[Federal Register Volume 65, Number 70 (Tuesday, April 11, 2000)]
[Notices]
[Pages 19407-19408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8879]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42617; File No. SR-EMCC-00-3]


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Relating to the Exclusion of Excess Clearing 
Fund Deposits in the Calculation of an Inter-Dealer Broker Member's 
Minimum Margin Amount

April 4, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 30, 2000, the 
Emerging Markets Clearing Corporation (``EMCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which items have been 
prepared primarily EMCC. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested parties 
and to grant accelerated approval of 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 text of the proposed rule change provides EMCC the right, in 
its discretion, to exclude from an inter-

[[Page 19408]]

dealer member's ``minimum margin amount'' additional margin that such 
member has posted to the clearing fund due to its contra-party's 
failure to timely submit one or more trades to EMCC once the underlying 
trade(s) have been compared or settled.\2\
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    \2\ A copy of the text of EMCC's proposed rule change and the 
attached exhibits are available at the Commission's Public Reference 
Section or through EMCC.
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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, 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 these 
statements.\3\
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    \3\ 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 rules require that inter-dealer broker members (``IDBs'') be 
margined in the same way as dealer members. Rule 4, Section 5(A) of 
EMCC's Rules requires members' clearing fund deposits to equal the 
greater of (i) their daily margin amount (i.e., the amount calculated 
for each member on each business day) and (ii) their minimum margin 
amount (i.e., their ``floor''). The floor is the amount equal to the 
largest single daily margin amount computed for a member during the 
relevant calendar month and the previous calendar month.
    As EMCC has developed and expanded its membership base, there have 
been concerns about the effect of the late trade matching on IDBs. That 
is, where an IDB and one of its contra-parties submit a trade on a 
timely basis but the other contra-party dealer does not, the IDB will 
be required to post additional clearing fund with EMCC. EMCC's Addendum 
B requires the late submitting dealer in that situation to cover the 
IDB's financing cost for the excess clearing fund deposit. Addendum B 
does not, however, address the impact of such additional margin 
requirement on the computation of the IDB's floor. The intent of 
requiring the additional margin from the IDB is to cover EMCC's risk 
exposure until the trade is compared or settled. As written, the IDB 
Member would have to maintain that additional amount on deposit as its 
floor for an additional 30 to 60 days. Accordingly, the proposed rule 
would amend Rule 4 to permit EMCC, in its discretion, to exclude the 
additional margin from the calculation of the IDB's floor once the 
underlying trade(s) have been compared or settled and thus return the 
excess clearing fund so posted by the IDB.
    This rule change should encourage IDBs to become participants in 
EMCC, and therefore facilitate the prompt and accurate clearance and 
settlement of emerging market securities transactions. The proposed 
rule change is therefore consistent with the requirements of section 
17A(b)(3)(F) of the Act, as amended, and the rules and regulations 
thereunder.

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

    EMCC does not believe that the proposed rule change will have an 
impact on 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

    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

    The Commission finds that the proposed rule change is consistent 
with section 17A(b)(3)(F) of the Act, as amended, and the rules and 
regulations thereunder. Section 17A(b)(3)(F) of the Act requires that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.\4\ The Commission 
believes that EMCC's proposal to exclude from the calculation of an 
IDB's minimum margin amount clearing fund deposits which are made by an 
IDB due to the failure of a contra-party dealer to submit a trade in a 
timely fashion is consistent with EMCC's safeguarding obligations 
because EMCC will be able to so adjust the minimum margin amount only 
(1) for an IDB and not a dealer member, (2) where the IDB has deposited 
the additional margin because of the untimely submission of trade(s) by 
one of its dealer counterparties, and (3) where the trade(s) have been 
compared or settled.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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    EMCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after 
publication on the notice of filing. The Commission finds good cause to 
approve the rule change prior to the thirtieth day after publication of 
notice because so approving will permit EMCC to immediately exclude the 
additional margin requirement in the computation of the IDB's floor. 
This should encourage more IDBs to become participants in EMCC which 
should contribute to the safe and efficient clearance and settlement of 
emerging market debt securities.

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-00-3 and should be submitted by May 2, 
2000.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-EMCC-00-3) be, and hereby 
is, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-8879 Filed 4-10-00; 8:45 am]
BILLING CODE 8010-01-M