[Federal Register Volume 69, Number 162 (Monday, August 23, 2004)]
[Notices]
[Pages 51872-51873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19247]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50202; File No. SR-EMCC-2004-12]


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Relating to Processing Transactions in 
Ineligible Instruments

August 16, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 2, 2004, the 
Emerging Markets Clearing Corporation (``EMCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I and II below, which Items have been 
prepared primarily by EMCC. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval.
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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

    The proposed rule change will amend EMCC Rule 3, Section 1 (Lists 
to be Maintained) to specify that EMCC will no longer process 
transactions in ineligible instruments where transactions in such 
ineligible instruments were accepted by EMCC at a time when the 
instruments were eligible instruments.

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

    In its filing with the Commission, EMCC 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. EMCC has prepared summaries, set forth in sections A, B, 
and C below, of the most significant aspects of such statements.

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 eliminate the risk to 
EMCC and its members posed by the processing of value recovery rights, 
also known as warrant transactions, because EMCC cannot obtain accurate 
prices of such instruments.\2\
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    \2\ As part of the margining process, EMCC marks to market all 
open positions. When warrants traded at zero value as part of the 
associated bond deal, this did not present a problem. However, when 
warrants are detached and trade at value, which they occasionally 
do, the zero mark is not appropriate. Due to the lack of readily 
available prices for the warrants, this component of margining 
cannot be accurately measured and, thus, presents risk to EMCC and 
ultimately its members.
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    Prior to this rule change, EMCC Rule 3, Section 1 provided that 
transactions in instruments that became ineligible but were currently 
in the system would continue to be processed and would be deemed to be 
transactions in EMCC eligible instruments. EMCC is changing this rule 
to specify that it will no longer continue to process transactions in 
ineligible instruments, will exit pending transactions in ineligible 
instruments from its system, and will issue receive and deliver 
instructions by naming members as contra-parties to such instructions. 
However, the legal obligations of the parties to such instructions will 
continue to be subject to EMCC's rules even though such instruments 
will no longer settle at EMCC. Finally, EMCC will net all open fail 
warrant positions before exiting the positions. These net positions 
will be assigned to members on a random basis in quantities that meet 
Euroclear delivery requirements.
    EMCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder 
because eliminating unsettled warrant positions will eliminate risks 
that EMCC can no longer effectively manage.

B. Self-Regulatory Organizations Statement on Burden on Competition

    EMCC does not believe that the proposed rule change will have an 
impact on or impose a burden on competition.

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

    No written comments relating to the proposed rule change have been 
solicited or received. EMCC will notify the Commission of any written 
comments it receives.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder and particularly with the requirements of Section 
17A(b)(3)(F) \3\ of the Act, which requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in its custody or control. By eliminating the risk 
posed by EMCC's inability to accurately mark to market its 
participants' open warrant positions, the proposed rule change will 
enhance EMCC's ability to safeguard the securities and funds which are 
in its custody or control.
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    \3\ 15 U.S.C. 78q-1(b)(3)(F).
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    EMCC has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after the date of publication of notice of filing because by so 
approving EMCC will be able to expeditiously eliminate the risk posed 
by unsettled warrant instruments that compromises its ability to 
safeguard the securities and funds that are in its custody or control.

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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-EMCC-2004-12 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-EMCC-2004-12. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will

[[Page 51873]]

post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 
EMCC's principal office and on EMCC's Web site at http://www.e-m-c-c.com. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
EMCC-2004-12 and should be submitted on or before September 13, 2004.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-EMCC-2004-12) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-19247 Filed 8-20-04; 8:45 am]
BILLING CODE 8010-01-P