[Federal Register Volume 66, Number 197 (Thursday, October 11, 2001)]
[Notices]
[Pages 51988-51989]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-25536]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44907; File No. SR-GSCC-2001-09]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Relating to Funds-Only Settlement Payment 
Deadlines

October 4, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 10, 2001, the 
Government Securities Clearing Corporation (``GSCC'') 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 by GSCC. The Commission is publishing this notice 
and order to solicit comments from interested persons and to grant 
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 proposed rule change will require GSCC's netting members to pay 
a funds-only settlement amount owed to GSCC no later than 10 a.m. and 
require GSCC to pay its netting members funds-only settlement payments 
that it owes them by 11 a.m.

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 such statement.\2\
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    \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

    IN 1989, GSCC established a methodology for mitigating the risks 
inherent in netting. One of the components of the risk management 
system is a funds-only settlement obligation due each day either from a 
netting members to GSCC or from GSCC to the netting member. GSCC 
initially determined that funds-only settlement amounts due from 
members to GSCC should be received by GSCC by 10 a.m. each day and that 
GSCC should pay members funds-only settlement amounts due them by 11 
a.m. The funds-only settlement payment deadlines were set in the 
morning so that GSCC could receive the risk protection that the 
payments were designed to achieve soon after GSCC reports to its 
members its calculation of the amounts owed and soon after securities 
settlements begin. GSCC also gave members an appropriate amount of time 
after the issuance of the reports and after the opening of the cash 
FedWire to send their funds payments to GSCC.\3\ These deadlines were 
incorporated in a rule filing approved by the Commission in 1989.\4\
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    \3\ The proposed text of this rule filing takes into account the 
subsequent change in the opening of the cash FedWire from 8:30 a.m. 
to 12:30 a.m. and also revises the amount of time after the opening 
of the cash FedWire that a member is given to remit its funds-only 
settlement obligation to GSCC.
    \4\ Securities Exchange Act Release No. 27006 (July 7, 1989); 54 
FR 29798 (July 14, 1989).
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    In 1991, the Commission authorized GSCC to change the funds-only 
settlement payment deadline for members from 10 a.m. to 9 a.m.\5\ With

[[Page 51989]]

the benefit of two years of netting experience, GSCC determined that 
the earlier deadline would more sufficiently protect GSCC from the 
consequences of potential default by a netting member. However, GSCC 
was unable to implement the 9 a.m. deadline as a practical matter due 
to a widespread inability of members to wire funds to GSCC in a timely 
manner.
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    \5\ Securities Exchange Act Release No. 30135 (Dec. 31, 1991), 
57 FR 942 (Jan. 9, 1992). This rule filing did not change GSCC's 
obligation to make funds payments to its members in a funds credit 
position by 11 a.m.
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    In 1997, the Commission authorized GSCC to provide members with the 
option of satisfying their funds-only settlement obligations through an 
``auto-debit'' method.\6\ This arrangement enabled netting members to 
authorize banks with which GSCC and those members have accounts to make 
and collect settlement payments early in the morning by debit/credit 
instructions given directly to such banks by GSCC. GSCC also determined 
that it would remit its funds-only settlement obligations to members by 
10:00 a.m. (instead of 11 a.m.) because it would begin enforcing with 
the assistance of a new find schedule the 9 a.m. deadline that all 
netting members make their funds-only settlement payments. However, 
because GSCC continues to make certain manual adjustments to the final 
funds-only obligations until approximately 8:30 a.m., the auto-debit 
system could never be implemented and GSCC never enforced the 9 a.m. 
deadline.
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    \6\ Securities Exchange Act Release No. 39309 (Nov. 7, 1997), 62 
FR 61158 (Nov. 14, 1997).
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    Until such time as GSCC is able to report final funds-only 
settlement obligation amounts to its members well in advance of the 9 
a.m. deadline, GSCC will continue to accept funds-only settlement 
payments at 10 a.m. and send members funds-only settlement payments 
that it owes them by 11 a.m. The purpose of this rule filing is to 
formally reflect these deadlines in all relevant places in GSCC's rules 
to ensure consistency with GSCC's current operating procedures.
    GSCC believes that the proposed rules change is consistent with the 
requirements of section 17A of the Act and the rules and regulations 
thereunder because it clarifies GSCC's current practices with respect 
to funds-only settlement payment deadlines.

B. Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rule change will have any 
impact or impose any 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. GSCC will notify the Commission of any 
written comments it receives.

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 the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of section 
17A(b)(3)(A) \7\ of the Act, which requires, among other things, that a 
clearing agency have the capacity to be able to comply with this 
provisions of the Act and the rules and regulations thereunder. The 
Commission finds that the proposed rule change is consistent with this 
obligation because this rule change will bring GSCC's written rules in 
line with its actual practice with respect to the deadlines for funds-
only settlement procedure. The Commission notes that it is vital that 
the practices and operations of self-regulatory organizations, such as 
GSCC, be consistent with and conform to their rules.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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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 of publication of notice of filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication of notice of filing because such approval 
will allow GSCC to immediately amend its rules to accurately reflect 
GSCC's practice of requiring funds-only settlement payments to be paid 
to GSCC by 10 a.m. and to be paid by GSCC by 11 a.m.

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 Room in Washington, DC. Copies of such 
filing will also be available for inspection and copying at GSCC's 
principal office. All submissions should refer to File No. SR-GSCC-
2001-09 and should be submitted by November 1, 2001.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-GSCC-2001-09) be, and hereby 
is, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-25536 Filed 10-10-01; 8:45 am]
BILLING CODE 8010-01-M