[Federal Register Volume 64, Number 159 (Wednesday, August 18, 1999)]
[Notices]
[Pages 44982-44983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21441]


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SECURITIES AND EXCHANGE COMMISSION


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Notice of Filing and Order Approving a Request for 
Extension of Temporary Registration as a Clearing Agency

[Release 34-41733; File No. 600-30]
August 12, 1999.
    Notice is hereby given that on July 1, 1999, the Emerging Markets 
Clearing Corporation (``EMCC'') filed with the Securities and Exchange 
Commission (``Commission'') an application pursuant to Section 19(a)(1) 
of the Securities Exchange Act of 1934 (``Act'') \1\ requesting that 
the Commission extend EMCC's temporary registration as a clearing 
agency for one year.\2\ The Commission is publishing this notice and 
order to solicit comments from interested persons and to extend EMCC's 
temporary registration as a clearing agency until August 20, 2000.
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    \1\ 15 U.S.C. 78s(a)(1).
    \2\ Letter from Richard Paley, Associate Counsel, EMCC (July 1, 
1999) and Form CA-1 (July 1, 1999).
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    On February 13, 1998, pursuant to Sections 17A(b) and 19(a)(1) of 
the Act \3\ and Rule 17Ab2-1 promulgated thereunder,\4\ the Commission 
granted EMCC's application for registration as a clearing agency until 
August 20, 1999.\5\ EMCC was created to facilitate the clearance and 
settlement of transactions in U.S. dollar denominated Brady Bonds.\6\
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    \3\ 15 U.S.C. 78q-1(b) and 78s(a)(1).
    \4\ 17 CFR 240.17Ab2-1.
    \5\ Securities Exchange Act Release No. 39661, International 
Series Release No. 1117 (February 13, 1998), 63 FR 8711 (February 
20, 1998) (``Registration Order'').
    \6\ Brady bonds are restructured bank loans. They were first 
issued pursuant to a plan developed by then U.S. Treasury Secretary 
Nicholas Brady to assist debt-ridden countries restructure their 
sovereign debt into commercially marketable securities. The plan 
provided for the exchange of bank loans for collateralized debt 
securities as part of an internationally supported sovereign debt 
restructuring. Typically, the collateral would be U.S. Treasury 
securities.
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    EMCC began operating on April 6, 1998, with ten dealer members and 
five interdealer brokers clearing through Daiwa Securities America, 
Inc.\7\ In its first month of operation, EMCC members achieved an 
average trade-date matching the rate of over 97 percent on 71 eligible 
securities for an average volume of over 360 sides per day.\8\ Prior to 
EMCC beginning its operations, approximately only 40 percent of trades 
compared on trade date resulting in a considerable number of failed 
transactions.\9\ During its temporary registration period, EMCC 
typically handled 700 sides per day. However, during the market crisis 
in Asia, Latin America, and Russia, EMCC successfully handled volume in 
excess of 1,000 sides per day.\10\
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    \7\ EMCC has been advised that Daiwa will stop providing 
clearing services for interdealer brokers by the end of September 
1999.
    \8\ EMCC Annual Report, p. 2.
    \9\ Id.
    \10\ Id.
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    During its temporary registration period, EMCC expanded the list of 
eligible instruments to include not only Brady Bonds but also the 
sovereign debt of any emerging market country.\11\ EMCC also modified 
its rules to allow it to accept data directly from either its members 
or from service bureaus and to compare trades.\12\
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    \11\ Securities Exchange Act Release No. 40363 (August 25, 
1998), 63 FR 46 46263 (August 31, 1999).
    \12\ Securities Exchange Act Release No. 41247 (April 2, 1999), 
64 FR 17705 (April 12, 1998).
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    As part of EMCC's temporary registration, the Commission granted 
EMCC temporary exemptions from Section 17A(b)(3)(B) of the Act because 
EMCC did not provide for the admission of some of the categories of 
members

[[Page 44983]]

required by that section.\13\ To date, EMCC continues to limit the 
categories of entities eligible for membership to U.S. broker-dealers, 
United Kingdom broker-dealers, U.S. banks, and non-U.S. banks. As the 
Commission noted in the Registration Order, the Commission believes 
that providing for limited categories of members is appropriate at 
least during a clearing agency's initial phases of operations 
especially when no one in a category not covered by EMCC desires to be 
a member. Accordingly, the Commission is extending EMCC's temporary 
exemption from Section 17A(b)(3)(B).
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    \13\ Registration Order at 8716.
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    The Commission also granted EMCC a temporary exemption from 
Sections 17A(b)(3)(A) and 17A(b)(3)(F) of the Act to permit EMCC to 
use, subject to certain limitations, ten percent of its clearing fund 
to collaterize a line of credit at Euroclear to finance on an intraday 
basis the receipt by EMCC of eligible instruments from one member that 
EMCC will redeliver to another member.\14\ The Registration Order 
limited EMCC's use of clearing fund deposits for this intraday 
financing to the earlier of one year after EMCC commenced operations or 
the date on which EMCC begins its netting service. On April 2 and May 
17, 1999 the Commission approved rule changes that permitted EMCC to 
implement a netting service and that extended EMCC's ability to use 
clearing fund deposits for intraday financing at Euroclear until all 
EMCC members are netting members (as opposed to the date on which 
netting services are available or EMCC's first anniversary).\15\ 
Accordingly, the Commission is extending EMCC's temporary exemption 
from Section 17A(b)(3)(A) and (F).
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    \14\ Registration Order at 8720.
    \15\ Securities Exchange Act Release Nos. 41247 (April 2, 1999), 
64 FR 17705 (April 12, 1999) and 41415 (May 17, 1999), 64 FR 27841 
(May 21, 1999).
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    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing application. Such written data, 
views, and arguments will be considered by the Commission in granting 
registration or instituting proceedings to determine whether 
registration should be denied in accordance with Section 19(a)(1) of 
the Act.\16\ 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 amended 
application for registration and all written comments will be available 
for inspection at the Commission's Public Reference Room, 450 Fifth 
Street, NW., Washington, DC 20549. All submissions should refer to File 
No. 600-30 and should be submitted by September 8, 1999.
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    \16\ 15 U.S.C. 78s(a)(1).
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    It is therefore ordered, pursuant to Section 19(a) of the Act, that 
EMCC's registration as a clearing agency (File No. 600-30) be and 
hereby is temporarily approved through August 20, 2000.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(16).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21441 Filed 8-17-99; 8:45 am]
BILLING CODE 8010-01-M