[Federal Register Volume 64, Number 172 (Tuesday, September 7, 1999)]
[Notices]
[Pages 48692-48693]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23109]


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SECURITIEIS AND EXCHANGE COMMISSION

[Release No. 34-41802; File No. SR-GSCC-99-03]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Accelerated Approval of a Proposed Rule 
Change Relating to the Acceptance of letters of Credit as Clearing Fund 
Collateral

August 27, 1999.
    On May 3, 1999, the Government Securities Clearing Corporation 
(``CSCC'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change (File No. SR-GSCC-99-03) 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ to permit GSCC to replace its current letter of credit 
form with a letter of credit form developed by the Uniform Clearing 
Group (``USG'').\2\ Notice of the proposal was published in

[[Page 48693]]

the Federal Register on August 13, 1999.\3\ No comment letters were 
received. For the reasons discussed below, the Commission is granting 
accelerated approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ The UCG is an organization comprised of all major securities 
and futures clearing corporations and depositories in the United 
States. 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
    \3\ Securities Exchange Act Release No. 41715 (August 6, 1999), 
64 FR 44249.
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I. Description

    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 
UCG. To accommodate the ULC, the rule change will amend GSCC's 
definition of ``eligible letter of credit'' to conform it with the 
uniform letter of credit.
    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, or SWIFT 
message. If the demand is made before GSCC's pre-set cutoff time, the 
bank issuing the letter of credit must effect payment within sixty 
minutes.
    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.\4\
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    \4\ GSCC will file a proposed rule change with the Commission 
prior to requiring members to comply with any substantive change 
made to the ULC by the UCG.
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II. Discussion

    Section 17A(b)(3)(F) 5 of the Act requires that the 
rules of a clearing agency be designed to foster cooperation and 
coordination with persons engaged in the clearance and settlement of 
securities transactions. GSCC and the other members of the UCG 
developed the ULC to foster uniformity among the various U.S. 
securities and futures clearing organizations with respect to letters 
of credit that are deposited as collateral. This uniformity will help 
reduce operational burdens for industry participants and their letter 
of credit issuers. It should also enhance the legal certainty that the 
letters of credit received by GSCC and other UCG members as collateral 
will be enforceable.\6\ Accordingly, the Commission finds that the rule 
change is consistent with GSCC's obligations under the Act.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ For example, the ULC 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.
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    GSCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date publication of notice of the filing. The Commission finds good 
cause for so approving the proposed rule change because accelerated 
approval will permit GSCC to implement the ULC by September 1, 1999, at 
which time its previous letters of credit expire. Since September 1, 
1999, is the scheduled implementation date of the ULC by certain UCG 
members, accelerated approval will also provide for a more coordinated 
implementation of the ULC. Furthermore, the Commission has not received 
any comment letters and does not expect to receive any comment letters 
on the proposal.

III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 17A of the Act and the rules and regulations 
thereunder.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-GSCC-99-03) be and hereby is 
approved.

    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. 99-23109 Filed 9-3-99; 8:45 am]
BILLING CODE 8010-01-M