[Federal Register Volume 67, Number 221 (Friday, November 15, 2002)]
[Notices]
[Pages 69277-69279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28989]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46790; File Nos. SR-GSCC-2002-09 and SR-MBSCC-2002-01]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation and MBS Clearing Corporation; Notice of Filing of Proposed 
Rule Changes Relating to the Merger of MBS Clearing Corporation into 
the Government Securities Clearing Corporation to Form the Fixed Income 
Clearing Corporation

November 7, 2002.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(''Act''),\1\ notice is hereby given that on October 7, 2002, the 
Government Securities Clearing Corporation (``GSCC'') and the MBS 
Clearing Corporation (''MBSCC'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule changes (File Nos. SR-
GSCC-2002-09 and SR-MBSCC-2002-01). On October 31, 2002, and on 
November 5, 2002, GSCC and MBSCC amended the proposed rule changes. The 
proposed rule changes are described in Items I, II, and III below, 
which items have been prepared primarily by GSCC and MBSCC. The 
Commission is publishing this notice to solicit comments on the 
proposed rule changes 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 Changes

    The proposed rule changes propose arrangements for the combination 
of GSCC with MBSCC. The subject proposal provides the following:
    [sbull] MBSCC will merge into GSCC.
    [sbull] GSCC will be renamed the Fixed Income Clearing Corporation 
(``FICC'').
    [sbull] FICC will provide services currently offered by GSCC and 
MBSCC through separate divisions of FICC (``Government Securities 
Division'' and ``Mortgage-Backed Securities Division'' collectively 
referred to as ``Divisions''). FICC will adopt the current rules of 
GSCC, as amended and described herein, as rules of the Government 
Securities Division and the current rules of MBSCC, as amended and 
described herein, as rules of the Mortgage-Backed Securities Division.
    [sbull] After the merger, current GSCC members will receive the 
services they currently receive from GSCC from the Government 
Securities Division, and current MBSCC participants, limited purpose 
participants, and Electronic Pool Notification (``EPN'') users will 
receive the services they currently receive from MBSCC from the 
Mortgage-Backed Securities Division. The membership agreements between 
GSCC and its members and between MBSCC and its participants, limited 
purpose participants, and EPN users will be modified to reflect the 
merger.
    [sbull] The rules of GSCC and MBSCC will be modified to reflect 
that the formerly separate clearing corporations will be separate 
divisions of FICC.

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

    In their filings with the Commission, GSCC and MBSCC included 
statements concerning the purpose of and basis for the proposed rule 
changes and discussed any comments they received on the proposed rule 
changes. The text of these statements may be examined at the places 
specified in Item IV below. GSCC and MBSCC have 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 and MBSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    GSCC and MBSCC became wholly-owned, indirect subsidiaries of The 
Depository Trust and Clearing Corporation (``DTCC'') as a result of 
merger and exchange offer transactions that took place in late 2001 
(``DTCC Integration'').\3\ GSCC and MBSCC provide clearing and certain 
ancillary services for government securities and mortgage-backed 
securities, respectively. The clearing and other services for these 
different types of fixed-income products have many common elements. The 
handling of such products by different clearing corporations hinders 
development of uniform standards for the fixed-income services 
industry. The combination of GSCC and MBSCC will lead to development of 
uniform standards for messaging, reporting, netting and settlement 
mechanisms, standardized settlement practices, and coordinated cash and 
mark-to-market flows for fixed-income products. Moreover, combining 
GSCC and MBSCC will help the clearing corporations achieve important 
membership and risk management goals, such as building a consolidated 
risk management platform, optimizing cross-margining among various 
fixed-income products, and establishing uniform membership standards. 
Furthermore, redundant facilities, services, and operational aspects 
\4\ will be eliminated as a result of the merger thereby reducing the 
costs of processing transactions in fixed-income products over time.
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    \3\ Securities Exchange Act Release Nos. 44988 (October 25, 
2001), 66 FR 55222 [SR-MBSCC-2001-01] and 44989 (October 25, 2001), 
66 FR 55220 [SR-GSCC-2001-11].
    \4\ Operational aspects include such things as separate annual 
reports, regulatory reports, audits, financial statements, and 
regulatory examinations.
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    To effect the merger, MBSCC will be merged into GSCC under New York 
law. At the time of the merger, GSCC Acquisition Company LLC (``GSCC 
Parent''), the sole shareholder of GSCC, will pay MBSCC Holding 
Company, Inc., the sole shareholder of MBSCC, a nominal amount of money 
in consideration for canceling its shares of capital stock of MBSCC, 
and shares of capital stock of MBSCC will be cancelled. GSCC will be 
the surviving corporation of the merger and will be renamed FICC. GSCC 
Parent will be the sole direct shareholder of FICC. The current 
Certificate of Incorporation and Bylaws of GSCC will be amended to be 
the Certificate of Incorporation and

[[Page 69278]]

Bylaws of FICC. FICC will form the Government Securities Division as 
the vehicle for delivering the services now provided by GSCC to GSCC 
members. FICC will form the Mortgage-Backed Securities Division as the 
vehicle for delivering the services now provided by MBSCC to MBSCC 
participants, limited purpose participants, and EPN users of MBSCC.
    The members and participants receiving services from the Divisions 
will retain their shareholdings in DTCC and their rights to be 
shareholders in DTCC that they received during the DTCC Integration. 
The structure implemented during the DTCC Integration to assure fair 
representation for, among others, the members of GSCC and participants 
of MBSCC will also remain in place. After the DTCC shareholders that 
are members of GSCC begin receiving services from the Government 
Securities Division and after the DTCC shareholders that are 
participants of MBSCC begin receiving services from the Mortgage-Backed 
Securities Division, they will continue to elect persons to serve on 
the Board of Directors of DTCC (``DTCC Board'') as they did prior to 
the creation of FICC. The individuals elected to serve on the DTCC 
board will, in turn, be selected by DTCC to serve as directors of FICC. 
On a periodic basis to be determined by DTCC pursuant to the DTCC 
shareholders agreement, DTCC common stock will continue to be 
reallocated to the shareholders using the services of The Depository 
Trust Company (``DTC''), Emerging Markets Clearing Corporation 
(``EMCC''), National Securities Clearing Corporation (``NSCC''), and 
the Divisions of FICC based upon their usage. The members receiving 
services from the Government Securities Division and the participants 
receiving services from the Mortgage-Backed Securities Division will 
continue to have the right but not the obligation to purchase some or 
all of the DTCC common stock to which they are entitled.
    The charters of the two committees formed during the DTCC 
Integration, the DTCC/DTC/GSCC/MBSCC/NSCC Fixed Income Operations and 
Planning Committee of DTCC, which includes representatives of members 
of GSCC and participants of MBSCC, and the GSCC/MBSCC Membership and 
Risk Management Committee, which is comprised of the representatives of 
members of GSCC and participants of MBSCC, will be amended to refer to 
members receiving services from the Government Securities Division and 
participants receiving services from the Mortgage-Backed Securities 
Division.
    The DTCC/DTC/GSCC/MBSCC/NSCC Fixed Income Operations and Planning 
Committee will be renamed the DTCC/DTC/FICC/NSCC Fixed Income 
Operations and Planning Committee. It will continue to advise the DTCC 
Board and management on its policies and procedures with respect to 
fixed-income products processed by and services of DTC, EMCC, NSCC, and 
FICC. The GSCC/MBSCC Membership and Risk Management Committee will be 
renamed the FICC Membership and Risk Management Committee. It will 
advise the Board of Directors and management of FICC with respect to 
membership, credit, and risk matters. Other functions may be assigned 
to the committees as they are today.
    After the merger, FICC will satisfy the fair representation 
requirement of section 17A of the Act \5\ by (i) continuing to give the 
members receiving services from the Government Securities Division and 
the participants receiving services from the Mortgage-Backed Securities 
Division, the right to purchase shares of DTCC common stock on a basis 
that reflects their use of the services of the Divisions, DTC, EMCC, 
and NSCC; (ii) continuing to allow members and participants receiving 
services from the Divisions to take part in the selection of 
individuals to be directors of DTCC (who will also be directors of 
FICC, DTC, EMCC, and NSCC) to ensure that all major constituencies in 
the securities industry will have a voice in the business and affairs 
of each of these companies; and (iii) utilizing the committee structure 
described above to ensure that the members and the participants 
receiving services from the Divisions will have a voice in the 
operations and affairs of the Divisions.
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    \5\ 15 U.S.C. 78q-1(b)(3)(C).
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    As a result of the merger, GSCC's Certificate of Incorporation and 
Bylaws will be amended to reflect the change of GSCC's name to FICC. 
The Rules of MBSCC will be adopted by FICC as part of the merger as the 
rules of the Mortgage-Backed Securities Division. The Rules of GSCC and 
MBSCC will be amended to reflect that (i) the Government Securities 
Division and the Mortgage-Backed Securities Division will be separate 
Divisions of FICC; (ii) neither Division of FICC will be liable for the 
obligations of the other Division; and (iii) that the clearing fund and 
other assets of each Division will not be available to satisfy the 
obligations of the other Division.
    GSCC and MBSCC believe that the proposed rule changes are 
consistent with the requirements of section 17A of the Act \6\ and the 
rules and regulations thereunder applicable to GSCC and MBSCC because 
they facilitate the prompt and accurate clearance and settlement of 
transactions in government securities and mortgage-backed securities by 
ensuring the continued availability of efficient and cost-effective 
clearing services to GSCC members and MBSCC participants.
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    \6\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC and MBSCC do not believe that the proposed rule changes will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Changes Received From Members, Participants or Others

    No written comments relating to the proposed rule changes have been 
solicited or received.

III. Date of Effectiveness of the Proposed Rule Changes 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 changes or
    (B) institute proceedings to determine whether the proposed rule 
changes 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 
changes are 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 changes that are filed 
with the Commission, and all written communications relating to the 
proposed rule changes between the Commission and any person, other than 
those that may be withheld from the public in accordance with the

[[Page 69279]]

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 offices of GSCC and MBSCC.
    All submissions should refer to File Nos. SR-GSCC-2002-09 and SR-
MBSCC-2002-01 and should be submitted by December 6, 2002.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 02-28989 Filed 11-14-02; 8:45 am]
BILLING CODE 8010-01-P