[Federal Register Volume 65, Number 232 (Friday, December 1, 2000)]
[Notices]
[Pages 75327-75328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30669]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43618; File No. SR-EMCC-00-05]


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Notice of Filing of Proposed Rule Change Seeking To 
Increase the Minimum Clearing Fund Requirement for All EMCC Members to 
$3,000,000 and To Establish Two Tiers of Inter-Dealer Broker Membership 
Standards

November 27, 2000.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 14, 2000, the 
Emerging Markets Clearing Corporation (``EMCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on August 16, 
2000, and November 1, 2000, amended the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by EMCC. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested parties.
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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 proposed rule change (1) would increase the minimum clearing 
fund requirement for all EMCC members to $3,000,000 and (2) would 
establish two tiers of inter-dealer broker (``IDB'') membership 
standards.

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.\2\
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    \2\ 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

    The purpose of the proposed rule change is to (i) increase the 
minimum clearing fund requirement for all EMCC members to $3,000,000 
from the current required minimum of $1,000,000 and (ii) provide two 
tiers of IDB membership standards.\3\
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    \3\ EMCC's Rules define an IDB as ``a broker-dealer that 
conducts securities trading which matches buyers and sellers who are 
banks or dealers, and who is designated as such by the 
Corporation.''
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    With respect to the proposed increased minimum clearing fund 
requirement, EMCC's risk advisory subgroup reviewed EMCC's two years of 
operations, including trade files and daily margin calculations. The 
subcommittee concluded that, generally, members' calculated clearing 
fund requirements did not go below $3,000,000. Moreover, raising the 
minimum requirement from $1,000,000 to $3,000,000 is consistent with 
the clearing fund requirements imposed on IDBs by other clearing 
corporations,\4\ and it addresses the fact that IDB members have a 
potential clearing fund loss liability that could well exceed the 
current $1,000,000 clearing fund minimum. Accordingly, EMCC has 
determined that it would be more appropriate to have a greater amount 
of IDB funds on hand to cover the potential exposure than to have to 
request such a deposit if needed due to a loss. Therefore, EMCC has 
decided to increase IDB's minimum clearing fund requirement to 
$3,000,000 and has determined that it is appropriate to have this 
standard apply to all members.
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    \4\ See, e.g., Government Securities Clearing Corporation Rule 
4, Section 2(c).
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    The rule change also proposes to separate IDBs into two membership 
categories based on excess net capital or excess financial resources. 
Those IDBs with excess net capital, or excess financial resources for a 
broker or dealer regulated by the Securities and Futures Authority 
Limited, of between $10,000,000 and $20,000,000 would be margined using 
an ``event factor'' of 1.5 instead of the factor of 1.25 currently used 
in EMCC's base margining formula. This factor is representative of the 
volatilities experienced during the last three emerging market 
events.\5\ Those

[[Page 75328]]

IDBs with excess net capital or excess financial resources of more than 
$20,000,000 would be margined under the current event factor of 1.25. 
In either case, the event factor would be subject to EMCC's right to 
change the risk factor, as provided in EMCC Rule 4, Section 5(A)III.
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    \5\ October, 1997 (Asia), August, 1998 (Russia), and January, 
1999 (Brazilian).
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    EMCC believes that the two-tier membership standard will permit it 
to accept IDBs for membership while appropriately collateralizing the 
risk posed by those entities with lower levels of capital. EMCC 
recognizes that the clearing fund is a key mitigant to market risk in 
the event of member insolvency and feels that margining those IDBs with 
less than $20,000,000 excess regulatory capital at an event factor of 
1.5 should mitigate any risk of their lower capital levels.
    The effective date for these proposed changes will be thirty days 
following the date the Commission approves the filing for current 
members and will be immediately for any applicant who becomes a member 
after the rule change is approved.
    EMCC 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 it promotes the prompt and accurate 
settlement of emerging markets securities transactions.
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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

    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

    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 reason 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
    (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 filing also will be available for 
inspection and copying at the principal office of EMCC. All submissions 
should refer to File No. SR-EMCC-00-05 and should be submitted by 
December 22, 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. 00-30669 Filed 11-30-00; 8:45 am]
BILLING CODE 8010-01-M