[Federal Register Volume 59, Number 200 (Tuesday, October 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-25729]
[[Page Unknown]]
[Federal Register: October 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34827; File No. SR-GSCC-94-06]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Order Approving Proposed Rule Change Modifying the Trade
Reporting Requirements for Category 2 Inter-Dealer Broker Netting
Members
October 12, 1994.
On July 5, 1994, the Government Securities Clearing Corporation
(``GSCC'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change (File No. SR-GSCC-94-06)
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'').\1\ The proposed rule change modifies GSCC's rules concerning
the trade reporting requirements for category 2 inter-dealer broker
netting members (``IDBs''). The Commission published notice of the
proposed rule change in the Federal Register on August 17, 1994.\2\ 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\Securities Exchange Act Release No. 34511 (August 10, 1994),
59 FR 42319.
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I. Description
The proposed rule change modifies GSCC's rules concerning the trade
reporting requirements for category 2 IDBs. In particular, the proposal
revises Rule 15, Section 3 of GSCC's rules concerning special
provisions for IDBs was established by GSCC in 1993 in order to permit
qualifying IDBs to engage in up to ten percent of their trading
activity in eligible securities with non-netting members.\3\ Each
category 2 IDB must act exclusively as a broker, and at least ninety
percent of its business, based on the overall dollar volume of next day
and forward settlement activity in eligible netting securities over the
most recent twenty day period, must be with netting members.\4\
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\3\The Commission approved category 2 IDBs in Securities
Exchange Act Release No. 32722 (August 12, 1993), 58 FR 42993.
\4\For a temporary period established by GSCC's Board of
Directors, the term netting members is defined to include certain
specifically designated grandfathered non-netting member firms that
currently have IDB screen access. This temporarily will allow
category 2 IDBs to trade with nonmember dealers that historically
have had access to the IDBs' screens. An IDB's trading activity with
granfathered dealers will not be included for purposes of
determining when an IDB meets the ten percent scope of business
limitation.
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In order to monitor compliance with their scope of business
requirements, GSCC's rules currently require each category 2 IDB to
provide GSCC in writing with a list of all of the legal entities that
it acts on behalf of and promptly inform GSCC of any change to such
list. Each category 2 IDB also is required to submit to GSCC on each
business day all of its next day and forward settling trades in
eligible netting securities, including trades with non-grandfathered
non-members, and must indicate the buy and sell side of each
transaction.
GSCC's rules do not, however, expressly require that a category 2
IDB provide to GSCC for every trade done involving an eligible netting
security the identity of each buy side and sell side counterparty. The
proposed rule change expressly requires each category 2 IDB to disclose
to GSCC the identity of each buy side and sell side counterparty for
every trade done, including trades done with non-members, involving an
eligible netting security.\5\
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\5\Although the identity of each buy side and sell side
counterparty is known for trades done by category 1 IDBs, there is
no obligation in GSCC's rules imposing this disclosure requirement.
The proposed rule change therefore formalizes and expressly sets
forth this reporting obligation for category 1 IDBs.
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II. Discussion
The Commission believes that GSCC's proposed rule change is
consistent with Section 17A of the Act,\6\ and in particular, Sections
17A(b)(3) (A) and (F) of the Act.\7\ Sections 17A(b)(3) (A) and (F)
require, among other things, that a clearing agency and its rules be
designed to safeguard the securities and funds in its rules be designed
to safeguard the securities and funds in its possession or control or
for which it is responsible. The Commission believes that GSCC's
proposal to modify the trade reporting requirements for category 2 IDBs
is consistent with this obligation.
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\6\15 U.S.C. 78q-1 (1988).
\7\15 U.S.C. 78q-1(b)(3) (A) and (F) (1988).
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According to GSCC, requiring category 2 IDBs to provide the
identity of each buy side and sell side counterparty for every trade
done involving an eligible netting security is significant for risk
monitoring and surveillance purposes. The Commission agrees with GSCC
and believes that the proposal helps GSCC ensure that it can
appropriately monitor its existing netting members. By requiring each
category 2 IDB to disclose the identity of each buy side and sell side
counterparty, GSCC will be better able to understand and assess the
volume of and degree of concentration of trading done by a category 2
IDB with one or more specific non-members. This, in turn, should help
GSCC fulfill its safeguarding obligations.
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-GSCC-94-06) 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. 94-25729 Filed 10-17-94; 8:45 am]
BILLING CODE 8010-01-M
