[Federal Register Volume 61, Number 209 (Monday, October 28, 1996)]
[Notices]
[Pages 55678-55679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-27610]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37851; File Nos. SR-MCC-96-04; SR-MSTC-96-04]
Self-Regulatory Organizations; Midwest Clearing Corporation;
Midwest Securities Trust Company; Order Approving Proposed Rule Changes
Relating to Nominations for Board Membership, the Risk Assessment
Committees, Appeals Process, Audits and Financial Reports, and
Temporary Sponsored Participants and Accounts
October 22, 1996.
I. Introduction
On June 26, 1996, the Midwest Clearing Corporation (``MCC'') and
Midwest Securities Trust Company (``MSTC'') submitted to the Securities
and Exchange Commission (``SEC'' or ``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\
proposed rule changes (SR-MCC-96-04 and SR-MSTC-96-04) to amend certain
rules in response to MSTC's withdrawal from the securities dispository
business and MCC's withdrawal from the securities clearance and
settlement business.
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\1\ 15 U.S.c. 78s(b)(1) (1988).
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The proposed rule changes were published for comment in the Federal
Register on August 20, 1996, to solicit comments from interested
persons.\2\ No comments were received on the proposed rule changes. For
the reasons discussed below, the Commission is approving the proposed
rule changes.
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\2\ Securities Exchange Act Release No. 37555 (August 9, 1996),
61 FR 43105.
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II. Description of the Proposals
On December 26, 1995, MSTC and MCC filed proposed rule changes
relating to MSTC's withdrawal from the securities depository business
and MCC's withdrawal from the securities clearance and settlement
business.\3\ Subsequent to the Commission's approval of the filings,
MSTC commenced and orderly wind-down of its operations and a transition
of all of its participants to other service provides, and MCC ceased
operations for all of its participants except its Sponsored
Participants.
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\3\ For a complete discussion of MCC's and MSTC's withdrawal
from the clearing and depository businesses, refer to Securities
Exchange Act Release No. 36684 (January 5, 1996), 61 FR 1195 (File
Nos. SR-CHX-95-27, SR-DTC-95-22, SR-MCC-95-4, SR-MSTC-95-10, and
NSCC-95-15), (order approving MCC's and MSTC`s withdrawal from the
clearance and settlement and securities depository businesses).
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In connection with the withdrawal from the clearance, settlement,
and depository businesses, MSTC and MCC are amending their By-Laws to
eliminate the requirement that they provide participants with
information relating to the nomination and election of board
members.\4\ Additionally, MSTC and MCC are deleting the provisions in
their rules relating to their respective Risk Assessment Committee.\5\
Because of the elimination of the Risk Assessment Committees, MSTC and
MCC are amending their respective rules to eliminate the requirement
that MSTC and MCC consult with the Risk Assessment Committee before
ceasing to act for a participant and to replace subsequent references
to the Risk Assessment Committee with references to a panel of board
members.
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\4\ MSTC is amending Article III, Section 2 of its By-Laws, and
MCC is amending Article 3, Section 3.2 of its By-Laws.
\5\ MSTC is deleting Article I, Rule 4 and amending Article V,
Rule 2. MCC is deleting Article I, Rule 4 and amending Article VIII.
Rule 2.
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MSTC and MCC are amending their respective appeal processes to
conform their appeal procedure to similar procedures currently used by
the Chicago Stock Exchange (``CHX'') for emergency suspensions.
Specifically, the amendments eliminate a second level of internal
appeals and adjust some of the time periods set forth in the rules.\6\
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\6\ MSTC is amending Article VII, Rule 8, Section 3 and deleting
Section 5, and MCC is amending Article X, Rule 8, Section 3 and
deleting Section 5.
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MSTC and MCC are deleting their respective rules relating to audits
and financial reports, such as the production of independent financial
statements or internal accounting controls.\7\
[[Page 55679]]
Additionally, MSTC and MCC are deleting their respective rules relating
to Temporary Sponsored Participants and Accounts.\8\
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\7\ MSTC is deleting Article VII, Rule 5, and MCC is deleting
Article X, Rule 5.
\8\ MSTC is Article VIII, Rules 1 through 5, and MCC is amending
Article XI, Rules 1, 2(a), 2(b), 2(c), 3(a), 3(b), 3(c), 5(d), 7(a)
through 7(e), 7(g), 7(i), 10(a), 11(a), 11(d)(3) through 11(d)(6),
and 11(e) through 11(i) and deleting Rules 5(c), 7(f), and 7(h).
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MSTC and MCC believe that the rule changes are consistent with
Section 17A \9\ of the Act because the amendments will facilitate the
prompt and accurate clearance and settlement of securities transactions
and are designed to assure the safeguarding of securities and funds
which are in their control or for which they are responsible.
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\9\ 15 U.S.C. 78q-1 (1988).
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III. Discussion
Section 17A(b)(3)(F) of the Act \10\ requires that the rules of a
clearing agency be designed to remove impediments to and perfect the
national system for the clearance and settlement of securities
transactions. The Commission believes that MSTC's and MCC's By-law
amendments in response to MSTC's withdrawal from the securities
depository business and MCC's withdrawal from the securities clearance
and settlement business are consistent with their obligations under
Section 17A(b)(3)(F) of the Act. Specifically, eliminating rules
relating to nominations for board membership, the Risk Assessment
Committee, the appeals process, audits and financial reports, and
Temporary Sponsored Participants and Accounts, will eliminate
duplicative and obsolete rules without any substantive effect.
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\10\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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The Commission believes that MSTC's and MCC's amendments to their
By-Laws to eliminate the requirement that participants receive
information relating to the nomination and election of board members
should remove rules that are currently obsolete in light of MSTC's and
MCC's withdrawal from the securities depository business and securities
clearance and settlement businesses. Specifically, because MSTC no
longer has any active participants, it is no longer appropriate to
require MSTC to provide participants with information relating to the
nomination and election of board members. Additionally, membership in
the CHX is a prerequisite to being accepted by MCC as a Sponsored
Participant. Therefore, all of MCC's Sponsored Participants are CHX
members, and as CHX members, MCC's Sponsored Participants receive
information relating to the nomination and election of the CHX board of
governors pursuant to CHX rules.
The Commission believes that it is appropriate for MSTC and MCC to
delete the provisions in their rules relating to their respective Risk
Assessment Committees. Specifically, in light of MSTC's withdrawal from
the securities depository business and MCC's withdrawal from the
securities clearance and settlement business, it is no longer necessary
to maintain a Risk Assessment Committee that serves as an appellate
review board and independent consultant to management.
Because MSTC has no members and because all MCC participants are
also required to be CHX floor members, the Commission believes that it
is appropriate for MSTC and MCC to amend their respective ceasing to
act appeal processes to conform to similar procedures currently used by
the CHX for emergency suspensions. Additionally, all MCC participants
would still be subject to the CHX's rules regarding emergency
suspensions.
The Commission believes that eliminating MSTC's and MCC's
respective rules relating to audits and financial reports, and
Temporary Sponsored Participants and Accounts is consistent with the
Act because, in light of MSTC's and MCC's withdrawal from the
securities depository business and securities clearance and settlement
business, it is no longer necessary to produce independent financial
statements or maintain internal accounting controls. For example,
currently, there are no internal operations at MSTC, and MCC no longer
maintains independent positions of securities. MCC merely acts as a
conduit for Sponsored Participants to enable them to hold their
positions at the National Securities Clearing Corporation. As a result,
it is no longer necessary to produce independent financial statements
or maintain internal accounting controls. Additionally, MSTC's and
MCC's financial statements would still be reflected as part of the
consolidated annual audited financials of their parent, the CHX.
IV. Conclusion
On the basis of the foregoing, the Commission finds that MSTC's and
MCC's proposed rule changes are consistent with the requirements of the
Act and in particular with Section 17A of the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule changes (File Nos. SR-MSTC-96-04 and SR-MCC-96-
04) be, and hereby are, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-27610 Filed 10-25-96; 8:45 am]
BILLING CODE 8010-01-M
