[Federal Register Volume 69, Number 113 (Monday, June 14, 2004)]
[Notices]
[Page 33260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13129]



  Federal Register / Vol. 69, No. 113 / Monday, June 14, 2004 / 
Notices  

[[Page 33260]]


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DEPARTMENT OF THE TREASURY


Order Regarding the Collateral Registered Government Securities 
Brokers and Dealers Must Pledge When Borrowing Customer Securities

June 14, 2004.
    Title I of the Government Securities Act of 1986 \1\ (``GSA'') 
amended the Securities Exchange Act of 1934 (``Exchange Act'') by 
adding Sec.  15C, authorizing the Secretary of the Treasury 
(``Secretary'') to promulgate regulations concerning the financial 
responsibility, protection of customer securities and balances, 
recordkeeping and reporting of government securities brokers and 
dealers. Section 15C(a)(5) of the Exchange Act \2\ authorizes the 
Secretary, by rule or order, to conditionally or unconditionally exempt 
any government securities broker or dealer, or class of government 
securities brokers or dealers, from certain provisions under the GSA, 
or the rules thereunder, if the Secretary finds that such exemption is 
consistent with the public interest, the protection of investors, and 
the purposes of the Exchange Act.
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    \1\ Pub. L. 99-571, 100 Stat. 3208 (1986).
    \2\ 15 U.S.C. 78o-5(a)(5).
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    By this order, the Secretary will allow entities registered with 
the Securities and Exchange Commission (``SEC'') as specialized 
government securities brokers and dealers (``registered government 
securities brokers and dealers'') under Sec.  15C(a)(2) of the Exchange 
Act that borrow fully paid \3\ or excess-margin \4\ securities from 
customers to pledge a wider range of collateral than is permitted under 
paragraph (b)(3) of SEC Rule 15c3-3,\5\ as incorporated and modified by 
Sec.  403.4 of the GSA regulations.\6\
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    \3\ 17 CFR 403.4(b).
    \4\ 17 CFR 403.4(d).
    \5\ 17 CFR 240.15c3-3.
    \6\ 17 CFR 403.4.
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    As background, Title I of the GSA requires government securities 
brokers and dealers to comply with the rules prescribed by the 
Department of the Treasury (``Treasury,'' or ``We,'' or ``Us,'') under 
the GSA. Treasury has issued rules in 17 CFR, subchapter A, parts 400-
449. Among those rules is a rule for the protection of customer 
securities and balances (part 403). As issued by Treasury in 1987,\7\ 
part 403 adopted the SEC's customer protection rule, SEC Rule 15c3-
3,\8\ with certain modifications. At the same time we are issuing this 
order, we are also issuing a final rule amendment to Sec.  403.4 of the 
GSA regulations to allow for the expansion of collateral that 
registered government securities brokers and dealers may pledge when 
borrowing fully paid or excess-margin government securities from 
customers.
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    \7\ The GSA regulations were published as a final rule on July 
24, 1987 (52 FR 27910). Section 403.4 requires registered government 
securities brokers and dealers to comply with the requirements of 
SEC Rule 15c3-3 regarding reserves and custody of securities.
    \8\ On March 17, 2003, the SEC issued a final amendment to SEC 
Rule 15c3-3 to allow for the expansion of the collateral general 
purpose brokers and dealers may pledge when borrowing securities 
from customers. Securities and Exchange Act Release No. 34-47480 
(March 11, 2003), 68 FR 12780 (March 17, 2003). On April 22, 2003, 
the SEC issued by order the list of permissible categories of 
collateral that brokers and dealers may pledge under SEC Rule 15c3-
3. Securities and Exchange Act Release No. 47683, 68 FR 19864 (April 
22, 2003).
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    Section 403.4(e) allows the Secretary to designate by order other 
collateral as permissible, consistent with the ``public interest, the 
protection of investors, and the purposes of the Act, after giving 
consideration to the collateral's liquidity, volatility, market depth 
and location and the issuer's creditworthiness.''
    Accordingly, after giving consideration to the liquidity, 
volatility, market depth and location and the issuer's creditworthiness 
in connection with the following described types of collateral, we find 
an exemption to be consistent with the public interest, the protection 
of investors, and the purposes of the Act. The exemption will 
potentially increase liquidity in the government securities market and 
lower borrowing costs for registered government securities brokers and 
dealers, while maintaining the customer protection objectives of Sec.  
403.4.
    Therefore, it is ordered, pursuant to Sec.  15C(a)(5) of the 
Exchange Act, that registered government securities brokers and dealers 
may pledge, in accordance with all applicable conditions set forth 
below and in Sec.  403.4 of the GSA regulations, the following types of 
collateral (in addition to those permitted under paragraph (e) of Sec.  
403.4) when borrowing fully paid or excess-margin securities from 
customers:
    1. ``Government securities'' as defined in Sec.  3(a)(42)(A) and 
3(a)(42)(B) of the Exchange Act.
    2. ``Government securities'' as defined in Sec.  3(a)(42)(C) of the 
Exchange Act issued or guaranteed as to principal or interest by the 
following corporations: (i) The Federal Home Loan Mortgage Corporation, 
(ii) the Federal National Mortgage Association, (iii) the Student Loan 
Marketing Association, or (iv) the Financing Corporation.
    3. Securities issued by, or guaranteed as to principal and interest 
by, the following Multilateral Development Banks whose obligations are 
backed by the participating countries, including the U.S.: (i) The 
International Bank for Reconstruction and Development, (ii) the Inter-
American Development Bank, (iii) the Asian Development Bank, (iv) the 
African Development Bank, (v) the European Bank for Reconstruction and 
Development, and (vi) the International Finance Corporation.
    The categories of permissible collateral do not include securities 
that have no principal component (e.g., STRIPS).
    Registered government securities brokers and dealers that pledge 
any of the government securities set forth above must, in addition to 
the notice requirements contained in paragraph (b)(3) of SEC Rule 15c3-
3 as incorporated and modified by Sec.  403.4, include in the written 
agreement with the customer a notice that some of the securities being 
provided by the borrower as collateral under the agreement may not be 
guaranteed by the United States.

    Dated: May 24, 2004.
Brian C. Roseboro,
Under Secretary, Domestic Finance.
[FR Doc. 04-13129 Filed 6-10-04; 8:45 am]
BILLING CODE 4810-39-P