[Federal Register Volume 68, Number 116 (Tuesday, June 17, 2003)]
[Notices]
[Pages 35925-35926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-15264]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48016; File No. SR-GSCC-2002-11]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change to Reduce the 
Permitted Use of Letters of Credit to Twenty-Five Percent of a Member's 
Required Clearing Fund Deposit

June 11, 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 Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') and on April 1, 
2003, amended 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 reduce the permitted use of letters of credit 
(``LCs'') to twenty-five percent of a member's required clearing fund 
deposit.

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

    One of GSCC's most important risk management tools is its 
maintenance of clearing fund collateral. Clearing fund is comprised of 
cash, certain netting-eligible securities, and eligible LCs. The 
purposes served by the clearing fund are (1) to have on deposit from 
each netting member assets sufficient to satisfy any losses that may be 
incurred by GSCC as the result of the default by the member and the 
resultant close-out of that member's settlement positions and (2) to 
ensure that GSCC has sufficient liquidity at all times to meet its 
payment and delivery obligations.
    The subject of the proposed rule change is the LC component of the 
clearing fund. Currently, GSCC's rules permit up to 70 percent of a 
member's required clearing fund deposit to be in the form of LCs. 
Although GSCC believes that it will always receive funds from the 
presentment of an LC for payment, GSCC has recognized that in a period 
of market crisis there is the potential that GSCC might not receive the 
funds on a timely basis. To ensure that GSCC can always meet its 
liquidity needs on a timely basis in the unlikely event of a member 
default and in a period of market crisis, GSCC is proposing to reduce 
the permitted use of LCs to 25 percent of a member's required clearing 
fund deposit. Thus, the minimum level of cash and securities required 
to be maintained on deposit would increase from 30 percent to 75 
percent of a member's required clearing fund deposit.\3\
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    \3\ The proposed LC requirement will not affect the requirement 
that certain non-US GSCC members post additional collateral in the 
form of LCs to protect GSCC against legal risk presented by the 
insolvency laws in their home countries. These members will not be 
required to increase the amount of their deposit that is in the form 
of cash and securities from 30 percent to 75 percent of their 
required clearing fund deposit.
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    GSCC believes that the proposed rule change is consistent with the 
requirements of section 17A of the Act \4\ and the rules and 
regulations thereunder applicable to GSCC because it will protect GSCC 
and its members by ensuring that GSCC has adequate liquidity resources.
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    \4\ 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.

[[Page 35926]]

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 GSCC.
    All submissions should refer to File No. SR-GSCC-2002-11 and should 
be submitted by July 8, 2003.

    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. 03-15264 Filed 6-16-03; 8:45 am]
BILLING CODE 8010-01-P