 
cross guaranty agreements.'' \3\ On June 2, 1999, EMCC entered into 
clearing agency cross-guaranty agreements with the National Securities 
Clearing Corporation (``NSCC''), the Government Securities Clearing 
Corporation (``GSCC''), and the International Securities Clearing 
Corporation (``ISCC''). According to EMCC, the form of agreement with 
each of these entities is substantially similar to the form of 
agreement approved by the Commission in rule changes previously 
submitted by NSCC, MBSCC, GSCC, and ISCC.\4\
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    \3\ Under EMCC's Rule 1, ``clearing agency cross-guaranty 
agreement'' means an agreement between EMCC and another clearing 
entity relating to the guaranty by EMCC of certain obligations of a 
member to such clearing agency.
    \4\ Securities Exchange Act Release Nos. 37616 (August 28, 
1996), 61 FR 46887 (September 5, 1996), and 39020 (September 4, 
1997), 62 FR 47862 (September 11, 1997).
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    Generally, the limited guaranty provided for by the clearing agency 
cross-guaranty agreements is invoked when a clearing entity ceases to 
act for a common member. This limited guaranty enables clearing 
agencies that have entered into limited cross guaranty agreements to 
benefit from a defaulting member's excess collateral at other clearing 
agencies in which the defaulting member was a participant. The guaranty 
provides that resources of the defaulting common member remaining after 
the defaulting common member's obligations to the guaranteeing clearing 
agency have been satisfied may be used to satisfy and unsatisfied 
obligations to the other clearing agencies. The guaranty is limited to 
the extent of the resources relative to the defaulting common

[[Page 43007]]

member remaining at the guaranteeing clearing agency.
    EMCC believes that the clearing agency cross-guaranty agreements 
should be beneficial because the funds that may be made available to it 
may provide resources that may make a pro rata charge against its 
clearing fund unnecessary or lesser in amount.
    The benefits accruing to EMCC from a Clearing agency cross-guaranty 
agreement are illustrated by the following example:
    Broker-dealer BD upon insolvency owes EMCC a net of $5 million and 
is owed a net of $3 million by Clearing Entity X. BD is a member of 
both clearing agencies. In the absence of a clearing agency cross-
guaranty agreement, Clearing Entity X would be obligated to pay $3 
million to BD's bankruptcy estate, and EMCC would have a claim for $5 
million against BD's bankruptcy estate as a general creditor with no 
assurance as to the extent of recovery. Under an effective cross-
guaranty agreement, however, Clearing Entity X would pay to EMCC the $3 
million it owed to BD. As a result, EMCC's net exposure to the 
defaulting common member BD would be reduced.
    EMCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \5\ and the rules and 
regulations thereunder because it promotes the safeguarding of 
securities and funds in the clearing agency's custody or control and 
for which it is responsible and fosters cooperation and coordination 
with other entities engaged in the clearance and settlement of 
securities transactions.
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    \5\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    EMCC does not believe that the proposed rule change will impose any 
burden on competition.

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

    No written comments relating to the proposed rule change have been 
solicited or received. EMCC will notify the Commission of any written 
comments received by EMCC.

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 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 the self-regulatory organization consents, 
the Commission will:
    (a) By order approve such proposed rule change or
    (b) Institute proceedings to determine whether the proposed rule 
change 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, DC 20549-0609. 
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 EMCC. All submissions 
should refer to File No. SR-EMCC-99-7 and should be submitted by August 
27, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-20300 Filed 8-5-99; 8:45 am]
BILLING CODE 8010-01-M