[Federal Register Volume 65, Number 133 (Tuesday, July 11, 2000)]
[Notices]
[Pages 42739-42740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17421]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42997; File No. SR-GSCC-00-01]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change Relating to 
Financing Necessary for the Provision of Securities Settlement Services

June 30, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 7, 2000, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change 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 on the proposed rule change from interested 
parties.

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    GSCC proposes to amend its rules to allow it to obtain financing in 
connection with its securities settlement process by entering into 
repurchase transactions with GSCC netting members and/or clearing agent 
bank members.

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 these 
statements.\2\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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

    According to GSCC, it is occasionally required to obtain financing 
in connection with its securities settlement process. For example, a 
member with a net short position may deliver securities so near the 
close of the securities Fedwire that GSCC is unable to redeliver the 
securities to member(s) with the net long position(s). GSCC's rules 
contemplate that GSCC will obtain financing under these circumstances 
in the form of loans, because the rules expressly permit GSCC to grant 
security interests in the securities in question. The costs or expenses 
that GSCC incurs in obtaining such financing are generally allocated 
pro rata among all netting members based upon usage of GSCC's 
services.\3\
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    \3\ GSCC's rules also provide that if the GSCC Board determines 
in its sole discretion that a netting member has on a frequent basis 
and without good cause caused GSCC to incur financing costs, the 
member can become obligated to pay for or reimburse GSCC for the 
entire amount of the financing costs.
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    Another example of a situation where GSCC might need to obtain 
financing is when a GCF inter-dealer broker has a GCF net settlement 
position as the result of for example, a data submission error. As a 
result, GSCC is required to finance the settlement of the other-side of 
the transaction. Again, GSCC's rules currently contemplate that GSCC 
will obtain the requisite cash or securities through loans or 
securities borrowing/lending transactions.
    GSCC is proposing to amend its rules to give it the option to 
obtain the requisite financing in the circumstances described above by 
entering into repurchase transactions with GSCC netting members and/or 
clearing agent bank members.\4\ The ability to enter into repurchase 
transactions will enable GSCC to obtain more favorable financing terms 
and thus will result in lower financing costs being allocated to 
members. Repurchase transactions are a safe, widely accepted financing 
mechanism. GSCC will engage in such transactions only with highly 
creditworthy counterparties who are GSCC netting members or GSCC's 
clearing agent banks.
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    \4\ GSCC already has the authority to enter into repurchase 
agreements in connection with clearing fund deposits and proprietary 
funds.
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    The proposed rule change also addresses the situation where an 
inter-dealer broker netting member obtains financing of a net 
settlement position. For example, an inter-dealer broker may have a net 
settlement position as the result of an uncompared trade. Under the 
proposed rule change, the inter-dealer broker-netting member would be 
required to obtain financing by entering into overnight repurchase 
transactions with GSCC netting members or clearing agent bank members, 
and GSCC may reimburse the inter-dealer broker for the costs of such 
finances if the net settlement position was incurred through no fault 
of the inter-dealer broker.\5\
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    \5\ GSCC may also reimburse certain dealer netting members in a 
similar situation. This additional possibility for remibursement 
would apply to a division or other separate operating unit within a 
dealer netting member that GSCC has determined: (a) operates in the 
same manner as a broker and (b) has agreed to, and does, participate 
in the repo netting service pursuant to the same requirements 
imposed under GSCC's rules on inter-dealer broker netting members 
that participate in that service.
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    GSCC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \6\ and the rules and 
regulations thereunder because the proposal will provide GSCC with an 
additional financing alternative and will result in lower financing 
costs for GSCC's members.
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    \6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rule change will have an 
impact, 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

    Written comments relating to the proposed rule change have not yet 
been solicited or received. Members will be notified of the rule change 
filing and comments will be solicited by an Important Notice. GSCC will 
notify the Commission of any written comments received by GSCC.

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

[[Page 42740]]

    (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 filings also will be available for 
inspection and copying at the principal office of GSCC. All submissions 
should refer to File No. SR-GSCC-00-01 and should be submitted by 
August 1, 2000.

    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. 00-17421 Filed 7-10-00; 8:45 am]
BILLING CODE 8010-01-M