[Federal Register Volume 64, Number 156 (Friday, August 13, 1999)]
[Notices]
[Pages 44249-44250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21043]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41715; SR-GSCC-99-03]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Relating to the 
Acceptance of Letters of Credit as Clearing Fund Collateral

August 6, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on May 3, 1999, Government 
Securities Clearing Corporation (``GSCC'') filed with the Securities 
and Exchange Commission (``Commission'') and on May 24, 1999, amended 
the proposed rule change [File No. SR-GSCC-99-03] 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 from 
interested persons on the proposed rule change.
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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 replace GSCC's 
current letter of credit form with a letter of credit form developed by 
the Unified Clearing Group.\2\
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    \2\ GSCC attached a copy of the uniform letter of credit as 
Exhibit A to the filing.
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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 
statements.\3\
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    \3\ 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

    GSCC's Rule 4, Section 4, permits GSCC to accept letters of credit 
(in addition to cash and eligible netting securities) as clearing fund 
collateral. GSCC's rules define ``eligible letter of credit'' as a 
letter of credit that is, among other things, ``in a form, and contains 
such other terms and conditions, as may be required by the 
Corporation.'' GSCC has determined that as of September 1, 1999, a 
letter of credit delivered to GSCC as clearing fund collateral must be 
in the form of the uniform letter of credit (``ULC'') developed by the 
Unified Clearing Group (``UCG''). The UCG is an organization comprised 
of all major securities and futures clearing corporations and 
despositories in the United States.\4\
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    \4\ The members of the UCG include the Boston Stock Exchange 
Clearing Corporation, The Depository Trust Company, GSCC, MBS 
Clearing Corporation, National Securities Clearing Corporation, The 
Options Clearing Corporation, Board of Trade Clearing Corporation, 
Chicago Mercantile Exchange, Clearing Corporation of New York, 
Kansas City Board of Trade, Minneapolis Grain Exchange, New York 
Mercantile Exchange, Emerging Markets Clearing Corporation, and 
Clearing Corporation for Options and Securities.
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    The ULC was developed to (i) foster uniformity among the various 
U.S. securities and futures clearing organizations with respect to 
letters of credit that are deposited as collateral, (ii) reduce 
operational burdens for industry participants and their letter of 
credit issues, and (iii) enhance the legal certainty that letters of 
credit received by UCG members as collateral will be enforceable. In 
developing, the ULC, the UCG consulted with the National Standby Letter 
of Credit Commerce of International Financial Services Association 
(formerly known as the U.S. Council on International Banking) and 
several letter of credit issuing banks.
    The ULC consists of a (i) a cover page with variable terms and (ii) 
uniform terms. Variable terms include the name of the clearing member, 
the beneficiary clearing organization, the issuing bank, the amount of 
the credit, and the expiration date. General instructions drafted by 
the UCG assist clearing organization members in completing the ULC. In 
addition, GSCC has provided supplemental instructions to assist members 
specifically with letters of credit furnished to GSCC.
    According to GSCC, the ULC provides that the presentment of a 
demand for payment can be accomplished at the discretion of the 
clearing corporation by hand delivery, facsimile transmission, and 
SWIFT. If the demand is made before 3:00 p.m. Central time, the bank 
issuing the letter of credit must effect payment within sixty minutes.
    The uniform letter of credit also recites certain understandings 
regarding the issuing bank's obligation to honor a demand. GSCC states 
that these understandings restate the existing principles governing 
letters of credit and were added to reduce the likelihood of dispute. 
For example, the uniform letter of credit provides that payment will be 
made regardless of the solvency, existence, or condition (financial or 
other) of the GSCC member.
    The proposed rule change will also amend GSCC's definition of 
``eligible letter of credit'' to conform it with the uniform letter of 
credit.
    It is expected that from time to time modifications will be made to 
the ULC by the UCG. If and when that occurs, GSCC will require its 
members to use the revised form.\5\ Other UCG members that accept 
letters of credit as margin also will use the ULC beginning sometime 
during calendar year 1999.\6\
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    \5\ GSCC will file proposed rule changes with the Commission 
prior to requiring members to comply with substantive changes made 
to the ULC by the UCG.
    \6\ See Securities Exchange Act Release No. 41486 (June 7, 
1999), 64 FR 31889 (June 14, 1999) [File No. SR-OCC-99-01]. The 
National Securities Clearing Corporation and MBS Clearing 
Corporation have also filed proposed rule changes with the 
Commission [File Nos. SR-NSCC-99-05 and SR-MBSCC-99-05].
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    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because, among other things, it will promote the prompt and 
accurate clearance and settlement of transactions in securities by 
facilitating processing and will foster cooperation within the 
financial community.

B. Self-Regulatory Organization's Statement on Burden on Competition

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

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

    No comments on the proposed rule change were solicited or received. 
GSCC will notify the Commission of any written comments it receives.

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 the proposed rule change, or

[[Page 44250]]

    (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, 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-99-03 and should be 
submitted by September 3, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21043 Filed 8-12-99; 8:45 am]
BILLING CODE 8010-01-M