[Federal Register Volume 68, Number 10 (Wednesday, January 15, 2003)]
[Notices]
[Page 2093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-846]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47132; File No. SR-NSCC-2002-08]


Self-Regulatory Organizations; National Securities Clearing 
Corporation; Order Granting Accelerated Approval of a Proposed Rule 
Change Relating to New Clearing Fund Valuation of Deposited Securities

January 7, 2003.
    On October 3, 2002, the National Securities Clearing Corporation 
(``NSCC'') filed with the Securities and Exchange Commission 
(``Commission'') pursuant to section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ a proposed rule change (File No. 
NSCC-2002-08). Notice of the proposal was published in the Federal 
Register on December 16, 2002.\2\ On January 6, 2003, NSCC amended its 
proposed rule change.\3\ No comment letters were received.\4\ For the 
reasons discussed below, the Commission is approving the proposed rule 
change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 46958 (Dec. 6, 2002), 67 
FR 77123.
    \3\ The purpose of this amendment was to conform the language of 
this rule filing to an earlier NSCC proposed rule change that the 
Commission has approved. Securities Exchange Act Release No. 46931 
(Nov. 27, 2002), 67 FR 72714 (Dec. 6, 2002) [File No. SR-NSCC-2002-
05]. Because this amendment is technical in nature, republication of 
notice is not required.
    \4\ This proposed rule change had a fifteen-day comment period.
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I. Description

    The proposed rule change will modify Rule 4 (Clearing Fund) and 
Procedure XV (Clearing Fund Formula and Other Matters) of NSCC's Rules 
and Procedures to establish haircuts for securities posted by NSCC 
members as clearing fund collateral. Under Rule 4, NSCC members are 
required to make deposits to NSCC's clearing fund.\5\ Rule 4 also 
states that NSCC, at its discretion, may permit part of a member's 
(with the exception of ``mutual fund/insurance services members'') 
clearing fund deposit to be evidenced by an open account indebtedness 
secured by (a) unmatured bearer bonds that are either direct 
obligations of or obligations guaranteed as to principal and interest 
by the United States or its agencies (``qualifying bonds'') and/or (b) 
one or more irrevocable letters of credit under certain guidelines 
established within NSCC's rules.\6\
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    \5\ The amount of each member's required deposit is determined 
by NSCC in accordance with one or more formulas.
    \6\ The Commission recently approved a NSCC proposed rule change 
(File No. SR-NSCC-2002-05) that increased the minimum amount of cash 
that must be deposited by members (with the exception of ``mutual 
fund/insurance services members'') to satisfy clearing fund 
requirements and that limited the amount of a deposit that may be 
collateralized with letters of credit. Securities Exchange Act 
Release Nos. 46931 (Nov. 27, 2002) and 46389 (Aug. 21, 2002), 67 FR 
55053 (Aug. 27, 2002).
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    In its efforts to ensure that it has adequate collateral to cover 
its members' obligations, NSCC has decided to haircut the value of 
securities deposited to meet clearing fund requirements. The proposed 
haircut percentages will range from 2% to 5% and will be based on the 
type of security deposited, its market risk, and years to maturity.\7\ 
The proposed haircuts are similar to those currently applied by The 
Depository Trust Company as a part of its risk management controls. 
These percentages may change from time to time. Should NSCC decide to 
change the haircut schedule, it will communicate such changes to its 
participants.
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    \7\ NSCC's proposed haircut schedule for U.S. Treasury and 
agency securities is: Interest bearing with remaining terms to 
maturity of up to 10 years--2%; Interest bearing with remaining 
terms to maturity in excess of 10 years--5%; Zero coupon with 
remaining terms to maturity of up to 5 years--2%; Zero coupon with 
remaining terms to maturity in excess of 5 years--5%.
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    NSCC intends to implement this change no sooner than thirty days 
after the Commission's approval of this proposed rule filing provided, 
however, that NSCC would like to make this change effective concurrent 
with the changes made pursuant to proposed rule change File No. SR-
NSCC-2002-05.\8\
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    \8\ Supra note 5.
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II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of section 
17A(b)(3)(A) \9\ of the Act, which requires that the rules of a 
clearing agency be designed to safeguard securities and funds in its 
custody or control or for which it is responsible. The Commission finds 
that by providing a cushion to protect against downward fluctuations in 
the value of securities pledged as clearing fund collateral, the 
proposed rule change is consistent with this obligation because it will 
help to ensure that NSCC has adequate clearing fund assets in the event 
that NSCC must liquidate the collateral of an insolvent participant.
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    \9\ 15 U.S.C. 78q-1(b)(3)(A).
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    NSCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of filing so that it can give its 
participants thirty days after approval of this filing to become 
compliant with the changes being made and can implement the changes to 
the clearing fund requirements concurrently with the changes made by 
SR-NSCC-2002-05.\10\ The Commission finds good cause for approving the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing because such approval will allow NSCC 
to give its participants thirty days to implement the changes and to 
implement the changes concurrently with those made by SR-NSCC-2002-05.
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    \10\ Supra note 5.
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III. 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-NSCC-2002-08) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 03-846 Filed 1-14-03; 8:45 am]
BILLING CODE 8010-01-M