[Federal Register Volume 67, Number 166 (Tuesday, August 27, 2002)]
[Notices]
[Pages 55053-55054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21776]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46389; File No. SR-NSCC-2002-05]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change to Amend Clearing 
Fund Requirements and Letters of Credit Collaterization

August 21, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on July 16, 2002, National 
Securities Clearing Corporation (``NSCC'') filed with the Securities 
and Exchange Commission (``Commission'') and on July 25, 2002, amended 
the proposed rule change as described in Items I, II, and III below, 
which items have been prepared primarily by the NSCC. 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

    The purpose of the proposed rule change is to increase the minimum 
amount of cash that must be deposited by members, except for Mutual 
Fund/Insurance Services Members, to satisfy clearing fund requirements 
and to limit the amount of a deposit that may be collateralized with 
letters of credit.

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

    In its filing with the Commission, NSCC 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. The NSCC 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 the NSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Under NSCC's current rules, each member, except for Mutual Fund/
Insurance Services Members, is required to maintain a minimum 
contribution to the clearing fund of $10,000. The first $10,000 of a 
member's contribution must be in cash unless all or a part of the 
member's contribution is collateralized with letters of credit, in 
which case the greater of $50,000 or ten percent of the member's 
contribution up to a maximum of $1,000,000 is required to be in cash. 
On a peak settlement day, if members only deposit the minimum cash 
required at any given time, NSCC might only be assured of a limited 
amount of cash thereby creating the possibility of a liquidity risk at 
NSCC. Furthermore, because NSCC expects an increase in members' 
reliance on the Collateral Management System, NSCC also expects an 
increase in members' requesting the return of excess cash.\3\
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    \3\ The Collateral Management System (``CMS'') provides 
automated access to information on members' clearing fund, margin, 
and other deposits at NSCC and at other participating clearing 
entities. CMS allows participants to more efficiently manage their 
various clearing fund and margin deposits by providing electronic 
access to consolidated data regarding the underlying collateral held 
at multiple clearing agencies and allows participating clearing 
entities the ability to view common members' clearing fund and 
margin deposits at other clearing entities. See Securities Exchange 
Act Release Nos. 36091 (August 10, 1995), 60 FR 42931 (August 17, 
1995) [SR-NSCC-95-06] (order approving the establishment of CMS); 
40740 (December 3, 1998), 63 FR 67962 (December 9, 1998) [SR-NSCC-
98-10] (order approving modification to CMS).
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    To assure NSCC of more cash to meet liquidity needs, NSCC proposes 
to modify Procedure XV (Clearing Fund Formula and Other Matters) of its 
Rules and Procedures to require that the first 40% of a member's 
clearing fund contribution must be in cash unless the member's clearing 
fund requirement is $10,000 or less in which case the entire 
contribution must be in cash.\4\ NSCC also proposes to amend Rule 4 
(Clearing Fund) of its Rules and Procedures to reduce from 70% to 25% 
the percentage of members' required deposit to the clearing fund that 
may be collateralized with letters of credit.
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    \4\ The current version of Procedure XV (Version 1) is being 
revised by NSCC and the new version (Version 2) will be applicable 
to members on a rolling basis. The rule change proposes to amend 
clearing fund procedures in Procedure XV.A.I.(a) in Version 1 and 
Procedure XV.II.(A) of Version 2.
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    Based on NSCC's current calculations, the proposed change in the 
percentage of cash that must be deposited to the clearing fund will 
impact approximately 48 member firms. The proposed change reducing the 
permitted use of letters of credit will affect 21 of the approximately 
33 member firms that post such letters. NSCC intends to implement these 
clearing fund changes no earlier than 30 days after the Commission 
approves the proposed rule change. Mutual Fund/Insurance Services 
Members' cash contribution to and letters of credit requirements for 
the clearing fund will remain unchanged.

[[Page 55054]]

    NSCC believes that the proposed rule filing is consistent with 
section 17A of the Act because it will permit NSCC to have adequate 
liquidity resources to assure the safeguarding of funds securities for 
which it is responsible.

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

    NSCC does not believe that the proposed rule change will have an 
impact on 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

    No written comments relating to the proposed rule change have been 
solicited or received. NSCC will notify the Commission of any written 
comments it receives.

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 the NSCC. All 
submissions should refer to File No. SR-NSCC-2002-05 and should be 
submitted by September 17, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21776 Filed 8-26-02; 8:45 am]
BILLING CODE 8010-01-P