[Federal Register Volume 65, Number 9 (Thursday, January 13, 2000)]
[Notices]
[Pages 2218-2220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-782]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42320; File No. SR-SCCP-99-04]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Temporary Approval of a Proposed Rule Change
Relating to the Extention of the Stock Clearing Corporation of
Philadelphia's Restructured Business
January 6, 2000.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 22, 1999, the
Stock Clearing Corporation of Philadelphia (``SCCP'') 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 SCCP. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Under the proposed rule change, SCCP will continue to provide
limited clearance and settlement service for an additional year period
through December 31, 2000.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, PHLX 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. PHLX has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\2\
---------------------------------------------------------------------------
\2\ The Commission has modified the text of the summaries
prepared by SCCP.
---------------------------------------------------------------------------
A. SCCP's Statement of the Purpose of and Statutory Basis for the
Proposed Rule Change
SCCP proposes to extend for a one year period through December 31,
2000, its ability to provide limited clearance and settlement services.
Specifically, SCCP seeks to continue to provide trade confirmation and
recording services for members of PHLX effecting transactions through
Regional Interface Operations (``RIO'') and ex-clearing accounts. SCCP
will continue to provide an interface between its floor members,
specialists, and the National Securities Clearing Corporation
(``NSCC''). SCCP will also continue to provide margin services to: (i)
PHLX equity specialists for their specialists and alternate specialists
transactions and for proprietary transactions in securities for which
they are not appointed as specialists of alternate specialists and (ii)
PHLX members listed on the schedule, discussed below, who are not PHLX
equity specialists for proprietary transactions. SCCP may add other
PHLX members to the above referenced schedule subject to NSCC's
approval pursuant to its agreement with NSCC and the prior proposed
rule change, as discussed below. The clearing services to be conducted
by SCCP continue to be through an omnibus account that SCCP maintains
at NSCC for such purpose; such services do not include the maintenance
or offering of Continuous Net Settlement (``CNS'') accounts for its
participants.
[[Page 2219]]
Background
In an agreement dated June 18, 1997, (``Agreement'') among the
Philadelphia Stock Exchange (``PHLX''), SCCP, Philadelphia Depository
Trust Company (``Philadep''), NSCC, and The Depository Trust Company
(``DTC''), Philadep and SCCP agreed to certain provisions, including:
(i) Philadep would cease providing securities depository services; (ii)
SCCP would make available to its participants access to the facilities
of one or more other organizations providing depository services; (iii)
SCCP would make available to SCCP participants access to the facilities
of one or more other organizations providing securities clearing
services; and (iv) SCCP would transfer to the books of such other
organizations the CNS system open positions of SCCP participants on the
books of SCCP.
On December 11, 1997, the Commission issued an order related to the
Agreement which reflected Philadep's withdrawal from the depository
business and reflected SCCP's restructured and limited clearance and
settlement business.\3\ The approval order stated that:
---------------------------------------------------------------------------
\3\ Securities Exchange Act Release No. 39444 (Dec. 11, 1997),
63 FR 66703 [File Nos. SR-DTC-97-16, SR-NSCC-97-08, SR-Philadep-97-
04, SR-SCCP-97-04].
[B]ecause 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, or
---------------------------------------------------------------------------
Procedures through December 31, 1998.
In December 1998, the Commission granted a one year extension of
such approval allowing SCCP to continue offering its restructured and
limited clearance and settlement services.\4\
---------------------------------------------------------------------------
\4\ Securities Exchange Act Release No. 34-40872, File No. SR-
SCCP-98-05, Dec. 31, 1998 (``continuation of limited clearance and
settlement services'').
---------------------------------------------------------------------------
SCCP proposes an additional one year extension of the approval of
its restructured and limited clearing and settlement services. SCCP
believes that its restructured operations have functioned consistently
with the existing order, and SCCP will continue to evaluate whether any
adjustments are necessary.
Purpose
As stated above, SCCP will continue to offer limited clearing and
settlement services to PHLX members as well as trade confirmation and
recording services for PHLX members effecting transactions through RIO
and ex-clearing accounts. In the original rule change 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 extend the effectiveness of
SCCP's restructured business.
Pursuant to Rule 9, SCCP may continue to provide margin accounts
for its margin members that clear and settle their transactions through
SCCP's omnibus clearance and settlement account.\5\ SCCP may continue
to demand at any time that a margin member provide additional margin
based upon SCCP's review of such margin member's security positions
held by SCCP. SCCP will retain the margin thresholds as specified in
its Procedures and may require adequate assurances of additional margin
in addition to the minimum margin 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.
---------------------------------------------------------------------------
\5\ The definition of ``margin member'' in Rule 1 continues to
reflect those PHLX floor firms entitled to clear through a SCCP
margin account.
---------------------------------------------------------------------------
SCCP may continue to issue margin calls to any margin member when
the margin requirement exceeds the account equity.\6\ SCCP may waive
any margin call not exceeding $500. Any failure to meet a margin call
shall subject such delinquent margin member to Rule 22, Disciplinary
Proceedings and Penalties. SCCP may cease to act for such delinquent
margin members and may retain a lien on all such margin members'
accounts and securities therein.
---------------------------------------------------------------------------
\6\ ``Account equity'' is defined in SCCP Rule 1.
---------------------------------------------------------------------------
SCCP will continue to maintain records on each individual margin
account. SCCP will continue to maintain the omnibus clearance and
settlement account 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 will continue to guarantee SCCP's obligations to
NSCC.
SCCP's book and records for the omnibus clearance and settlement
account will continue to reflect all activity that occurs in such
account at NSCC and DTC. At any time prior to midnight (Philadelphia
time) on the next business day after SCCP receives a margin member's
trade, SCCP will continue to be entitled to reverse the trade from the
margin member's account. SCCP will continue to settle the omnibus
clearance and settlement account with NSCC each business day in
accordance with NSCC's rules and procedures. Accordingly, SCCP will
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 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 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 will continue to
utilize the Direct Clearing Service to settle these transactions. SCCP
will continue to perform bookkeeping and reconciliation services for
the omnibus clearance and settlement account and its related DTC
custody account pursuant to SCCP Procedures.
In accordance with NSCC's participants fund formulae, SCCP, as a
NSCC participant and sponsored participant of DTC, will continue to be
required to provide NSCC and DTC with participants fund contribution.
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 a RIO account, depending
upon monthly trading activity. Participants engaging in more than one
account type activity would continue to be subject only to the formula
that would generate the highest contribution. Furthermore, SCCP's
participants fund will continue to be governed by SCCP Rule 4.
Statutory Basis
SCCP believes the extension of the Commission's temporary approval
to permit SCCP's continued operation of its restructured and limited
clearance and settlement services is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to SCCP
and in particular with Section 17A(b)(3)(F) which requires that a
clearing agency be
[[Page 2220]]
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 the extension 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, consistent with
the aforementioned provisions of the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
SCCP does not believe that this extension will impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act.
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 with respect
to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) of the Act \7\ requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. Based on the
information the Commission has to date, the Commission believes that
SCCP's restructured operations have functioned satisfactorily under
actual working conditions to provide prompt and accurate clearance and
settlement. During the upcoming temporary approval period, the
Commission will review with SCCP in further detail SCCP's restructured
operations.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78q-(b)(3)(F).
---------------------------------------------------------------------------
SCCP has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after
publication of the notice of filing. The Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
the publication of notice of the filing. By approving prior to the
thirtieth day after publication of notice, the Commission will be
approving the continuation of SCCP's restructured clearing operation as
soon as practicable after the previous temporary approval expired on
December 31, 1999.
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.
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 the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of SCCP.
All submissions should refer to File No. SR-SCCP-99-04 and should be
submitted by February 3, 2000.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-SCCP-99-04), be, and hereby
is, approved on an accelerated basis through December 31, 2000.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
---------------------------------------------------------------------------
\8\ 17 CFR 200.3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-782 Filed 1-12-00; 8:45 am]
BILLING CODE 8010-01-M
