[Federal Register Volume 67, Number 53 (Tuesday, March 19, 2002)]
[Notices]
[Pages 12630-12631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6511]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45548; File No. SR-GSCC-2002-02]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Alter Trade 
Data Submission Requirements for Netting and Comparison-Only Members

March 12, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 11, 2002, 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.
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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

    GSCC is proposing to amend its rules to alter trade data submission 
requirements for Netting and Comparison-Only 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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    \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

    GSCC is proposing to amend its rules to alter trade data submission 
requirements for both Netting \3\ and Comparison-Only \4\ members. 
Based on an analysis conducted by GSCC to discover the cause of lower-
than-desired buy/sell comparison rates, GSCC has determined that 
changes to its trade submission requirements would boost GSCC's trade 
comparison rates and thereby should decrease risk exposure for members 
and should allow market participants to more effectively settle non-
netting eligible trades outside GSCC.\5\
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    \3\ A Netting member is a member of GSCC that is a member of 
both the Comparison System and the Netting System. The Comparison 
System performs trade comparison which consists of the reporting, 
validating, and in some cases, matching by GSCC of the long and 
short sides of a securities trade, including a repo transaction, to 
ensure that the details of such trade are in agreement between the 
parties. Trade detail comparison is the first step in the clearance 
and settlement process for securities transactions. The Netting 
System is a system for aggregating and matching offsetting 
obligations resulting from trades, including repo transactions, 
submitted by or on behalf of netting members.
    \4\ A Comparison-Only Member is a member of GSCC that is a 
member only of the Comparison System.
    \5\ Comparison rates are derived by dividing the total number of 
buy/sell trades compared by the total number of buy/sell trades 
submitted.
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    In the course of its analysis, GSCC discovered that while 
comparison rates for repo transactions approached 97 percent, 
comparison rates for buy/sell transactions were consistently lower at 
95 percent. GSCC determined that there were four main reasons for this 
trend. First, many trades submitted to GSCC are not submitted as 
originally executed between members. Many trades are either ``bunched'' 
or ``broken down'' resulting in some trades not being compared.\6\ 
While GSCC employs certain tolerances for required data fields in order 
to aid comparison, these trade scenarios fall outside of GSCC's par 
summarization tolerances.\7\
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    \6\ For example, Firm A submits one trade for $30 million, and 
Firm B ``breaks down'' the trade into three $10 million pieces. 
Alternatively, Firm A and Firm B may execute five separate trades 
each worth $10 million. Firm A submits each trade separately while 
Firm B ``bunches'' the five trades into one $50 million piece. In 
both of these examples, the trades will not be compared.
    \7\ GSCC, in the event of a mismatch of final money, has 
established trade tolerances which allow for differentials in trade 
values (or par summarization) submitted by members on each side of 
one transaction. For a trade to be compared, par summarization must 
be on a 2:1 or 2:2 ratio. For example, where Firm A submits a trade 
in one piece of $50 million, and Firm B submits two pieces of $25 
million each, this transaction would fall within the 2:1 par 
summarization tolerance. If Firm A were to submit two pieces of $25 
million and Firm B submitted two pieces of $20 million and $30 
million, this would fall within GSCC's 2:2 par summarization 
tolerance. Assuming that the final money matches, both of these 
trades will be compared by GSCC.
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    The second reason for uncompared trades is when GSCC members fail 
to notify GSCC of their intent to submit trades for Executing Firms.\8\ 
GSCC keeps over 400 Executing Firms and their

[[Page 12631]]

corresponding symbols on a master list which is available to all 
members. GSCC should be notified in advance of a member's intent to 
submit trade data on behalf of an Executing Firm so that the master 
list can be updated. However, member firms often fail to so notify 
GSCC, they submit trade data without the proper Executing Firm symbol, 
or they fail to submit Executing Firm data completely. These trades may 
show up in GSCC's systems as uncompared.
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    \8\ An Executing Firm is a firm that is not a member of GSCC 
whose trade data is submitted to GSCC by a GSCC member.
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    A third reason for uncompared trades is that GSCC does not 
currently require its members to submit to it all types of trade data. 
As a result, some firms do not submit trades that are executed and 
settled on the same day (cash trades) to GSCC for comparison. The 
fourth reason for uncompared trades occurs because Comparison-Only 
members, who do not settle their trades through GSCC, do not submit 
their trade data to GSCC on a consistent basis.
    The proposed rule changes would increase comparison rates by 
effectively eliminating the situations described above. Specific 
proposed rules changes would apply to both buy-sell and repo 
transactions as follows:
    (i) Each Comparison-Only member would be required to submit data to 
GSCC on all buy-sell or repo trades executed by such member with any 
other Comparison-Only or Netting member of GSCC.
    (ii) Each Netting member would be required to submit data to GSCC 
on all buy-sell or repo trades executed by such member with any other 
Comparison-Only member.\9\
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    \9\ GSCC Rule 11 already requires Netting members to submit all 
trade data for transactions with other Netting members.
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    (iii) Each GSCC member would be required to submit data to GSCC on 
all trades with other GSCC members executed and settled on the same 
day.
    (iv) Each GSCC member would be required to submit trade data 
exactly as executed, up to a $50 million dollar cap. Trades for over 
$50 million could be submitted in $50 million pieces with a ``tail'' 
for any remainder.\10\
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    \10\ GSCC does not accept trade data for transactions over $50 
million except for GCF Repo transactions.
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    (v) Each GSCC member would be required to inform GSCC of all 
Executing Firms on whose behalf they submit trade data for placement on 
GSCC's master list and to submit to GSCC all trades executed on behalf 
of an Executing Firm on GSCC's master list with the appropriate symbol. 
In addition, each GSCC member would be required to inform GSCC of those 
Executing Firms that should be deleted from the master list.
    In the event that a member does not comply with the new trade 
submission rules, GSCC would be granted certain rights to enforce 
compliance. GSCC would have the right to: (a) Place the member on 
surveillance status; (b) increase the required Clearing Fund deposit of 
a member; and/or (c) notify the member's appropriate regulatory 
authority of its non-compliance with GSCC's rules. GSCC expects to 
submit a rule filing at a later date giving GSCC the authority to 
assess fees to members who do not comply with the trade data submission 
requirements outlined in these rules.
    GSCC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \11\ and the rules and 
regulations thereunder applicable to GSCC because it would improve 
GSCC's operational efficiency and thereby limit market exposure and 
risk for Netting members and thereby would enable members and market 
participants to more effectively settle non-netting eligible trades 
outside GSCC.
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    \11\ 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 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 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
    (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 GSCC.
    All submissions should refer to File No. SR-GSCC-2002-02 and should 
be submitted by April 9, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6511 Filed 3-18-02; 8:45 am]
BILLING CODE 8010-01-P