[Federal Register Volume 68, Number 206 (Friday, October 24, 2003)]
[Notices]
[Pages 61026-61027]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-26819]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48649; File No. SR-GSCC-2002-03]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Granting Approval of a Proposed Rule Change Relating 
to the Revision of the Comparison-Only Membership Application Approval 
Process

October 16, 2003.

I. Introduction

    On May 22, 2002, the Government Securities Clearing Corporation 
(``GSCC'') \1\ filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change File No. SR-GSCC-2002-03 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\2\ On June 25, 2002,

[[Page 61027]]

GSCC filed an amendment to the proposed rule change. Notice of the 
proposed rule change was published in the Federal Register on July 30, 
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. 48220 (July 23, 2003), 
68 FR 44825.
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II. Description

    In the beginning of 2002, GSCC implemented various rule changes 
that effectuated GSCC's new governance structure resulting from the 
integration of GSCC with The Depository Trust & Clearing 
Corporation.\4\ As part of the new structure, the newly formed GSCC/
MBSCC Membership and Risk Management Committee (``Committee'') was 
given the authority to approve or reject applications for netting 
membership and for comparison-only membership.\5\ Upon further review, 
GSCC has determined that it would be more appropriate for GSCC 
management to approve or reject applications for comparison-only 
membership.\6\
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    \4\ Securities Exchange Act Release No. 45378 (January 31, 
2002), 67 FR 6064 [File No. SR-GSCC-2001-13].
    \5\ The term ``comparison-only member'' means a member that is a 
member only of the comparison system.
    \6\ The Committee voted to delegate the authority to approve 
comparison-only membership applicants to management during its March 
7, 2002 meeting. The purpose of this rule filing is to allow GSCC to 
implement this change.
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    The proposed rule change will permit GSCC to effectively balance 
the interests involved in the membership approval process, including 
the need for a prudent review of membership applicants as well as the 
need to admit members on a timely basis. This goal is most 
appropriately met by having management approve GSCC comparison-only 
membership applicants.\7\ GSCC believes that, given the difference in 
the level of risk posed by the two types of GSCC membership applicants, 
only applications to become members of GSCC's netting service should 
require the Committee's review and approval.\8\
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    \7\ This is consistent with the process currently employed by 
the National Securities Clearing Corporation (``NSCC''). The 
President of NSCC or a Managing Director of NSCC Risk Management may 
authorize a Vice President of NSCC Risk Management to approve non-
guaranteed service applicants that meet membership requirements. The 
NSCC Membership and Risk Management Committee receives a list 
showing the name of each approved non-guaranteed service member.
    \8\ GSCC's netting service provides for GSCC's guarantee of 
settlement. GSCC's comparison-only service does not do so.
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    GSCC will activate comparison-only membership for qualified 
applicants upon completion of the requisite financial and/or other 
operational reviews and upon receipt of all membership documentation as 
is required by GSCC's rules. In addition, management will provide the 
Committee with a list of comparison-only firms being considered for 
approval by management prior to activating any firm's comparison-only 
membership.
    Consistent with these changes and in order to clarify relevant 
terms for members, GSCC is also expanding the current definition of 
``Corporation'' in its Rule 1. Going forward, ``Corporation'' will also 
mean ``Management'' unless otherwise indicated, and these terms will be 
used interchangeably. This is not a substantive change and is not a 
delegation of duties currently reserved for the Board.

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.\9\ Because the comparison-only service 
provides only for the comparison of submitted trades, does not provide 
for any transfer between members of securities and funds, and does not 
provide guarantee of settlements, comparison-only members bring 
basically no risk to GSCC. As such, management's determination that all 
requisite financial and operational reviews have been completed with 
satisfactory results and that all requisite membership documentation 
have been filed is sufficient for activation of an applicant's 
comparison-only membership. Accordingly, the proposed rule change 
should not negatively affect GSCC's ability to safeguard securities and 
funds which are in its custody or control or for which it is 
responsible, and therefore, is consistent with GSCC's obligations under 
section 17A of the Act.
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    \9\ 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-2002-03) be and hereby 
is approved.
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    \10\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
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pursuant to delegated authority.\10\

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-26819 Filed 10-23-03; 8:45 am]
BILLING CODE 8010-01-P