[Federal Register Volume 68, Number 210 (Thursday, October 30, 2003)]
[Notices]
[Pages 61846-61848]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-27346]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48692; File No. SR-SCCP-2003-04]


Self-Regulatory Organizations; Stock Clearing Corporation of 
Philadelphia; Notice of Filing of a Proposed Rule Change Relating to 
Permanent Approval of SCCP's Restructured Limited Clearing Business

October 24, 2003.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on June 20, 2003, the Stock 
Clearing Corporation of Philadelphia (``SCCP'')

[[Page 61847]]

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 SCCP. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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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

    In the proposed rule change, SCCP seeks to obtain permanent 
approval of SCCP's restructured business whereby it provides limited 
clearance and settlement services.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, SCCP 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. SCCP has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of such 
statements.\2\
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    \2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to obtain permanent 
approval of SCCP's restructured and limited clearance and settlement 
business. In connection with the withdrawal by the Philadelphia Stock 
Exchange, Inc. (``Phlx'') from the securities depository business 
(offered by its wholly owned subsidiary the Philadelphia Depository 
Trust Company (``Philadep'') and its restructuring and limiting its 
clearance and settlement business (offered by its wholly owned 
subsidiary SCCP), Phlx, SCCP, Philadep, National Securities Clearing 
Corporation (``NSCC''), and The Depository Trust Company (``DTC''), 
entered into an agreement dated as of June 18, 1997 (``Agreement''). 
Under the Agreement, the parties worked together to assure the orderly 
transition of most of the day-to-day depository and clearance services 
of the Philadep and SCCP to DTC and NSCC. Pursuant to the Agreement, 
SCCP ceased operating its continuous net settlement (``CNS'') system 
for conducting settlements between SCCP and its participants. As a 
result, SCCP ceased providing the cash settlement services attendant to 
Philadep's same-day funds settlement system and the Philadep settlement 
process. However, pursuant to the Agreement, SCCP continued to offer 
limited clearing and settlement services to PHLX members.
    In December 1997, the Commission approved proposed rule changes 
which gave effect to the Agreement, which reflected Philadep's 
withdrawal from the depository business, and which temporarily approved 
SCCP's restructured and limited clearance and settlement business.\3\ 
Subsequently, the Commission has extended the temporary approval 
several times so that SCCP could continue to offer restructured and 
limited clearance and settlement services.\4\
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    \3\ Securities Exchange Act Release No. 39444 (December 11, 
1997), 62 FR 66703 (December 19, 1997) (SR-DTC-97-16, SR-NSCC-97-08, 
SR-Philadep-97-04, SR-SCCP-97-04). At that time, the Commission 
stated that, ``However, because a part of SCCP's proposed rule 
change concerns the restructuring of SCCP's operations to enable 
SCCP to offer limited clearing and settlement services to certain 
Phlx members, the Commission finds that it is appropriate to grant 
only temporary approval to the portion of SCCP's proposed rule 
change that amends SCCP's By-Laws, Rules, or Procedures. This will 
allow the Commission and SCCP to see how well SCCP's restructured 
operations are functioning under actual working conditions and to 
determine whether any adjustments are necessary. Thus, the 
Commission is approving the portion of SCCP's proposal that amends 
its By-Laws, Rules and Procedures through December 31, 1998.''
    \4\ Securities Exchange Act Release Nos. 40872 (December 31, 
1998), 64 FR 1264 (January 8, 1999) (SR-SCCP-98-05); 42320 (January 
6, 2000), 65 FR 2218 (January 13, 2000) (SR-SCCP-99-04); 43781 
(December 28, 2000), 66 FR 1167 (January 5, 2001) (SR-SCCP-00-05); 
45227 (January 3, 2002), 67 FR 1259 (January 9, 2002) (SR-SCCP-2001-
11); and 47016 (December 17, 2000), 67 FR 78556 (December 24, 2002) 
(SR-SCCP-2001-12).
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    SCCP is hereby proposing that the Commission grant permanent 
approval to its providing these limited clearance and settlement 
services. SCCP believes that its restructured operations have 
functioned consistent with its original proposed rule change. More 
specifically, SCCP believes its operations are functioning well under 
actual working conditions.
    In the original rule filing approving SCCP's restructured business, 
many SCCP rules were amended and discussed at length. No new rule 
changes are proposed at this time. Thus, the purpose of the proposed 
rule change is to acquire permanent approval of SCCP's restructured and 
limited clearing and settlement services, as discussed in more detail 
below.
    Under its proposal, SCCP will continue to offer trade confirmation 
and recording services to Phlx members effecting transactions through 
regional interface operations (``RIO'') accounts and ex-clearing 
accounts. SCCP will not provide clearing guarantees for these 
transactions.
    SCCP will continue to provide margin accounts for margin members 
that clear and settle their transactions through SCCP's Omnibus 
Clearance and Settlement Account at NSCC.\5\ SCCP will continue to have 
the right to demand at any time that a margin member provide additional 
margin based upon SCCP's review of the margin member's security 
positions held in its margin account at SCCP. SCCP will retain the 
margin thresholds specified in its Procedures and will continue to have 
the right to require adequate assurances or additional margin in 
addition to the minimum margin thresholds in order to protect SCCP in 
issues deemed by SCCP to warrant additional protection. SCCP may also 
continue to demand any such margin payments in federal funds in 
accordance with its Procedures.
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    \5\ SCCP will continue to offer margin services only to: (1) 
PHLX equity specialists for their specialists and alternative 
specialists transactions, as well as for their propriety 
transactions in securities for which they are appointed as 
specialists or alternative specialists and (2) PHLX members listed 
on a schedule that are not PHLX equity specialists for their 
propriety transactions. Under the Agreement, SCCP may add other PHLX 
members to the schedule subject to NSCC's approval.
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    SCCP will continue to issue margin calls to any margin member when 
the margin requirement exceeds the ``account equity,'' as defined in 
SCCP's Rules. SCCP may waive any amount that would trigger a margin 
call not exceeding $500. Any failure to meet a margin call will subject 
such delinquent margin member to SCCP's rules governing disciplinary 
proceedings and penalties as well as to the late penalties specified in 
SCCP rules. SCCP can cease to act for such delinquent margin members 
and can retain a lien on all such margin members' accounts and 
securities therein.
    SCCP will continue to maintain records on each individual margin 
account. SCCP will continue to maintain the Omnibus Clearance and 
Settlement Account at NSCC to reflect all positions in SCCP's margin 
accounts. SCCP will continue to guarantee the settlement obligations of 
the Omnibus Clearance and Settlement Account to NSCC. In turn, pursuant 
to the Agreement, Phlx would continue to guarantee SCCP's obligations 
to NSCC.
    SCCP's books and records for the Omnibus Clearance and Settlement 
Account will continue to reflect all activity that occurs in such 
account at NSCC. At any time prior to midnight Philadelphia time on the 
next business day after SCCP receives a margin

[[Page 61848]]

member's trade, SCCP will continue to be entitled to reverse the trade 
from the member's account. SCCP would continue to settle the Omnibus 
Clearance and Settlement Account with NSCC each business day in 
accordance with NSCC's Rules and Procedures. Accordingly, SCCP would 
continue to be subject to NSCC's Rules.
    Through the Omnibus Clearance and Settlement Account, SCCP will 
continue to have one composite settlement per day with NSCC. SCCP will 
maintain line of credit (``LOC'') arrangements with one or more 
commercial banks sufficient to support anticipated funding needs of the 
underlying margin accounts.
    To ensure that margin members have an efficient way to obtain 
securities depository services after the closure of Philadep's 
depository service, SCCP opened a NSCC-sponsored depository account at 
DTC. In the event that margin members effect trades in securities not 
eligible for custodial services in DTC's book-entry system, SCCP would 
continue to utilize the Direct Clearing Service to settle these 
transactions. SCCP would continue to perform bookkeeping and 
reconciliation services for the Omnibus Clearance and Settlement 
Account and its related DTC custody account pursuant to SCCP 
Procedures.
    Clearly SCCP, as a NSCC clearing member and NSCC sponsored 
participant of DTC, will continue to be required to provide NSCC with 
clearing fund contributions.
    SCCP will continue to apply a fixed $35,000 contribution for the 
specialist margin account and non-specialist margin account categories 
and a contribution of $10,000 to $75,000 for RIO accounts, depending 
upon monthly trading activity. Participants engaging in more than one 
account type activity will continue to be subject only to the formula 
that would generate the highest contribution.
    SCCP believes permanent approval of SCCP's restructured and limited 
clearance and settlement services is consistent with the requirements 
of the Act and the rules and regulations thereunder and in particular 
with Section 17A(b)(3)(F) which requires that a clearing agency be 
organized and its rules be designed, among other things, to promote the 
prompt and accurate clearance and settlement of securities 
transactions, to safeguard funds and securities in its possession and 
control, and to remove impediments to perfect the mechanism of a 
national system for the prompt and accurate clearance and settlement of 
securities transactions. SCCP believes that permanent approval of 
SCCP's restructured business should promote the prompt and accurate 
clearance and settlement of securities transactions by integrating and 
consolidating clearing services available to the industry; further, it 
should assure the safeguarding of securities and funds in the custody 
or control of SCCP or for which SCCP is responsible.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    SCCP does not believe that the proposed rule change will impose any 
inappropriate burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

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 SCCP 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-SCCP-2003-04. 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 SCCP.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-27346 Filed 10-29-03; 8:45 am]
BILLING CODE 8010-01-P