[Federal Register Volume 69, Number 25 (Friday, February 6, 2004)]
[Notices]
[Pages 5881-5882]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-2555]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49156; File No. SR-MBSCC-2001-06]


Self-Regulatory Organizations; MBS Clearing Corporation; Order 
Granting Approval of a Proposed Rule Change Regarding the Monitoring of 
MBSCC Participants' Financial Condition and Activities

January 30, 2004.

I. Introduction

    On November 27, 2001, MBS Clearing Corporation (``MBSCC'') \1\ 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-MBSCC-2001-06 pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'').\2\ On December 26, 2001, 
MBSCC filed an amendment to the proposed rule change. Notice of the 
proposal was published in the Federal Register on March 27, 2002.\3\ On 
August 21, 2002,\4\ October 22, 2002,\5\ February 25, 2003,\6\ April 
10, 2003,\7\ and October 10, 2003,\8\ MBSCC filed amendments to the 
proposed rule change.\9\ 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, MBSCC was merged into the Government 
Securities Clearing Corporation (``GSCC'') and GSCC was renamed the 
Fixed Income Clearing Corporation. Securities Exchange Act Release 
No. 47015 (December 17, 2002), 67 FR 78531 (December 24, 2002) (File 
Nos. SR-GSCC-2002-10 and MBSCC-2002-01).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ Securities Exchange Act Release No. 45604 (March 20, 2002), 
67 FR 14755.
    \4\ The August 21, 2002, amendment modified the proposed rule 
change with respect to MBSCC's acceptance of financial statements 
prepared in accordance with a non-domestic participant's home 
country generally accepted accounting principles. This portion of 
the proposed rule change was subsequently withdrawn. See supra note 
7.
    \5\ The October 22, 2002, amendment made it clear that the 
requirement for participants to submit regulatory notices relating 
to declines in capital applies to all MBSCC members.
    \6\ The proposed rule change as originally filed established a 
formal surveillance status mechanism. The amendment filed on 
February 25, 2003, withdrew that portion of the proposed rule 
change.
    \7\ The amendment filed on April 10, 2003, withdrew the portion 
of the proposed rule change that would have allowed non-domestic 
participants to submit financial statements prepared in accordance 
with their home country generally accepted accounting principles.
    \8\ In the amendment filed on October 10, 2003, MBSCC corrected 
the date the proposed rule change was approved by MBSCC's board of 
directors and changed the person to contact regarding questions and 
comments about the proposed rule change.
    \9\ Republication of the notice is not necessary because the 
August 21, 2002, amendment made a change to the proposed rule change 
that was later withdrawn, the February 25, 2003, and April 10, 2003, 
amendments withdrew portions of the proposed rule change, the 
October 22, 2003, amendment made a change to clarify a portion of 
the proposed rule change, and the October 10, 2003, amendment made 
technical changes to the proposed rule change.
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II. Description

    To strengthen MBSCC's monitoring of participants' financial 
condition and activities, as well as to conform its rules to its 
standard practices, MBSCC is amending its rules to (i) add a 
requirement that registered brokers and dealers submit copies to MBSCC 
of supplemental reports filed with the Commission pursuant to Rule 17a-
11 and that all participants submit to MBSCC copies of any similar 
types of regulatory notifications and (ii) expand the financial 
criteria used by MBSCC for

[[Page 5882]]

calculating a participant's financial ability.
    The first modification to the rules requires broker-dealer 
participants to submit copies of supplemental reports filed pursuant to 
Rule 17a-11 to MBSCC concurrently with their submission to the 
Commission. Rule 17a-11 requires registered broker-dealers to notify 
the Commission of a decline in net capital below minimum requirements. 
In addition, MBSCC's participants may have other similar regulatory 
notification requirements imposed by the SEC, another regulator, or 
other similar authority when their capital levels or other financial 
requirements fall below certain levels. This rule change also requires 
participants to submit such notifications to MBSCC concurrently with 
their submission to the relevant regulatory authority. Such notices 
should provide MBSCC with an early warning of potential financial 
problems with respect to its participants.
    The second modification allows MBSCC to use net asset value or 
other applicable indicia in calculating a participant's financial 
ability. MBSCC's rules do not currently specify the types of financial 
indicia that MBSCC may use to calculate a participant's net worth for 
determining whether the participant meets MBSCC's minimum financial 
requirements. MBSCC's analysts currently use the appropriate financial 
indicia for each type of participant. For example, shareholders equity 
is used to determine the financial ability of a bank whereas net asset 
value is more appropriate for determining the financial ability of 
certain types of funds, such as most registered investment companies. 
This rule change will expand the language in MBSCC's rules to permit 
use of the appropriate financial indicia.

III. Discussion

    Section 17A(b)(3)(F) of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of MBSCC.\10\ The rule 
change should help MBSCC to reduce risk by improving MBSCC's ability to 
monitor and assess the financial condition of its participants. 
Accordingly, the proposed rule change should help MBSCC to protect the 
securities and funds in its possession or control or for which it is 
responsible. Therefore, the Commission finds that the rule change is 
consistent with section 17A(b)(3)(F).
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    \10\ 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 applicable.
    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-MBSCC-2001-06) as amended 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-2555 Filed 2-5-04; 8:45 am]
BILLING CODE 8010-01-P