[Federal Register Volume 67, Number 58 (Tuesday, March 26, 2002)]
[Notices]
[Pages 13813-13814]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7168]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45593; File No. SR-GSCC-2001-08]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Revising Margin Factor and Offset Class 
Schedules

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

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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

    The proposed rule change refines GSCC's ``margin factor and offset 
class schedules'' and ``disallowance percentage schedules.''

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 
statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by GSCC.
---------------------------------------------------------------------------

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    GSCC netting members are required to maintain deposits in a 
clearing fund account. Each member's required deposit is calculated 
daily to ensure that enough funds are on hand to cover the risks 
associated with that member's activities. GSCC calculates the margin 
amount on a member's net settlement positions using factors 
(percentages) that are based on an assessment of historical daily price 
volatility data. In order to give ``credit'' for offsetting net 
settlement positions to the extent appropriate, GSCC established offset 
classes for securities of varying maturity and disallowance percentages 
among those different offset classes.
    As a result of GSCC's ongoing monitoring of its risk management 
processes, GSCC has determined to refine its ``margin factor and offset 
class schedules'' and its ``disallowance percentage schedules'' to take 
into account (i) its growing business in non-mortgage-backed agency 
securities (``Agencies'') and in mortgage-backed agency securities 
(``MBS''),\3\ (ii) potential differences in price volatility between 
its regular settlement services (``DVP service'') and its GCF Repo 
service, and (iii) the recent establishment of a daily data feed from 
GSCC's clearing banks that provides GSCC with accurate information 
regarding the specific securities which its members deliver against 
generic CUSIP numbers established for the GCF Repo service.
---------------------------------------------------------------------------

    \3\ Mortgage-backed agency securities are only processed in the 
GCF Repo service at GSCC and not in GSCC's regular services.
---------------------------------------------------------------------------

    In the revised margin factor and offset class schedules, GSCC has 
established a different margin factor for MBS. Although it has retained 
the same margin factors for Agencies as it uses for Treasury 
securities,\4\ the format of the new schedules will enable GSCC to more 
easily establish different margin factors for Agencies in the future if 
the need arises. The clearing bank data feed now permits GSCC to 
classify each security settled in the GCF Repo service according to its 
true remaining maturity instead of requiring GSCC to categorize each 
security as if it had the longest remaining maturity of all the 
securities within the same generic CUSIP number. It should be noted 
that for the present

[[Page 13814]]

time, GSCC has assigned the same conservative margin factor to all MBS.
---------------------------------------------------------------------------

    \4\ Price volatility studies indicate that there is currently no 
need to establish different margin factors for Treasuries and 
Agencies. GSCC monitors price volatility on an ongoing basis.
---------------------------------------------------------------------------

    In the revised margin factor and offset class schedules, GSCC has 
segregated (i) Treasury securities settled in the DVP service, (ii) 
Treasury securities settled in the GCF Repo service, (iii) Agencies 
settled in the DVP service, (iv) Agencies settled in the GCF Repo 
service, and (v) MBS settled in the GCF Repo service into separate 
offset classes.
    The revised disallowance percentage schedules provide for offsets 
among the different offset classes. These schedules take into account 
the increasing volatility in the interest rate spreads between Treasury 
securities and Agencies. The schedules also permit offsets between MBS 
on the one hand and Treasury securities and Agencies on the other. It 
should be noted that these offsets are based on a more conservative 
model than GSCC uses with respect to other securities it processes 
because it assumes that GSCC would need an extra business day to 
liquidate pools of securities and to correct for model risk that is 
inherent in MBS.
    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because it will enable GSCC to modify its margining and 
offsetting schedules to promote a more prudent and accurate margining 
process.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rules changes 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

    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)(F).\5\ Section 17A(b)(3)(F) requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds that are in its custody or control or for which it is 
responsible. The Commission believes that the revised margin factor and 
offset class schedules enables GSCC to promote a more accurate 
margining process. As such, the Commission believes GSCC's proposal is 
consistent with its obligation to assure the safeguarding of securities 
and funds that are in its custody or control or for which it is 
responsible.
---------------------------------------------------------------------------

    \5\ 15 U.S.C 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    GSCC has requested that the Commission approve the proposed rule 
change prior to the thirtieth day after publication of the notice of 
the filing. The Commission finds good cause for approving the rule 
change prior to the thirtieth day after publication because such 
approval will allow GSCC to immediately employ the revised schedules in 
its daily margin calculations.

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, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of GSCC. All submissions should 
refer to File No. SR-GSCC-2001-08 and should be submitted by April 16, 
2002.
    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\6\ that the proposed rule change (File No. SR-GSCC-2001-08) be and 
hereby is approved.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78s(b)(2).
    \7\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7168 Filed 3-25-02; 8:45 am]
BILLING CODE 8010-01-P