[Federal Register Volume 67, Number 50 (Thursday, March 14, 2002)]
[Notices]
[Pages 11521-11526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6162]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45524; File Nos. SR-DTC-2000-21, SR-OCC-2001-01, SR-
NSCC-2001-13, SR-EMCC-2001-02, SR-GSCC-2001-12, and SR-MBSCC-2001-03]


Self-Regulatory Organizations; the Depository Trust Company, the 
Options Clearing Corporation, National Securities Clearing Corporation, 
Emerging Markets Clearing Corporation, Government Securities Clearing 
Corporation, and MBS Clearing Corporation; Notice of Filing of Proposed 
Rule Changes Seeking Authority To Enter Into a Multilateral Cross-
Guaranty Agreement

March 8, 2002.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on December 14, 2000, 
February 20, 2001, June 26, 2001, June 27, 2001, September 21, 2001, 
and September 25, 2001, The Depository Trust Company (``DTC''), The 
Options Clearing Corporation (``OCC''), National Securities Clearing 
Corporation (``NSCC''), Emerging Markets Clearing Corporation 
(``EMCC''), Government Securities Clearing Corporation (``GSCC''), and 
MBS Clearing Corporation (``MBSCC'') (collectively referred to as the 
``clearing corporations''), respectively, filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule changes (File 
Nos. SR-DTC-2000-21, SR-OCC-2001-01, SR-NSCC-2001-13, SR-EMCC-2000-02, 
SR-GSCC-2001-12, and SR-MBSCC-2001-03) as described in Items I, II, and 
III below, which items have been prepared primarily by DTC, OCC, NSCC, 
EMCC, GSCC, and MBSCC. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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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 purpose of the proposed rule change is to modify the clearing 
corporations' rules to enable them to enter into a multilateral cross-
guaranty agreement (``Multilateral Agreement'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In their filings with the Commission the clearing corporations 
included statements concerning the purpose of and basis for the 
proposed rule changes and discussed any comments they received on the 
proposed rule changes. The text of these statements may be examined at 
the places specified in Item IV below. The clearing corporations have 
prepared summaries, set forth in sections (A), (B), and (C) below, of 
the most significant aspects of such statements.\2\
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    \2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    At the present time, there are limited cross-guaranty agreements 
(``bilateral agreements'') in effect between:
    (1) DTC and NSCC (forming part of the DTC-NSCC Amended and Restated 
Netting Contract and Limited Cross-Guaranty Agreement that also 
provides for the netting of settlement payments and the 
collateralization of transactions processed through the facilities of 
DTC and NSCC); \3\
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    \3\ Securities Exchange Act Release Nos. 36867 (February 21, 
1996) [File No. SR-DTC-96-06] and 36866 (February 21, 1996) [File 
No. SR-NSCC-96-03](orders amending rules and cross-guaranty 
agreement to accommodate same-day funds settlement).
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    (2) MBSCC and Participants Trust Company; \4\
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    \4\ Participants Trust Company has been merged into DTC. 
Securities Exchange Act Release No. 38604 (May 9, 1997) [File No. 
SR-PTC-97-01].
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    (3) NSCC and each of MBSCC, GSCC and International Securities 
Clearing Corporation (``ISCC''); \5\
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    \5\ ISCC has ceased operations and is no longer a registered 
clearing agency. Securities Exchange Act Release Nos. 37616 (August 
28, 1996) [File Nos. SR-MBSCC-96-02, SR-GSCC-96-03 and SR-ISCC-96-
04] and 39020 (September 4, 1997) [File No. SR-NSCC-97-11].
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    (4) NSCC and OCC; \6\ and
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    \6\ Securities Exchange Act Release No. 39022 (September 4, 
1997) [File Nos. SR-OCC-97-17 and SR-NSCC-97-12].
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    (5) EMCC and each of NSCC, GSCC, and ISCC.\7\
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    \7\ Securities Exchange Act Release No. 42180 (November 29, 
1999) [File No. SR-EMCC-99-7] and 37616 (August 28, 1996) [File Nos. 
SR-NSCC-96-02, SR-GSCC-96-03, and SR-ISCC-96-04].
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    In general, each clearing agency that is a party to a bilateral 
agreement provides the other clearing agency with a limited guaranty of 
the obligations of any entity that is a member of both clearing 
agencies. This means that if a common member fails and if one clearing 
agency winds up its business with the common member with assets of the 
common member in excess of the common member's liabilities to the 
clearing agency and the other clearing agency winds up its business 
with the common member with liabilities of the common member in excess 
of the

[[Page 11522]]

common member's liabilities, (i) the clearing agency with the excess 
pays the clearing agency with the deficiency an amount equal to the 
lesser of the excess or the deficiency, and (ii) the amount paid by the 
clearing agency with the excess to the clearing agency with the 
deficiency becomes an obligation of the common member to the clearing 
agency with the excess which the clearing agency with the excess may 
satisfy if necessary (thereby reimbursing itself for the amount paid to 
the clearing agency with the deficiency) from the assets of the common 
member. In this way, through the mechanism of a limited cross-guaranty 
and a compensating reimbursement obligation, the assets of a common 
member at one clearing agency in excess of its liabilities to that 
clearing agency may be made available to satisfy the liabilities of the 
common member to another clearing agency where the common member has a 
deficiency of assets to satisfy its liabilities.
Background
    The proposed Multilateral Agreement is similar in purpose to the 
existing bilateral agreements but differs in form, scope, and operation 
because (i) all of the parties to the several bilateral agreements will 
be parties to the Multilateral Agreement, (ii) all of the transactions 
of common members with any of the clearing corporations will be subject 
to the limited cross-guaranties of the Multilateral Agreement, (iii) 
all of the assets of common members with any of the parties to the 
Multilateral Agreement will be subject to application pursuant to the 
provisions of the Multilateral Agreement, (iv) all of the parties to 
the Multilateral Agreement will rank pari passu in terms of the payment 
of their respective guaranty obligations and entitlements, and (v) all 
such guaranty obligations and entitlements will be (A) calculated by 
DTC (based on information provided by the clearing agencies) pursuant 
to a formula set forth in the Multilateral Agreement and (B) settled 
through the facilities of DTC upon instructions from the clearing 
agencies required to make guaranty payments.
    Set forth below is a description of the material terms and 
conditions of the Multilateral Agreement:
    If a clearing agency that is a party to the Multilateral Agreement 
ceases to act for or suspends a person (``ceases to act'') and if that 
person is a member or participant of two or more clearing agencies 
(``common member''), such clearing agency must give each other clearing 
agency a notice (``default notice'') that it has ceased to act for such 
common member (thereafter, ``defaulting member''). Each other clearing 
agency that also ceases to act for the defaulting member within a 
period of ten business days after the default notice is given 
(``participating clearing agency'') will have fifteen business days to 
deliver to each other participating clearing agency a statement 
(``information statement'') that sets forth the positive or negative 
sum derived (after application of any applicable liquidation 
procedures) from adding the amounts (specified in the Multilateral 
Agreement) owed by the participating clearing agency to the defaulting 
member as of the close of business on the day on which such 
participating clearing agency ceased to act for such defaulting member 
and subtracting the amounts (specified in the Multilateral Agreement) 
owed by the defaulting member to the participating clearing agency as 
of the close of business on such date. The resulting amount is the 
``available net resources'' of such participating clearing agency with 
respect to such defaulting member.
    Each participating clearing agency with positive available net 
resources (``payor clearing agency'') has an obligation to make a 
payment (``guaranty obligation'') to each participating clearing agency 
with negative available net resources, and each participating clearing 
agency with negative available net resources (``payee clearing 
agency'') will have an entitlement to receive a payment (``guaranty 
entitlement'') from each participating clearing agency with positive 
available net resources, in an amount determined by a formula set forth 
in the Multilateral Agreement which: (i) Limits the aggregate guaranty 
obligation of any payor clearing agency to the amount of its positive 
available net resources and prorates the aggregate guaranty obligations 
of all payor clearing agencies (based on their available net resources) 
if all positive available net resources of all payor clearing agencies 
exceeds all negative available net resources of all payee clearing 
agencies and (ii) limits the aggregate guaranty entitlement of any 
payee clearing agency to the amount of its negative available net 
resources and prorates the aggregate guaranty entitlements of all payee 
clearing agencies (based on their available net resources) if the 
negative available net resources of all payee clearing agencies exceeds 
the positive available net resources of all payor clearing agencies.
    Within two business days after the end of the period for submitting 
information statements with the information on the available net 
resources of the participating clearing agencies, DTC, acting for the 
participating clearing agencies whether or not DTC is a participating 
clearing agency with respect to any particular claim under the 
Multilateral Agreement and using only the information on available net 
resources contained in the information statements, will calculate the 
guaranty obligations and the guaranty entitlements of the participating 
clearing agencies in accordance with the formula set forth in the 
Multilateral Agreement and will deliver a report thereon to each of the 
participating clearing agencies. Two business days after that, DTC, 
acting on appropriate payment instructions from the payor clearing 
agencies, will debit their settlement accounts at DTC the amounts of 
their guaranty obligations and will credit the settlement accounts of 
the payee clearing agencies at DTC the amounts of their guaranty 
entitlements. Such debits and credits are then netted and settled with 
all other debits and credits to the settlement accounts of the 
participating clearing agencies on the day of settlement. All of the 
clearing agencies are or will be prior to the execution of the 
Multilateral Agreement participants of DTC.
    It is important to note that a clearing agency cannot assert a 
claim and cannot be obligated to make or be entitled to receive a 
payment unless it ceases to act for a defaulting member. Each clearing 
agency will determine on the basis of its own rules whether or not to 
cease to act for a defaulting member. Generally, a clearing agency may 
cease to act for a defaulting member to protect the interests of the 
clearing agency, its other members or participants, and the national 
system for the clearance and settlement of securities transactions if, 
among other things, the defaulting member (a) has failed to pay a 
settlement debit, (b) has failed to pay or perform any other obligation 
to the clearing agency or (c) has become the subject of an insolvency 
proceeding or has become a ``failed member'' within the meaning of the 
Federal Deposit Insurance Corporation Improvement Act of 1991 (e.g. it 
ceases to meet its obligations when due even if it has not become the 
subject of a formal insolvency proceeding). Ceasing to act for a member 
or participant is a serious measure which clearing agencies do not take 
lightly or do for minor defaults. Accordingly, by requiring that a 
clearing agency cease to act for a defaulting member before the 
procedures of the Multilateral Agreement can be implemented, the 
Multilateral

[[Page 11523]]

Agreement ensures that the payment obligations of payor clearing 
agencies and the reimbursement obligations of defaulting participants 
to payor clearing agencies will not be triggered by minor defaults 
which do not pose a threat to the interests of the clearing agencies, 
their members or participants, or to the national system for the 
clearance and settlement of securities transactions.
    As the foregoing description of the process for determining and 
satisfying a claim under the Multilateral Agreement indicates, no 
clearing agency would ever be required under the Multilateral Agreement 
to deliver assets or the proceeds of assets of a defaulting member to 
another clearing agency except for assets or the proceeds thereof in 
excess of the obligations and liabilities of the defaulting member to 
the first clearing agency and then only up to the amount needed to 
discharge the liabilities and obligations of the defaulting member to 
the second clearing agency. In substance and effect, the Multilateral 
Agreement provides a mechanism for using the assets of a member or 
participant of any clearing agency to secure the obligations and 
liabilities of such member or participant, first, to such clearing 
agency and, second, to other clearing agencies to the extent of any 
excess assets. The Multilateral Agreement, therefore, should reduce 
risk to the clearing agencies (and to the national system for the 
clearance and settlement of securities transactions) because a 
defaulting common member may have positions spread across the clearing 
agencies in such manner as to cause its available net resources at one 
or more clearing agencies to be positive even though its available net 
resources at one or more other clearing agencies are negative.
    The Multilateral Agreement also provides for subsequent adjustments 
in guaranty obligations and guaranty entitlements among participating 
clearing agencies if information is discovered which, if known at the 
time of the initial calculation, would have changed the amounts of such 
guaranty obligations and guaranty entitlements, subject to certain 
conditions and limitations as described below.
    If at any time within four years after any payment is made with 
respect to a guaranty obligation any participating clearing agency has 
any information that could result in a change in the calculation of 
such payment, such participating clearing agency must give each other 
participating clearing agency a notice thereof (``adjustment notice''). 
Within a period of ten business days after the adjustment notice is 
given, each participating clearing agency must deliver to each other 
participating clearing agency (and to DTC if DTC is not a participating 
clearing agency with respect to such default) a statement 
(``supplemental information statement'') which sets forth (i) the 
amount of the available net resources of such participating clearing 
agency with respect to the defaulting member as of the close of 
business on the day on which such participating clearing agency ceased 
to act for such defaulting member but taking into account the effect, 
if any, of the information in the adjustment notice and (ii) the amount 
of its available net resources, if any, as of the close of business on 
the day it received the adjustment notice.
    Within two business days after the end of the period for submitting 
supplemental information statements with the information on the 
available net resources of the participating clearing agencies, DTC, 
acting for the participating clearing agencies (whether or not DTC is a 
participating clearing agency with respect to such default) and using 
only the information on available net resources contained in the 
supplemental information statements, will recalculate the guaranty 
obligations and guaranty entitlements of the participating clearing 
agencies in accordance with the same formula originally used to 
calculate the guaranty obligations and guaranty entitlements of the 
participating clearing agencies and will deliver a report thereon to 
the participating clearing agencies. However, no participating clearing 
agency that is required to make a payment as a result of any 
recalculation of guaranty obligations and guaranty entitlements with 
respect to a prior default will be required to make any payment in 
excess of the positive amount of its available net resources on the 
date it received the adjustment notice plus any cash payments it 
previously received or minus any cash payments it previously paid 
pursuant to the terms of the Multilateral Agreement with respect to the 
same default. Two business days after that, DTC, acting on appropriate 
instructions from the participating clearing agencies required to make 
adjustment payments as a result of the recalculation of guaranty 
obligations and guaranty entitlements described above will debit their 
settlement accounts the amounts they are obligated to pay and will 
credit the settlement accounts of the participating clearing agencies 
entitled to receive adjustment payments the amounts they are entitled 
to receive. Such debits and credits will then be netted and settled 
with all other debits and credits to the settlement accounts of the 
participating clearing agencies on the day of settlement.
    As the foregoing description of the process for adjusting guaranty 
obligations and guaranty entitlements under the Multilateral Agreement 
indicates, a clearing agency will never be required to use its own 
assets to pay the claim of any other clearing agency against a 
defaulting member. Only the available net assets of the defaulting 
member will ever be used for this purpose. So, if as a result of a 
recalculation of guaranty obligations and guaranty entitlements, a 
participating clearing agency which was a payor clearing agency has an 
increased payment obligation or a participating clearing agency which 
was a payee clearing agency is now required to make a payment, the 
amount of that payment will be limited to the net assets of the 
defaulting member then in the possession of the participating clearing 
agency plus the net amount of any payments it previously received from 
other participating clearing agencies regarding the same claim.
    Any clearing agency other than DTC may withdraw from the 
Multilateral Agreement upon ten days' advance written notice. Any 
clearing agency which resigns as a participant of DTC will also cease 
to be a party to the Multilateral Agreement effective upon such 
resignation. DTC may terminate the Multilateral Agreement entirely on 
one year's advance written notice. However, any such withdrawal or 
resignation will not affect the obligations of a withdrawing or 
resigning clearing agency with respect to a claim for which a default 
notice was delivered prior to such withdrawal or resignation and any 
such termination does not affect the obligations of any clearing agency 
with respect to a claim for which a default notice was delivered prior 
to such termination.
    In conjunction with the Multilateral Agreement, NSCC, EMCC, GSCC, 
MBSCC, and OCC will be terminating the bilateral agreements so that 
there will be no issues of conflict or priority with the limited cross-
guaranty provisions of the Multilateral Agreement. DTC and NSCC will 
enter into a Seconded Amended and Restated Netting Contract and Limited 
Cross-Guaranty Agreement (``New DTC-NSCC Agreement''). The New DTC-NSCC 
Agreement will modify and supercede the current Amended and Restated 
Netting Contract and Limited Cross-Guaranty Agreement dated February 
21,

[[Page 11524]]

1996, \8\ between DTC and NSCC (``Old DTC-NSCC Agreement''). The New 
DTC-NSCC Agreement will delete the limited net resources cross-guaranty 
provisions of the Old DTC-NSCC Agreement so that the limited net 
resources cross-guaranty provisions of the Multilateral Agreement will 
be the only such provisions of this type between DTC and NSCC and among 
DTC, NSCC, and the other parties to the Multilateral Agreement.
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    \8\ Securities Act Release Nos. 36867 (February 21, 1996), 61 FR 
7288 [File No. SR-DTC-96-06] and 36866 (February 21, 1996), 61 FR 
7288 [File SR-NSCC-96-03] (orders amending rules and cross-guaranty 
agreement to accommodate same-day funds settlement).
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    Pursuant to the Multilateral Agreement, a clearing agency party may 
be entitled to receive a guaranty payment from one or more other 
parties to the Multilateral Agreement with respect to the obligations 
of a defaulting member. However, if a clearing agency party receives a 
guaranty payment pursuant to the Multilateral Agreement, it will have a 
contingent obligation to refund some or all of such guaranty payment 
under two circumstances (each colloquially referred to as a 
``clawback''):
    (i) A repayment as a result of a recalculation of the guaranty 
obligations and guaranty entitlements of participating clearing 
agencies, which, as stated above, could take place at any time up to 
four years after the guaranty payment is received; or
    (ii) A payment or repayment as a result of a judicial determination 
that the defaulting member did not owe a participating clearing agency 
some or all of the amount of the charge covered by the guaranty 
payment, which, as explained below, could take place at any time up to 
six years after such charge.
    The Multilateral Agreement provides that if a court of competent 
jurisdiction determines that an amount paid by a payor clearing agency 
to a payee clearing agency was not paid on account of an amount owed by 
the defaulting member to the payee clearing agency, (i) the payee 
clearing agency will repay such amount (which may be some or all of the 
guaranty payment it received from the payor clearing agency) to the 
payor clearing agency or (ii) if so ordered by a court, the payee 
clearing agency shall pay such amount to the defaulting member or its 
legal representative (e.g., a trustee or receiver).
    There is no time limit expressed in the Multilateral Agreement 
within which a payee clearing agency can be required to make such 
court-ordered repayment to the payor clearing agency or payment to the 
defaulting member or its legal representative because the parties to 
the Multilateral Agreement cannot by contract among themselves bind any 
court or any third party seeking relief in any court to any such time 
limit. Accordingly, the time within which a payee clearing agency could 
be required to make such payment or repayment would be the time within 
which a third party may bring a claim for such relief (i.e., the 
statutory limitations period applicable to such claim). Although it is 
difficult to predict how a claim that the payee clearing agency 
improperly charged the defaulting member and thereby received a 
guaranty payment from a payor clearing agency for an amount that the 
defaulting member did not in fact owe to the payor clearing agency 
would be framed, it is probable that it would be framed as a claim in 
contract (i.e., that the charge was not a proper charge under the rules 
of the payee clearing agency). Under the rules of each clearing agency, 
such rules constitute a contract between such clearing agency and its 
members or participants and are binding on all parties. In New York, 
which is the most likely venue of any proceeding and the law that would 
most likely govern any claim, the statutory limitations period 
applicable to a claim on contract is generally six years from the time 
of the breach.
    Although, as just discussed, a clawback could occur up to four to 
six years after a payee clearing agency receives a payment, as a 
practical matter, it is extremely unlikely that it would take (i) four 
years for participating clearing agencies to make all necessary 
adjustments in the calculation of guaranty obligations and guaranty 
entitlements under the Multilateral Agreement or (ii) six years for a 
defaulting member or its legal representative to assert a claim against 
a payee clearing agency that an amount was improperly charged against 
such defaulting member. Nevertheless, because MBSCC does not currently 
mutualize risk among its participants and a payment of such amount from 
its own resources would have the economic effect of charging all 
participants for such costs, MBSCC must make appropriate arrangements 
to deal with a clawback if it ever occurs.
    GSCC and MBSCC are proposing to amend their rules regarding 
clawbacks. The following is a summary of the amendments proposed by 
GSCC and the amendments proposed by MBSCC.
GSCC
    GSCC is proposing to amend its rules to provide it with two options 
in dealing with a clawback:
Option 1
    The proposed rule change would give GSCC the option to apply any 
guaranty payment that it receives pursuant to the Multilateral 
Agreement upon receipt. If GSCC chooses this option:
    a. the members that would have been assessed in the absence of the 
guaranty payment will be required to reimburse GSCC for any amount 
subject to a clawback pro rata based on the benefits they received (in 
terms of the reduction or elimination of assessments made or that 
otherwise would be made against them) from such guaranty payment;
    b. the obligations of the members referred to in (a) above will be 
secured by requiring that such members must make and maintain 
additional deposits to the clearing fund in amounts equal to the 
benefits they received (in terms of the reduction or elimination of 
assessments made or that would have been made against them) from the 
guaranty payment;
     c. to deal with the possibility that a shortfall may occur in the 
situation where the additional clearing fund deposit of a particular 
member referred to in (a) above is no longer available at the time a 
clawback occurs (because, for example, that member became insolvent, 
and its entire clearing fund deposit was used to cover losses incurred 
by GSCC), GSCC may treat such shortfall as an ``other loss'' pursuant 
to GSCC Rule 4, Section 8(g); and
    d. to deal with the fact that, at least theoretically, a clawback 
may not occur until four years (in the case of a recalculation of 
guaranty obligations and guaranty entitlements) to six years (in the 
case of a court determination of an improper charge) after receipt of a 
guaranty payment, the additional deposits made, pursuant to (b) or (c) 
above, by the members that would have been assessed must be retained by 
GSCC until GSCC is satisfied that (i) GSCC is no longer subject to a 
clawback under the Multilateral Agreement and (ii) the members are 
therefore no longer subject to a corresponding obligation to reimburse 
GSCC for the amount of any such clawback; and
    e. GSCC has the right (i) to waive the obligation of the members to 
make and maintain additional deposits to the clearing fund to secure an 
obligation on their part to reimburse GSCC for the amount of any 
clawback and/or (ii) to pay the clawback from the resources of

[[Page 11525]]

GSCC without recourse to any member or their deposits to the clearing 
fund.
Option 2
    The proposed rule change will give GSCC the option to retain the 
guaranty payment and not apply it to its losses and/or liabilities 
arising from the default of the member until after the end of the 
clawback period. If GSCC chooses this option:
    a. the members would be assessed pursuant to GSCC's loss sharing 
rule and
    b. at the end of the clawback period, GSCC would distribute the 
guaranty payment to the members who were assessed (whether or not they 
are still members at the time of such distribution) pro rata the 
amounts of such assessments.
    Given that similar repayment issues are presented by GSCC's cross-
margining arrangements, GSCC is proposing to make comparable changes in 
the rules with respect to the repayment of cross-margining payments.
MBSCC
    To deal with clawbacks, MBSCC is proposing to amend its rules as 
follows:
    a. upon receipt of a guaranty payment, MBSCC will reduce or 
eliminate by an equivalent amount the assessments made or that 
otherwise would be made against the original contra-side participants 
pro rata as now provided in Rule 4 of Article III of its rules;
    b. the original contra-side participants will be required to 
reimburse MBSCC for any amount subject to a clawback pro rata the 
benefits they received (in terms of the reduction or elimination of 
assessments made or that otherwise would be made against them) from the 
guaranty payment;
    c. MBSCC will secure the obligations of the original contra-side 
participants referred to above by requiring that such original contra-
side participants must make and maintain additional deposits to the 
participants fund in amounts equal to the benefits they received (in 
terms of the reduction or elimination of assessments made or that 
otherwise would be made against them) from the guaranty payment;
    d. to deal with the possibility that the participants fund deposit 
of a particular original contra-side participant referred to in (3) 
above may no longer be available at the time the clawback occurs 
(because, for example, that participant became insolvent and its entire 
participant fund deposit was used to cover losses incurred by MBSCC), 
the remaining original contra-side participants referred to in (3) 
above would be required to replenish the deficiency by making 
additional deposits to the participants fund pro rata their additional 
deposits to the participants fund pursuant to (3) above;
    e. to deal with the fact that, at least theoretically, a clawback 
may not occur until four years (in the case of a recalculation of 
guaranty obligations and guaranty entitlements) to six years (in the 
case of a court determination of an improper charge) after receipt of a 
guaranty payment, the additional deposits made, pursuant to (3) or (4) 
above, by original contra-side participants must be retained by MBSCC 
until MBSCC is satisfied that (i) MBSCC is no longer subject to a 
clawback under the Multilateral Agreement and (ii) the original contra-
side participants are therefore no longer subject to a corresponding 
obligation to reimburse MBSCC the amount of any such clawback; and
    f. MBSCC has the right to (i) waive the obligation of the original 
contra-side participants to make and maintain additional deposits to 
the participants fund to secure an obligation on their part to 
reimburse MBSCC for the amount of any clawback and/or (ii) to pay any 
clawback from the resources of MBSCC without recourse to any original 
contra-side participants or their deposits to the participants fund.
    Section 17A(a)(2)(A) of the Act directs the Commission to 
facilitate the establishment of a national system for the prompt and 
accurate clearance and settlement of securities transactions and to 
facilitate the establishment of linked or coordinated facilities for 
the clearance and settlement of transactions.\9\ 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 its 
custody or control or for which it is responsible.\10\
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    \9\ 15 U.S.C. 78q-1(a)(2)(A).
    \10\ 15 U.S.C. 78q-1(b)(3)(A).
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    The clearing agencies believe that the proposed rule changes are 
consistent with the requirements of the Act and the rules and 
regulations promulgated thereunder because they will: (i) Reduce the 
risk of loss to clearing agencies resulting from the failure or default 
of a common member, (ii) mitigate the risk to the national clearance 
and settlement system resulting from such failure or default and the 
impact of such failure or default on clearing agencies and their other 
members or participants, (iii) foster cooperation and coordination 
among clearing agencies and other persons involved in the clearance and 
settlement of securities transactions, and (iv) assist clearing 
agencies in safeguarding the securities and funds in their custody or 
control or for which they are responsible.

(B) Self-Regulatory Organizations' Statement on Burden on Competition

    The clearing agencies do not believe that the proposed rule change 
would impose any burden on competition.

(C) Self-Regulatory Organizations' Statement on Comments on the 
Proposed Rule Changes Received From Members, Participants, or Others

    Written comments were not and are not intended to be solicited with 
respect to the proposed rule changes, and none have been received.

III. Date of Effectiveness of the Proposed Rule Changes 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
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

VI. 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 will also be available for 
inspection and copying at the principal offices of DTC, OCC, NSCC, 
EMCC, GSCC, and MBSCC. All submissions should refer to the File Nos. 
SR-DTC-

[[Page 11526]]

2000-21, SR-OCC-2001-01, SR-NSCC-2001-13, SR-EMCC-2001-02, SR-GSCC-
2001-12, and SR-MBSCC-2001-03 and should be submitted by April 4, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6162 Filed 3-13-02; 8:45 am]
BILLING CODE 8010-01-P