[Federal Register Volume 69, Number 40 (Monday, March 1, 2004)]
[Notices]
[Page 9657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-4433]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49305; File No. SR-BSECC-2003-01]


Self-Regulatory Organizations; Boston Stock Exchange Clearing 
Corporation; Order Approving Proposed Rule Change To Clarify Liability 
and Clearing Agency Services

February 23, 2004.

I. Introduction

    On May 29, 2003, the Boston Stock Exchange Clearing Corporation 
(``BSECC'') filed with the Securities and Exchange Commission 
(``Commission'') proposed rule change SR-BSECC-2003-01 pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ 
On July 21, 2003, August 25, 2003, and September 12, 2003, BSECC 
amended the proposed rule change. Notice of the proposal was published 
in the Federal Register on January 13, 2004.\2\ No comment letters were 
received. For the reasons discussed below, the Commission is approving 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 49027 (January 6, 2004), 
69 FR 2027.
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II. Description

    The purpose of the proposed rule change is to delete or amend 
certain sections of the BSECC Rules to clarify BSECC's liability and 
clearing agency services.
    BSECC is seeking to make several changes to its Rules as they 
pertain to BSECC's liability in order to maintain a consistent approach 
with the Boston Stock Exchange's (``BSE'') recently approved proposed 
rule change clarifying BSE's liability with respect to its members' 
contractual obligations.\3\ These changes being made by BSECC:
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    \3\ The Commission approved a companion proposed rule change 
filed by the Boston Stock Exchange to amend various Articles of its 
Constitution and sections of its Rules to clarify the liability of 
the exchange with respect to its members' contractual obligations. 
Securities Exchange Act Release No. 49304 (February 23, 2004), [File 
No. SR-BSE-2002-06].
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    (1) Clarify in Rule II, Section 1, that BSECC's clearing fund is to 
make good losses suffered by BSECC without the losses of its members 
having priority;
    (2) Eliminate a provision in Rule II, Section 5(e), which allows 
the retained earnings of BSECC to be used to satisfy any loss or 
liability resulting from a BSECC member's default;
    (3) Eliminate language in Rule III, Section 3(a), stating that 
BSECC guarantees settlement of all trades executed on the floor of BSE; 
\4\
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    \4\ BSE guarantees exchange trades until they are accepted by 
the National Securities Clearing Corporation.
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    (4) Amend Rule III, Section 3(e), to make BSECC loans to members to 
complete settlement with the National Securities Clearing Corporation 
(``NSCC'') discretionary, not automatic. The current automatic loan 
provision is inconsistent with the purpose of the proposed rule change 
that members will be solely liable for their transactions and that 
BSECC is not the ultimate guarantor for its members;
    (5) Amend Rule XI, Section 3, to increase the maximum fine for any 
offense of BSECC Rules from $1,000 to $5,000 and increase from $5,000 
to $30,000 the amount that fines imposed in the last six months must 
exceed before BSECC is required to give the member notice of its right 
to appeal; and
    (6) Strengthen BSECC's indemnification clause found in Rule XII, 
Section 6, by stating that each member will remain ``solely 
responsible'' and liable for its transactions; The proposed rule change 
also deletes all references to Boston Representative Broker/Dealer 
Accounts, BSE Service Corporation, and Institutional Members. Such 
references are no longer applicable as they relate to services or lines 
of business in which BSECC is no longer involved. Also, BSECC has in 
various places added references to NSCC due to the merger of NSCC and 
The Depository Trust Company.
    BSECC is not making these amendments in response to any recent or 
perceived action by any of its members. Rather, BSECC is seeking to 
clarify, by eliminating inconsistencies and providing succinct 
language, and to enhance its position which it holds with respect to 
liability on the part of its members.

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 the clearing agency or 
for which it is responsible.\5\ The Commission finds that BSECC's 
proposed rule change is consistent with this requirement because it 
will clarify and enhance BSECC's Rules so that it can better protect 
itself and its members from the risk of default.
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    \5\ 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 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-BSECC-2003-01) be and hereby 
is approved.

    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. 04-4433 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P