[Federal Register Volume 59, Number 20 (Monday, January 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-2011]
[[Page Unknown]]
[Federal Register: January 31, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33516; File No. SR-MBS-93-02]
Self-Regulatory Organizations; MBS Clearing Corp.; Order
Approving Proposed Rule Change Relating to Minimum Capital Requirements
of Broker Applicants for Membership
January 24, 1994.
On March 3, 1993, the MBS Clearing Corporation (``MBS'') filed with
the Securities and Exchange Commission (``Commission'') a proposed rule
change (File No. SR-MBS-93-02) pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ On August 12, 1993, MBS
filed Amendment No. 1 to the proposed rule change (``Amendment No.
1'').\2\ The proposed rule change amends MBS's rules concerning the
minimum capital requirements for membership of broker applicants. The
Commission published notice of the proposed rule change, as amended, in
the Federal Register on December 10, 1993.\3\ No comments 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) (1988).
\2\Letter from George T. Simon, Foley & Lardner, to Jack Drogin,
Branch Chief, Division of Market Regulation, Commission (August 12,
1993). See also letter from David T. Rusoff, Foley & Lardner, to Ari
Burstein, Attorney, Division of Market Regulation, Commission
(September 29, 1993). Amendment No. 1 changes the basis for
determining the new broker applicant capital requirements from
``total capital and allowable subordinated liabilities'' as set
forth in the original rule filing to ``net capital.''
\3\Securities Exchange Act Release No. 33273 (December 2, 1993),
58 FR 64989.
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I. Description
The proposed rule change amends the minimum capital requirements
for membership of broker applicants to bring the minimum capital
requirements more in line with the levels of risk posed by different
types of participants. Under the proposed rule change, in order for a
broker applicant to become a participant, it will be required to have
net capital (as determined in accordance with Securities Exchange Act
Rule 15c3-1\4\ or in accordance with the Government Securities Act of
1986 (``GSA'')\5\ of not less than $5,000,000.
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\4\17 CFR 240.15c3-1.
Rule 15c3-1 establishes the net capital requirements for brokers
and dealers. To determine net capital, Rule 15c3-1 requires a broker
or a dealer to deduct from net worth, as computed in accordance with
generally accepted accounting principles, assets not readily
convertible into cash, including most unsecured receivables, and
then add to net worth subordinated liabilities. A broker or a dealer
also must deduct certain percentages from the securities and
commodities positions that it carries in its proprietary account.
\5\Pub. L. 99-571, 100 Stat. 3208 (1986).
Participants in the secondary market for U.S. government
securities are regulated under the authority of the GSA, which
brought all government securities brokers and dealers under federal
supervision. A government securities broker or dealer is an entity,
including a financial institution, that acts as a broker or dealer
of government securities. The term ``registered government
securities broker or dealer'' means a broker or dealer conducting a
business exclusively in government and other exempted securities
(excluding municipal securities and that is registered pursuant to
section 15C(a)(1)(A) of the Act. Joint Report on the Government
Securities Market, January 1992.
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II. Discussion
The Commission believes that MBS's proposed rule change is
consistent with section 17A(b)(3) (A) and (F) of the Act\6\ in that it
will promote the safeguarding of securities and funds in the custody or
control of MBS, or for which it is responsible. The Commission believes
that MBS's new minimum capital requirement is both a sufficient and
appropriate amount to require of broker applicants for membership. The
required net capital (as determined in accordance with Securities
Exchange Act Rule 15c3-1 or in accordance with the Government
Securities Act of 1986) of not less than $5,000,000 provides an
adequate level of protection to the clearing corporation in the event
of the broker's insolvency. In addition, the requirement is consistent
with the minimum capital requirements for admission imposed by other
clearing agencies.\7\
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\6\15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
\7\See Rules of the Participants Trust Company, Article IV, Rule
1, Section 3(a)(i)(B) (qualifications and duties of participants)
and Securities Exchange Act Release No. 32722 (August 5, 1993), 58
FR 42993 (establishing new categories of membership in the netting
system at the Government Securities Clearing Corporation).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the Act, and in particular with
section 17A of the Act, and with the rules and regulations thereunder.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-MBS-93-02) be, and
hereby is, approved.
\8\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-2011 Filed 1-28-94; 8:45 am]
BILLING CODE 8010-01-M
