[Federal Register Volume 67, Number 59 (Wednesday, March 27, 2002)]
[Notices]
[Pages 14755-14756]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7295]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45604; File No. SR-MBSCC-2001-06]


Self-Regulatory Organizations; MBS Clearing Corporation; Notice 
of Filing of a Proposed Rule Change Regarding the Monitoring of MBSCC 
Participants' Financial Condition and Activities

March 20, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 27, 2001, MBS 
Clearing Corporation (``MBSCC'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change and on December 26, 
2001, amended the proposed rule change as described in Items I, II, and 
III below, which Items have been prepared primarily by 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 proposed rule change strengthens the process regarding MBSCC's 
monitoring of its participants' financial condition and activities.

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

    In its filing with the Commission, MBSCC 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. MBSCC has 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

    To strengthen MBSCC's monitoring of participants' financial 
condition and activities, as well as to conform to MBSCC's standard 
practices, MBSCC is proposing the following modifications to its rules: 
(i) Add a requirement that registered brokers and dealers submit copies 
of supplemental reports filed with the Commission pursuant to Rule 17a-
11 to MBSCC; (ii) establish a formal surveillance status mechanism; 
(iii) allow non-domestic participants to submit required financial 
statements prepared in accordance with their home country Generally 
Accepted Accounting Principles (``GAAP''); and (iv) expand the 
financial criteria used by MBSCC for calculating a participant's 
financial ability.
    The first proposed modification to the rules would require broker-
dealer participants to submit copies of supplemental reports filed 
pursuant to

[[Page 14756]]

Rule 17a-11 to MBSCC concurrently with their submission to the 
Commission. Rule 17a-11 requires registered broker-dealers to notify 
the Commission of a decline in net capital below minimum requirements. 
Such notices should provide MBSCC with early warnings of such broker-
dealers' potential financial problems.
    The second proposed modification would enhance MBSCC's policies and 
procedures regarding its participant surveillance procedures by 
establishing a formal surveillance status mechanism. The proposed rule 
change would establish a tiered surveillance mechanism wherein the 
degree of risk posed by a participant would be appropriately 
categorized so MBSCC would be able to react more swiftly to changes in 
a participant's condition.
    The third proposed modification would allow non-domestic 
participants to meet their financial reporting requirements to MBSCC by 
submitting financial statements prepared in accordance with their home 
country GAAP. MBSCC's rules currently require these participants to 
submit financial statements prepared in accordance with U.S. GAAP. 
MBSCC has found this requirement to be burdensome and unnecessarily 
restrictive. MBSCC also proposes to permit these participants to use 
another recognized accounting standard (such as, for example, 
International Accounting Standards) deemed acceptable by MBSCC. In both 
cases (when a participant submits financial statements prepared in 
accordance with their home country GAAP and when a participant submits 
financial statements prepared in accordance with some other recognized 
accounting standard deemed acceptable by MBSCC), the participant must 
provide MBSCC with a discussion of the material variations of the 
accounting standards used from U.S. GAAP.
    The fourth proposed modification allows MBSCC to use net asset 
value or other applicable indicia in calculating a participant's 
financial ability. MBSCC's rules do not currently specify the types of 
financial indicia that MBSCC may use to calculate a participant's net 
worth for determining whether the participant meets MBSCC's minimum 
financial requirements. MBSCC's analysts currently use the appropriate 
financial indicia for each type of participant. For example, 
shareholders equity is used to determine the financial ability of a 
bank whereas net asset value is more appropriate for determining the 
financial ability of certain types of funds, such as most registered 
investment companies. The proposed rule change would expand the 
language in MBSCC's rules to permit use of the appropriate financial 
indicia.
    The proposed rule change is consistent with the requirements of the 
Act and the rules and regulations thereunder because it will enhance 
MBSCC's monitoring of participants' financial condition and activities 
and thereby should protect MBSCC and its participants.

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

    MBSCC 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. MBSCC will notify the Commission of any 
written comments received by MBSCC.

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 MBSCC consents, the Commission will:
    (a) By order approve the 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 
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 office of MBSCC. All submissions should refer to File 
No. SR-MBSCC-2001-06 and should be submitted by April 17, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\3\
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    \3\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7295 Filed 3-26-02; 8:45 am]
BILLING CODE 8010-01-P