[Federal Register Volume 60, Number 202 (Thursday, October 19, 1995)]
[Notices]
[Pages 54094-54098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25930]
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[[Page 54095]]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36367; File No. SR-DGOC-94-06]
Self-Regulatory Organization; Delta Government Options Corp.;
Order Approving Implementation of New Procedures Allowing for the
Clearance and Settlement of Repurchase Transactions and Reverse
Repurchase Transactions
October 13, 1995.
On October 31, 1994, Delta Government Options Corp. (``DGOC'')
submitted a proposed rule change (File No. SR-DGOC-94-06) to the
Securities and Exchange Commission (``Commission'') pursuant to Section
19(b) of the Securities Exchange Act of 1934 (``Act'') \1\ to permit
DGOC to implement a new system to clear and settle repurchase
agreements (``repos'') transactions and reverse repurchase agreements
(``reverse repos'') transactions. On December 19, 1994, January 10,
1995, January 24, 1995, February 13, 1995, and March 3, 1995, DGOC
filed amendments to the proposed rule change.\2\ Notice of the proposal
appeared in the Federal Register on March 21, 1995, to solicit comment
from interested persons.\3\ On July 12, 1995, and on August 9, 1995,
DGOC filed technical amendments to the proposed rule change.\4\ The
Commission received two comment letters from one commenter.\5\ For the
reasons and subject to the conditions discussed below, the Commission
is approving the proposed rule change.
\1\ 15 U.S.C. 78s(b)(1988).
\2\ Letters from: Barry E. Silverman, President, DGOC, to Jerry
W. Carpenter, Assistant Director, Office of Securities Processing
Regulation (``OSPR''), Division of Market Regulation (``Division''),
Commission (December 16, 1994); Barry E. Silverman, President, DGOC,
to Jerry W. Carpenter, Assistant Director, OSPR, Division,
Commission (January 9, 1995); Kathryn V. Natale, Morgan, Lewis &
Bockius, to Jerry W. Carpenter, Assistant Director, OSPR, Division,
Commission, (January 20, 1995); Kathryn V. Natale, Morgan, Lewis &
Bockius, to Jerry W. Carpenter, Assistant Director, OSPR, Division,
Commission (February 10, 1995); and Barry E. Silverman, President,
DGOC, to Christine M. Sibille, Senior Counsel, OSPR, Division,
Commission (March 2, 1995).
\3\ Securities Exchange Act Release No. 35491 (March 15, 1995),
60 FR 14987.
\4\ See, e.g., notes 16 and 24. Letter from Kathryn V. Natale,
Morgan, Lewis & Bockius, to Jerry W. Carpenter, Assistant Director,
OSPR, Division, Commission (July 12, 1995) and letter from Kathryn
V. Natale, Morgan, Lewis & Bockius, to Christine M. Sibille, Senior
Counsel, OSPR, Division, Commission (August 8, 1995). These
amendments were technical amendments that did not require
republication of notice.
\5\ Letters from Jeffrey Ingber, General Counsel and Secretary,
Government Securities Clearing Corporation (``GSCC''), to Jerry W.
Carpenter, Assistant Director, OSPR, Division, Commission (June 5,
1995 [``June 5 GSCC letter'']) and July 19, 1995 [``July 19 GSCC
letter'']).
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I. Description of the Proposal
The proposed rule change establishes a trade matching clearance and
settlement system for repos and reverse repos in U.S. Treasury
Securities that will be offered to DGOC participants. Repo system
participants must be approved by DGOC's executive committee,\6\ which
will assign to each participant a maximum potential system exposure
(``MPSE'') limit \7\ and a trading limit \8\ and may assign a
participant a position limit for a particular CUSIP.\9\
\6\ The standards for participation are similar to the standards
for participation in DGOC's options clearance system. For example,
broker-dealer members must have minimum net capital of $25 million,
and bank or insurance company members must have total equity
capitalization of $500 million.
\7\ A participant's MPSE is the sum of the participant's net
exposure from repo and reverse repo positions and the net short
position in options as offset by the net long position in options,
all as adjusted to reflect a six standard deviation movement in the
market price of the underlying treasury securities, minus the total
margin placed on deposit with DGOC by that participant and margin
funds due and owing from such participant at or before the immediate
succeeding settlement time. If the MPSE for a participant exceeds
its MPSE limit, the participant must deposit additional margin equal
to the excess.
DGOC also establishes a total systemic MPSE is the sum of each
participant's individual MPSE and is intended to represent the
maximum loss DGOC could incur. The total systemic MPSE may not
exceed one-third of the letters of credit or surety bonds that DGOC
has in place to secure payments in event of participant default
(``credit enhancement facility''). Currently, the credit enhancement
facility totals $100 million with an additional $50 million in
stand-by credit. Before the repo system becomes operational, DGOC
will increase its credit enhancement facility to $250 million with
$50 million in stand-by credit.
\8\ The trading limit will represent DGOC's maximum credit
exposure from a participant based on the sum of potential changes (a
three standard deviation movement over two days) in a participant's
positions that have not been covered by margin on deposit.
\9\ If a position limit is exceeded, DGOC may prevent a
participant from opening new positions or may require a participant
to reduce its outstanding positions.
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DGOC's system will clear repo and reverse repo transactions that
result from direct agreements between two participants and repo and
reverse repo transactions that have been agreed to through the
facilities of brokers that have been specially authorized by DGOC
(``Authorized Brokers'') to offer their services to DGOC
participants.\10\ Participants may submit to DGOC for clearance only
those repos and reverse repos that were entered into as principals with
other DGOC repo system participants or Authorized Brokers and may not
submit repos or reverse repos executed with or for their customers.
\10\ Currently, Liberty Brokerage, Inc. and RMJ Special
Brokerage Inc. are Authorized Brokers. DGOC will file with the
Commission a proposed rule change pursuant to Section 19(b)(3)(A) of
the Act prior to the addition of each new Authorized Broker. Such
rule filing will include a needs assessment addressing the liquidity
and operational demands that the increase in the volume of repos and
reverse repos to be cleared through DGOC as a result of the new
Authorized Broker will make on DGOC's system and the resources that
DGOC has to meet the new demands. Letter from Robert Mendelson,
Morgan, Lewis & Bockius, to Jonathan Kallman, Associate Director,
Division, Commission (September 19, 1995).
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DGOC's rules do not purport to govern trading conventions of
Authorized Brokers which will use their own communications networks for
the purpose of accepting bids and offers and effecting repo and reverse
repo transactions that will be cleared through DGOC. After the repo or
reverse repo has been executed, the Authorized Broker then will prepare
either one trade report, representing both sides of the transaction, or
two trade reports, one for each side of the transaction.\11\ The
Authorized Broker then will forward the trade report or reports to
DGOC. If two participants entered into a repo transaction directly
between themselves, each participant will forward a trade report to
DGOC indicating its side of the transaction.\12\ If DGOC does not
receive a trade report from one of the parties to the transaction, DGOC
will contact that party within one half-hour to confirm the trade
entered against them.
\11\ Whether the Authorized Broker prepares one trade report or
two trade reports is determined by the Authorized Broker's internal
procedures and not by any procedure of DGOC.
\12\ Pursuant to DGOC's rules, a participant must provide a
trade report to DGOC within one half-hour of the time that the
transaction occurs if the transaction occurs prior to 1:30 p.m. If
the transaction occurs between 1:30 p.m. and 2:15 p.m., a
participant must deliver a trade report to DGOC within five minutes
of the transaction. If the transaction occurs after 2:15 p.m., a
participant must deliver a trade report to DGOC as soon as possible
but in no event later than five minutes after the transaction. With
respect to transactions for settlement on another day, a trade
report must be delivered to DGOC by 6:00 p.m. of the trade date.
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The trade report must show for each transaction (a) the identity of
the reporting party and the contraparty, (b) the type of transaction,
(c) the CUSIP number for the underlying collateral, (d) the repo rate
for the transaction, (e) the par amount of securities for the total
transaction, (f) the par amount of securities for each delivery and the
associated money, (g) the trade date and time, and (h) the on-date and
the off=date of the transaction.\13\ DGOC will
[[Page 54096]]
review all trade reports to determine if all required information has
been submitted and if their contents are valid.
\13\ On-date is the settlement date for the first leg of the
repo or reverse repo transaction (i.e., the date the holder of a
repo delivers the securities against delivery by the holder of the
corresponding reverse repo of payment for such securities). The off-
date is the settlement date for the closing leg of the repo or
reverse repo transaction (i.e., the date the holder of a repo
receives back its securities in exchange for payment to the holder
of the corresponding reverse repo).
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If two separate trade reports are received for a transaction, DGOC
will match the two trade reports. In order to be accepted for
clearance, the details of the trade reports must agree. If the details
do not match, DGOC will return the trade reports to the sending party
or parties until all the terms are reconciled. Matching of transactions
will be done continuously throughout the day and at the close of each
trading day.\14\ All trade reports received through an Authorized
Broker also will be confirmed by DGOC either orally or via facsimile
with the buying and selling participants.
\14\ The close of each trading day will be at 2:30 p.m.
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DGOC will be deemed to have accepted a transaction for clearance
when DGOC has matched and verified all the information on the trade
report(s). However, DGOC will reject any transaction if it causes a
participant to exceed its trading or position limits, if the
participant has been suspended from the system, or if the transaction
is not designated as delivery versus payment. If the transaction is
accepted, DGOC will interpose itself as the contraparty to both sides
of the transaction. DGOC then will determine if either party must post
additional margin as a result of the transaction. Each day participants
will receive a written activity report indicating which trades DGOC
accepted the previous business day and all trades due to settle that
day.\15\
\15\ If the on-leg is scheduled to settle on the trade date,
participants will not receive confirmation that DGOC has accepted
the trade until the day after the on-leg has settled.
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DGOC will net trades under two circumstances. If a participant has
a repo and a reverse repo with the same underlying collateral and same
on-date or off-date,\16\ the settlement positions will be netted as to
par amount, price, and accrued interest. If a participant renews a
maturing repo or reverse repo for the same underlying collateral prior
to the off-date for such repo, DGOC will report to the participant the
net money difference between the two repo transactions, and the deliver
and receive obligations will be netted.
\16\ The notice of the proposed rule change stated that only
off-date settlements would be netted. The July 12, 1995, amendment
provides that on-date settlements also will be netted.
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The details of the trade will be sent to DGOC's clearing bank \17\
along with delivery instructions. Each participant must maintain a bank
account in one or more correspondent banks for margin and trade
settlements. Because U.S. Treasury securities typically are maintained
in book-entry accounts at Federal Reserve Banks and are delivered
through the Federal Reserve System's Fed Wire system, the selected
correspondent bank must be a depository institution with access to the
Fed Wire system.
\17\ The clearing bank is the commercial bank that performs the
clearance and settlement of repos and reverse repos.
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DGOC will establish delivery cut-off times. For example, in the
case of opening repurchase transactions the selling participant must
deliver the securities to DGOC's clearing bank against payment no later
than one minute prior to the close of the Fed Wire system on the
settlement day.\18\ DGOC's clearing bank will redeliver such securities
to the purchasing participant against payment.
\18\ Any delivery made by a selling participant after the one
minute prior to the close of the Fed Wire System will be accepted on
a best efforts basis, and DGOC will return the collateral to the
selling participant if DGOC is unable to delivery to the purchasing
participant in good delivery time. DGOC must deliver to the
purchasing participant prior to the normal close of the Fed Wire
system unless the purchasing participant agrees to accept late
delivery.
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If the selling participant fails to delivery the securities on the
settlement day by one minute prior to the close of the Fed Wire system,
DGOC has the option to buy-in the securities with the cost of such buy-
in being charged to the defaulting selling participant. If DGOC decides
to buy-in a defaulting selling participant, DGOC will give the
participant written notice of the buy-in which will describe the
security, quantity, and price.
If the purchasing participant does not accept all of the securities
on the settlement day by one half-hour after the close of the Fed Wire
system, DGOC may sell-out the securities with the cost of such sell-out
being charged to the defaulting purchasing participant. After the sell-
out, DGOC will give the participant written notice of the sell-out
which will describe the security, quantity, and the selling price.
DGOC will adapt its existing margining methodology for its options
system to incorporate repo transaction and reverse repo transaction
exposures. The amount of margin a participant must deposit will be
derived from two calculations: Mark-to-market and performance
margin.\19\ Margin will be calculated every business day based on the
difference between the aggregate net price of all repos and reverse
repos and the net value of those positions including the repo interest
obligation, at the time margin is calculated.\20\ Mark-to-market will
represent the net amount of the estimated cost to liquidate a
participant's under-margined positions offset by the estimated proceeds
from liquidation of its over-margined positions. Performance margin
will represent an estimate of the net shortfall from the liquidation of
a participant's repo positions at the close of the next business day
assuming an adverse market movement of three standard deviations based
on the last one hundred days closing prices of the underlying Treasury
securities.\21\
\19\ This is a separate obligation from a participant's
obligation to deposit additional margin if its exceeds its MPSE
limit.
\20\ The value of the underlying collateral will be based on an
industry accepted source of U.S. Treasury prices. The value of the
repo is based on repo broker prices where available and if repo
broker prices are not available on a survey of five dealers.
\21\ In order to calculate performance margin, each repo is
classified in one of nine sectors based on the maturity date of the
underlying collateral. Margin is calculated in each sector based on
assumptions of an increase and a decrease in security price. A
participant must deposit margin based on the sum of the worst case
(either a rise or a decline in value) from each sector. In contrast,
when calculating the MPSE, DGOC assumes either a rise in value or a
decline in value for all positions.
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Prior to 8:00 a.m. of each business day, each participant will be
issued a daily margin report which will indicate the participant's
margin surplus or deficit. At or before settlement time on each
business day, each participant will be obligated to deposit sufficient
margin to satisfy the margin deficit shown on the daily report.\22\
Margin may be deposited in the form of ``Central Bank funds'' \23\ or
Treasury bills.\24\ Treasury bills will be valued at 95% of their
market value. All participants will be required to maintain a minimum
margin deposit of $1 million par amount of Treasury bills with a
maturity of not greater than 180 days.
\22\ Excess margin deposits will be released to the
participant's correspondent bank within six hours after settlement
time.
\23\ Central Bank Funds is defined as cash balances available
for immediate withdrawal in accounts maintained at banks that are
members of the Federal Reserve System or any other wire system
operated in a similar fashion or possessing similar characteristics
or attributes.
\24\ The notice of the proposed rule change stated that DGOC
would accept Treasury notes and Treasury bonds as margin. The August
9, 1995, amendment clarified that these securities will not be
accepted for margin purposes.
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In the event of a failure to deliver securities on either the on-
leg or off-leg where DGOC does not buy-in the
[[Page 54097]]
participant's securities, DGOC will still calculate and if appropriate
collect margin deposits from one or both of the parties to the
transaction. DGOC also may elect to collect intraday margin if DGOC
deems such collection necessary or advisable to reflect a market price
change, the size of the participant's positions, the financial or
operational condition of the participant, or otherwise to protect DGOC.
II. Comments
The Commission received two comment letters from one commenter
opposing the proposal.\25\ This commenter argues that DGOC's services
will adversely affect the safety and soundness of the repo marketplace,
will pose risks to the commenter's members that use DGOC's services in
ways that the commenter cannot control, and may irreparably harm the
potential for effective servicing of the marketplace through efficient
linkages.\26\ DGOC responded, asserting that the commenter has made
inaccurate assumptions about DGOC's proposed system,\27\ and that the
public benefits are substantial.\28\
\25\ Supra note 5.
\26\ Specifically, GSCC asserts that: (1) DGOC's manual
comparison process will create inefficiencies; (2) DGOC has
insufficient capacity for the large repo market; (3) DGOC has
insufficient financial strength; (4) DGOC's privately-held corporate
structure makes it unresponsive to the industry; (5) DGOC's
margining system does not pass credits to participants or pay
interest on mark-to-market debits; (6) DGOC's system will bifurcate
the netting and risk management process for Treasury Securities; and
(7) DGOC's filing does not discuss the impact on the national
system.
\27\ Letter from Barry E. Silverman, President, DGOC, and Steven
K. Lynner, President, RMJ, to Jerry W. Carpenter, Assistant
Director, OSPR, Division, Commission (July 7, 1995).
\28\ DGOC asserts that its comparison process, like GSCC's
process, relies on same day batch processing with delivery of
reports indicating the confirmations on a next business day basis.
DGOC asserts it has sufficient capacity and expertise to handle the
repo market based on its experience in options on Treasury
Securities gained during the last five years. DGOC believes that its
systems are designed to handle any capacity and vulnerability issues
that may arise and that its established infrastructure and expertise
are suited to conducting clearance, netting, and settlement in the
repo market. DGOC believes that it has sufficient financial strength
to operate its proposed repo system based on its credit enhancement
facility and margining system. DGOC states that even though its
corporate structure is for profit, it is still responsive to the
industry. For example, DGOC met with many industry members during
the development of its repo system.
DGOC believes that its proposed repo system would have a
positive effect on the national clearance and settlement system by
providing a centralized clearance and settlement facility for repos
and reverse repos where government securities are the underlying
collateral. DGOC believes that its system will reduce credit risk
exposure, decrease capital utilization, reduce transaction flow, and
impose efficiency in the marketplace. DGOC also believes that
additional systemic benefits will be derived through its imposition
of daily margin requirements which will enhance probability of
performance on the part of participants and through its netting
which will result in the optimal use of collateral. DGOC also states
that by acting as the common counterparty to all repo and reverse
repo transactions submitted to it for clearance and settlement, its
system will provide additional transparency and access to capital
markets.
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III. Discussion
Section 17A(a)(2)(A) of the Act directs the Commission to
facilitate the establishment of a national system for the clearance and
settlement of securities transactions.\29\ Section 17A(b) (3) (F)
requires that the rules of the clearing agency be designed to promote
the prompt and accurate clearance and settlement of securities
transactions and to assure the safeguarding of securities and funds
which are in the custody or control of the clearing agency or for which
it is responsible.\30\ For the reasons set forth below, the Commission
believes DGOC's system for the clearance and settlement of repo and
reverse repo transactions meets these requirements. As a result, the
Commission is approving DGOC's proposed rule change implementing such
system.
\29\ 15 U.S.C. 78q-1(a)(2)(A) (1988).
\30\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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The Commission believes that DGOC's proposed repo clearance system
will assist in the development of the national clearance and settlement
system by providing a centralizing mechanism for transactions that are
currently cleared and settled outside the facilities of a registered
clearing agency. These trades may well benefit from DGOC's margining
and netting systems and other risk reduction procedures which should
decrease the likelihood of failure to settle.\31\ Furthermore, repo
transactions executed with an Authorized Broker will be submitted
directly to DGOC by the Authorized Brokers. This should result in
increased efficiency connected with the clearance and settlement of
repo transactions by eliminating the need for the broker-dealer
contraparty to enter transaction data with DGOC.\32\ The Commission
therefore believes that DGOC's system with the conditions and
limitations set forth above is consistent with the purposes of Section
17A of the Act.
\31\ The Commission notes that DGOC's netting system is limited
in scope. For example, at this time DGOC does not net deliver and
receive obligations from options transactions with deliver and
receive obligations from repos.
\32\ It is important to note that participants are not required
to settle all trades through DGOC. Instead, only trades entered into
through screens designated for that purpose are submitted directly
to DGOC.
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The one adverse commenter argues that DGOC's system does not have
sufficient capacity and that its manual comparison processes are
inefficient. While it is true that DGOC's system is not as fully
automated as some other clearance and settlement systems, the
Commission has reviewed capacity tests provided by DGOC that indicate
that DGOC has sufficient capacity to function appropriately.
Furthermore, DGOC has agreed that it will conduct a needs
assessment and an evaluation of liquidity sources and operational
capacity upon reaching an average of $10, $20, and $30 billion of
outstanding principal amount of repos and reverse repos over a ten day
moving period with on time spikes of $25, $35, and $45 billion,
respectively. DGOC will provide the Commission with its findings of
each of its reviews.\33\ When DGOC reaches the $30 billion threshold,
it will file a proposed rule change pursuant to Section 19(b)(2) of the
Act.\34\ It is anticipated that the proposed rule change will request
either an increase in DGOC's volume limitations or removal of all
volume limitations. The proposed rule change will give the Commission
the opportunity to revisit DGOC's systems capacity, operation
capability, and liquidity sources. During the Commission's review of
DGOC's proposed rule change, the principal amount of outstanding repos
and reverse repos in DGOC's system over a ten day moving period may
reach but not exceed an average of $45 billion. Based on these
limitations, the Commission believes that DGOC has the capacity to
facilitate the prompt and accurate clearance and settlement of repo
transactions in a safe and sound manner.
\33\ Letter from Robert Mendelson, Morgan, Lewis & Bockius, to
Jonathan Kallman, Associate Director, Division, Commission
(September 19, 1995). DGOC also has agreed to provide semiannual
reports on the experiences its has with fails and defaults and
liquidity facility usages.
\34\ The proposed rule changes will incorporate DGOC's needs
assessments and evaluation of liquidity resources and operational
capacity undertaken when the system reached the $30 billion
threshold. Letter from Barry E. Silverman, President, DGOC, to Larry
E. Bergmann, Associate Director, Division, and Jonathan Kallman,
Associate Director, Division, Commission (October 10, 1995).
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The commenter believes that the absence of a clearing fund results
in DGOC having insufficient financial strength. At the time of DGOC's
initial registration as a clearing agency, the Commission considered
whether the absence of a clearing fund created unnecessary financial
risks.\35\ The Commission determined that, at least initially, DGOC's
credit analysis of participants, participant monitoring, margin
requirements, credit enhancement facilities, and MPSE limits
[[Page 54098]]
provided sufficient safeguards and liquidity to allow DGOC's system to
begin operations. The Commission continues to believe that when coupled
with DGOC's commitment to reevaluate its systems and controls at
various volume levels, DGOC's risk reduction and monitoring procedures
are designed to provide adequate protection from the risks presented by
the clearance and settlement of repos and reverse repos.
\35\ Securities Exchange Act Release No. 26450 (January 12,
1989), 54 FR 2010.
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The commenter further argues that DGOC's organization as a
corporation without a user governed board results in DGOC being less
responsive to industry concerns. The Act does not prohibit for profit
corporations from serving as clearing agencies. In fact, the Division's
release outlining its standards for clearing agencies notes that the
clearing agencies then in existence included profit making
entities.\36\ However, the Division in that release stated that
notwithstanding a clearing agency's corporate structure, a clearing
agency must provide for fair representation by its participants in the
selection of its directors and administration of its affairs. In the
first order granting DGOC temporary registration, the Commission found
that DGOC was providing representation to its participants in the
administration of its affairs through the use of a participants
advisory committee.\37\ However, the Commission recently has been
informed that DGOC does not have a participants advisory committee for
its options system as required by its rules and by the first order
granting DGOC temporary registration.\38\ DGOC has represented that in
order to provide representation to its repo and reverse repo
participants, a participants advisory committee for its repo system
will be established.\39\ The Commission believes that the establishment
of such a committee will result in DGOC being responsive to industry
concerns consistent with the purposes of the Act. The Commission
intends to review the representation provided DGOC's repo and reverse
repo participants in connection with any proposed rule filing DGOC
should submit requesting an increase or elimination of its volume
limitations.
\36\ Securities Exchange Act Release No. 16900 (June 17, 1980),
45 FR 41290.
\37\ Securities Exchange Act Release No. 26450 (January 12,
1989), 54 FR 2010. The Commission found, however, that DGOC had not
met the standard for fair representation in the selection of
directors. DGOC is currently operating under a temporary exemption
from such requirement.
\38\ Letter from Laura R. Silvers, Attorney, Morgan, Lewis &
Bockius, to Christine Sibille, Senior Counsel, and Michele Bianco,
Staff Attorney, OSPR, Division, Commission (September 20, 1995).
\39\ DGOC will provide the Commission with a report on the
Participants Committee six months following approval of this
proposed rule change. Meeting between Robert Mendelson and Laura
Silvers, Morgan, Lewis & Bockius; Barry Silverman, DGOC; Michael
Spencer and Declan Kelly, Intercapital Group, Ltd; and Jonathan
Kallman, Jerry Carpenter, Gordon Fuller, Christine Sibille, David
Turner, and Michele Bianco, Commission.
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GSCC also argues that DGOC's margining system is inadequate
because, unlike GSCC's system, credits are not passed through to
participants and interest is not paid on mark-to-market debits. The
Commission believes that different clearing agencies may decide to rely
on different types of margining systems, as long as the proposed system
provides adequate protection to the clearing agency and its
participants. The Commission believes that DGOC's margining system
provides sufficient protection consistent with DGOC's need to safeguard
securities and funds for which it is responsible by taking into account
both current and potential price changes in the underlying collateral.
DGOC has further protection through imposition of trading limits and
MPSE limits. The Commission therefore believes that DGOC's margining
system provides adequate protection from the risks presented by the
clearance and settlement of repos and reverse repos.
IV. Conclusion
For the reasons stated above, the Commission finds that DGOC's
proposal is consistent with Section 17A of the Act.\40\
\40\ 15 U.S.C. 78q-1 (1988).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (File No. SR-DGOC-94-06) be, the
hereby is, approved.
\41\ 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.\42\
\42\ 17 C.F.R. 200.30-3(a)(12)(1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-25930 Filed 10-18-95; 8:45 am]
BILLING CODE 8010-01-M
