[Federal Register Volume 67, Number 133 (Thursday, July 11, 2002)]
[Notices]
[Pages 46005-46006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-17432]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46164; File No. SR-EMCC-2000-01]


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Order Approving a Proposed Rule Change Relating to 
Financial Statements Prepared in Accordance With International 
Accounting Standards or United Kingdom Generally Accepted Accounting 
Principles

July 3, 2002.
    On February 29, 2000, the Emerging Markets Clearing Corporation 
(``EMCC'') filed a proposed rule change with the Securities and 
Exchange Commission (``Commission'') pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and on October 26, 
2000, and on November 13, 2000, amended it proposed rule change. Notice 
of the proposal was published in the Federal Register on December 13, 
2000.\2\ One comment letter was received.\3\ For the reasons discussed 
below, the Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 43675 (Dec. 5, 2000), 65 
FR 77948.
    \3\ Letter from Edmund L. Jenkins, Chairman, Financial 
Accounting Standards Board (Jan. 3, 2001).
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I. Description

    EMCC's rule change will modify EMCC rule 2, section 3(b) to permit 
EMCC to accept financial statements from an applicant prepared in 
accordance with International Accounting Standards (``IAS'') or United 
Kingdom Generally Accepted Accounting Principles (``UK GAAP'') without 
requiring the applicant to provide a discussion of the material 
variations of such accounting principles from United States Generally 
Accepted Accounting Principles (``US GAAP'') unless EMCC determines 
that circumstances warrant the applicant's providing such discussion. 
For financial statements prepared in accordance with any other 
accounting standard, the applicant must still provide EMCC with a 
discussion of the material variations of the accounting principles used 
from US GAAP.\4\
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    \4\ Pursuant to EMCC's rules, EMCC requires its members to 
submit audited financial statements and other interim periodic 
financial statements. EMCC will also allow its members to provide 
these financial statements prepared in accordance with IAS or UK 
GAAP without requiring the member to provide a discussion of the 
material variations of such accounting principles from US GAAP 
unless EMCC determines that circumstances warrant the applicant's 
providing such discussion.
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    When membership requirements were initially established in 1996, 
EMCC's staff had minimal experience in analyzing non-U.S. financial 
statements. Therefore, EMCC deemed it prudent to require applicants 
submitting audited financial statements prepared on a basis other than 
US GAAP to provide a discussion of the material differences. Since that 
time, EMCC's staff's familiarity with, understanding of, and expertise 
in evaluating financial statements not prepared in accordance with US 
GAAP has significantly increased.\5\
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    \5\ EMCC has stated that its staff responsible for reviewing 
financial statements not prepared in accordance with US GAAP will 
remain informed of the material variations between US GAAP and IAS 
and between US GAAP and UK GAAP.
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    When assessing an applicant's qualifications for EMCC membership, 
the audited financial statements comprise only a portion of the 
materials provided to and reviewed by EMCC. Such additional materials 
include, but are not limited to, reports filed with the applicant's 
primary regulator, interim financials, and a detailed risk management 
questionnaire. To assure itself that the applicant's financial 
responsibility and operational capability is sufficient for membership, 
EMCC might also require an applicant to make its books and records 
available to EMCC. Thus, EMCC has the ability to seek information its 
deems necessary or relevant to sufficiently assess and review an 
applicant's qualifications and capability for membership.

II. Comments

    Edmund L. Jenkins, Chairman of the Financial Accounting Standards 
Board, suggested that the Commission delay approval of EMCC's proposed 
rule change until the Commission passes judgment on the suitability of 
financial statements prepared according to non-U.S. accounting 
standards without supplemental information in the context of an SEC 
concept release.\6\
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    \6\ Securities Exchange Act Release No. 42430 (Feb. 16, 2000), 
65 FR 8896 (Feb. 23, 2000). This concept release sought public 
comment on the subject of whether and under what conditions the 
Commission should accept foreign private issuers' financial 
statements that are prepared according to IAS.
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III. Discussion

    the Commission finds that the proposed rule change is consistent 
with the Act's requirements and the rules and regulations thereunder 
and particularly with the requirements of section 17A(b)(3)(F) of the 
Act. \7\ Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to promote the prompt and accurate 
clearance and settlement of securities transactions. By enabling EMCC 
to accept financial statements from prospective members that are 
prepared in accordance with IAS or UK GAAP without a discussion of the 
material variations of these accounting principles from US GAAP should 
facilitate the timely review and processing of an applicant's 
membership application and should encourage additional applicants to 
seek EMCC membership, which should have the effect of increasing EMCC's 
membership. Expanded EMCC membership would result in more firms 
availing themselves of the efficiencies obtained through use of a 
registered clearing agency, which should promote the prompt and 
accurate clearance and settlement of securities transactions eligible 
for processing at EMCC. Furthermore, because of EMCC's staff's 
familiarity with, understanding of, expertise in evaluating financial 
statement prepared in accordance with IAS or UK GAAP, EMCC can dispose 
of the requirement of a statement of material differences from US GAAP 
for these two accounting principles without any lessening of its 
ability to provide safe clearance and settlement services.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    In response to the one commenter, EMCC's rule change differs from 
the Commission's consideration of potential changes to the filing 
requirements for securities issued to the general public by foreign 
issuers. EMCC's rule change deals only with EMCC's requirements for the 
financial reports of its own members and prospective members, which are 
sophisticated and highly regulated banks and broker-dealers that are 
engaged in the business of trading emerging market securities. This 
rule change has no affect on any financial statements filed with the 
Commission (financial statements filed with the Commission must be 
prepared in

[[Page 46006]]

accordance with US GAAP) and has no affect on the ability of U.S. 
public investors' access to financial information of the underlying 
emerging market securities.

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act and in 
particular with the requirements of section 17A of the Act and the 
rules and regulations thereunder.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-EMCC-2000-01) be, and 
hereby, is approved.

    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. 02-17432 Filed 7-10-02; 8:45 am]
BILLING CODE 8010-01-M