[Federal Register Volume 68, Number 204 (Wednesday, October 22, 2003)]
[Notices]
[Pages 60425-60426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26646]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48636; File No. SR-GSCC-2002-07]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change Relating 
to the Elimination of the Comparison-Only Requirement for New GSCC 
Netting Members

October 15, 2003.

I. Introduction

    On September 5, 2002, the Government Securities Clearing 
Corporation (``GSCC'') \1\ filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change (File No. SR-GSCC-
2002-07) pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act'').\2\ Notice of the proposed rule change was published in 
the Federal Register on June 20, 2003.\3\ No comment letters were 
received. For the reasons discussed below, the Commission is granting 
approval of the proposed rule change.
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    \1\ On January 1, 2003, MBS Clearing Corporation (``MBSCC'') was 
merged into the Government Securities Clearing Corporation 
(``GSCC'') and GSCC was renamed the Fixed Income Clearing 
Corporation (``FICC''). Securities Exchange Act Release No. 47015 
(December 17, 2002), 67 FR 78531 (December 24, 2002) [File Nos. SR-
GSCC-2002-09 and SR-MBSCC-2002-01].
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ Securities Exchange Act Release No. 48010 (June 10, 2003), 
68 FR 37035.
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II. Description

    GSCC's rules currently provide that an entity is eligible to become 
a netting member if, among other things, it has been a comparison-only 
member for at least six months unless the requirement is waived by 
GSCC's Membership and Risk Management Committee (``Committee''). The 
comparison-only membership requirement was included in GSCC's rules 
when GSCC first began operations. The purpose of this provision was to 
give GSCC staff the opportunity to ensure that a firm was operationally 
sound and had the ability to properly communicate with GSCC before 
being permitted to participate in the netting system. Over the years, 
GSCC netting membership has become more critical for active market 
participants, and it has become increasingly common for management to 
seek and receive approval to waive the six month comparison-only 
membership requirement. Unlike other netting membership requirements, 
such as minimum financial standards and regulation by an established 
regulatory entity, the comparison-only membership requirement has not 
been necessary to ensure the integrity of the admission and membership 
processes. GSCC staff has gained significant experience in making 
determinations about a firm's operational capability without having any 
comparison-only membership history. The granting of netting membership 
based on reviews without any comparison-only membership history has not 
presented GSCC with any operationally-deficient netting members.
    For these reasons, GSCC is amending its rules to (1) eliminate the 
six month comparison-only membership requirement as a routine matter 
and (2) permit GSCC to require an applicant to be a comparison-only 
member for a time period GSCC deems necessary if GSCC believes such 
action, in order to protect itself and its members, is necessary to 
assess the operational capability of the applicant. GSCC's 
determination to impose a comparison-only membership requirement shall 
be based on the presence of one or more of the following conditions: 
(a) The applicant is a newly-formed entity with little or no functional 
history; (b) its operational staff lacks significant experience; (c) if 
one of the above conditions is present, it has not engaged a service 
bureau or correspondent clearing member with which GSCC has had a 
relationship; or (d) any other factor that management believes might 
suggest insufficient operational ability.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires, among other things, that 
the rules of a clearing agency be designed to assure the safeguarding 
of securities and funds which are in its custody or control or for 
which it is responsible.\4\ GSCC believes that in most cases it can 
adequately and without compromising its ability to safeguard its 
members securities and funds make the determination about an 
applicant's operational capability and can grant netting membership 
without requiring the applicant to be a comparison-only member for at 
least six months. In those situations where GSCC believes it would be 
prudent to require an applicant to be a comparison-only member for some 
period of time, GSCC has retained the ability to do so. Accordingly, 
the proposed rule change should not negatively affect GSCC's ability to 
safeguard securities and funds

[[Page 60426]]

which are in its custody or control or for which it is responsible.
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    \4\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change 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-GSCC-2002-07) be and hereby 
is approved.

    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. 03-26646 Filed 10-21-03; 8:45 am]
BILLING CODE 8010-01-P