[Federal Register Volume 62, Number 194 (Tuesday, October 7, 1997)]
[Notices]
[Pages 52368-52369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26520]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39174; File No. SR-DCC-97-11]
Self-Regulatory Organizations; Delta Clearing Corp.; Notice of
Filing and Order Granting Accelerated, Temporary Approval of a Proposed
Rule Change Relating to Margin Requirements for Repurchase Agreements
September 30, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 16, 1997, Delta
Clearing Corp. (``DCC'') filed with the Securities and Exchange
Commission (``Commission'') and on September 24, 1997, amended the
proposed rule change (File No. SR-DCC-97-11) as described in Items I
and II below, which items have been primarily prepared by DCC. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons and to grant accelerated
approval of the proposed rule change through March 31, 1998.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The purpose of the proposed rule change is to extend the temporary
approval for DCC's rules regarding the collection of margin for
overnight repurchase and reverse repurchase agreements (``overnight
repos'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DCC included statements
concerning the purpose of and basis for the proposed rule change and
any comments received by DCC on the proposed rule change.
The text of these statements may be examined at the places
specified in Item IV below. DCC has prepared summaries, set forth in
sections (A), (B), and (C) below, of the most significant aspects of
such statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by DCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
DCC seeks an extension of the temporary approval of its rules
relating to the collection of margin for overnight repos. On April 2,
1997, the Commission granted approval of DCC's overnight repo margining
rules through September 30, 1997.\3\
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\3\ Securities Exchange Act Release No. 38471 (April 2, 1997),
62 FR 17257.
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Prior to the proposed rule change, DCC calculated each
participant's margin requirement for all repos, including overnight
repos, at the end of each business day and required margin to be
deposited by 11:00 a.m. the next business day. DCC does not believe
that this procedure is appropriate for overnight repos because
overnight repos terminate on the following day. As a result, DCC
amended its procedures for calculating and collecting margin for
overnight repos.\4\
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\4\ See id. for a detailed description of the proposal.
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These procedures require each participant which engages in
overnight repos to deposit with DCC as core margin either $1 million or
a greater amount as determined by DCC at the end of each week based
upon the participant's daily overnight repo exposures during the eight
prior weeks.\5\ If DCC determines as a result of any weekly calculation
that a participant is required to maintain a higher core margin amount
on deposit with DCC, DCC will notify the participant of such higher
core margin requirement by 3:00 p.m. on the date of the calculation,
and the participant is required to deposit by 11:00 a.m. on the
following business day margin whose value equals or exceeds the
participant's additional margin requirement. Such deposit must be in
cash or U.S. Treasury securities.
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\5\ Overnight repos are defined as repo agreements whose off-
date is the immediately succeeding business day following the on-
date for such transactions. Term repos are defined as repos
agreements whose off-date is two or more business days following the
on-date for such transactions.
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In addition to the weekly calculation described above, DCC
calculates on each business day each participant's mark-to-market
exposure from overnight repos. If a participant's exposure from
overnight repos exceeds 65 percent of the participant's core margin
requirement, DCC requires the participant to deposit additional margin
equal to the amount of such excess. Such additional margin must be
[[Page 52369]]
deposited with DCC no later than 5:00 p.m. on the applicable business
day. If additional margin is required, DCC may apply towards a
participant's exposures on overnight repos excess margin maintained by
the participant with DCC which is not then being used to collateralize
other margin obligations to DCC. However, DCC may not apply a
participant's core margin amount maintained with DCC towards other
margin obligations to DCC arising from options transactions or term
repros.
In connection with the proposed rule change, DCC agreed that during
the temporary approval period it will submit to the Commission on a
monthly basis reports detailing the operation of the new margining
system for overnight repos. DCC instituted the new margining system on
July 1, 1997, and has been providing reports to the Commission since
that time. In response to a request from the Commission, DCC has
amended the format of the report to provide additional information to
the Commission. The first report incorporating the revised format was
filed by DCC with the Commission in September 1997.
DCC believes the proposed extension of the temporary approval of
the proposed rule change is consistent with the requirements of Section
17A of the Act \6\ and the rules and regulations promulgated thereunder
because the proposed rule change will better enable DCC to safeguard
the funds and securities under its possession and control by amending
DCC's procedures to assure that it has adequate collateral to address a
participant's default or insolvency.
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\6\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition
DCC does not believe that the proposed rule change will impact or
impose a burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) \7\ of the Act requires that the rules of a
clearing agency be designed 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. The Commission believes that DCC's
proposed rule change is consistent with DCC's obligations under the Act
because the proposal establishes: (1) a minimum core margin requirement
to reflect DCC's exposure to each participant's overnight repo activity
and (2) an intraday margin requirement that is triggered if a
participant's mark-to-market exposure is valued at more than 65 percent
of the core requirement. Therefore, the Commission believes that the
proposal should provide to DCC margin in an amount that will assist DCC
in meeting its obligation to safeguard securities and funds.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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Currently, DCC has operated its new margining system for only three
months. Therefore, the Commission believes that it is appropriate to
extend temporary approval of the proposal in order that the Commission
and DCC will have opportunity to further monitor the effectiveness of
the new system in practice. Accordingly, the Commission is temporarily
approving the proposed rule change through March 31, 1998. During this
temporary approval period, DCC should continue to submit on a monthly
basis reports detailing its analysis of its overnight repo margining
system.
DCC has requested that the Commission find good cause for approving
the proposed rule change prior to the thirtieth day after the date of
publication of notice of the filing. The Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
the date of publication of notice of filing because accelerated
approval will allow DCC to continue to use its overnight repo margining
procedures without interruption when the current temporary approval
period expires on September 30, 1997.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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 in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of DCC. All
submissions should refer to the File No. SR-DCC-97-11 and should be
submitted by October 28, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DCC-97-11) be, and hereby
is, approved through March 31, 1998.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-26520 Filed 10-6-97; 8:45 am]
BILLING CODE 8010-01-M
