[Federal Register Volume 68, Number 9 (Tuesday, January 14, 2003)]
[Notices]
[Pages 1876-1878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-691]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47135; File No. SR-GSCC-2002-10]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Establish a 
Comprehensive Standard of Care and Limit GSCC's Liability to Its 
Members

January 7, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 10, 2002, the 
Government

[[Page 1877]]

Securities Clearing Corporation (``GSCC'') filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by GSCC. 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

    GSCC is seeking to establish a comprehensive standard of care and 
limitation of liability with respect to its members.

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 these 
statements.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    GSCC is seeking to establish a comprehensive standard of care and 
limitation of liability with respect to its members. Historically, the 
Commission has left to user-governed clearing agencies the question of 
how to allocate losses associated with, among other things, clearing 
agency functions.\3\ The Commission has reviewed clearing agency 
services on a case-by-case basis and in determining the appropriate 
standard of care has balanced the need for a high degree of clearing 
agency care with the effect the resulting liabilities may have on 
clearing agency operations, costs, and safekeeping of securities and 
funds.\4\ Because standards of care represent an allocation of rights 
and liabilities between a clearing agency and its participants, which 
are sophisticated financial entities, the Commission has refrained from 
establishing a unique federal standard of care and has allowed clearing 
agencies and other self-regulatory organizations and their participants 
to establish their own standard of care.\5\
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    \3\ Securities Exchange Act Release Nos. 20221 (September 23, 
1983), 48 FR 45167 and 22940 (February 24, 1986), 51 FR 7169.
    \4\ Id.
    \5\ Id.
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    GSCC believes that adopting a uniform rule \6\ limiting GSCC's 
liability to its members to direct losses caused by GSCC's gross 
negligence, willful misconduct, or violation of Federal securities laws 
for which there is a private right of Action: (a) Memorializes an 
appropriate commercial standard of care that will protect GSCC from 
undue liability; (b) permits the resources of GSCC to be appropriately 
utilized for promoting the accurate clearance and settlement of 
securities; and (c) is consistent with similar rules adopted by other 
self-regulatory organizations and approved by the Commission.\7\
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    \6\ The rule change is as follows: Section 3 `` Limitation on 
Liability of the Corporation Notwithstanding any other provision in 
the Rules: (a) The Corporation will not be liable for any action 
taken, or any delay or failure to take any action, hereunder or 
otherwise to fulfill the Corporation's obligations to its Members, 
other than for losses caused directly by the Corporation's gross 
negligence, willful misconduct, or violation of Federal securities 
laws for which there is a private right of action. Under no 
circumstances will the Corporation be liable for the acts, delays, 
omissions, bankruptcy, or insolvency, of any third party, including, 
without limitation, any depository, custodian, sub-custodian, 
clearing or settlement system, transfer agent, registrar, data 
communication service or delivery service (``Third Party''), unless 
the Corporation was grossly negligent, engaged in willful 
misconduct, or in violation of Federal securities laws for which 
there is a private right of action in selecting such Third Party; 
and
    (b) Under no circumstances will the Corporation be liable for 
any indirect, consequential, incidental, special, punitive or 
exemplary loss or damage (including, but not limited to, loss of 
business, loss of profits, trading losses, loss of opportunity and 
loss of use) howsoever suffered or incurred, regardless of whether 
the Corporation has been advised of the possibility of such damages 
or whether such damages otherwise could have been foreseen or 
prevented.
    \7\ See, e.g., Securities Exchange Act Release Nos. 37421 (July 
11, 1996), 61 FR 37513 (SR-CBOE-96-02) and 37563 (August 14, 1996), 
61 FR 43285 (SR-PSE-96-21).
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    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \8\ and the rules and 
regulations thereunder applicable to GSCC because it will permit the 
resources of GSCC to be appropriately utilized for promoting the 
accurate clearance and settlement of securities.
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    \8\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC 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. 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

    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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-GSCC-2002-10. This file number should be included on the 
subject line if e-mail is used. To help us process and review comments 
more efficiently, comments should be sent in hardcopy or by e-mail but 
not by both methods. 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 GSCC.

[[Page 1878]]

    All submissions should refer to File No. SR-GSCC-2002-10 and should 
be submitted by February 4, 2003.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-691 Filed 1-13-03; 8:45 am]
BILLING CODE 8010-01-P