[Federal Register Volume 61, Number 213 (Friday, November 1, 1996)]
[Notices]
[Page 56591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28000]
[[Page 56591]]
[Release No. 34-37870; File No. SR-GSCC-96-08]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Order Approving a Proposed Rule Change Relating to
Repurchase Agreement Netting Service
October 25, 1996.
On August 1, 1996, the Government Securities Clearing Corporation
(``GSCC'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change (File No. SR-GSCC-96-08)
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'').1 On August 9, 1996, GSCC filed an amendment to the
proposed rule change.2 Notice of the proposal was published in the
Federal Register on September 12, 1996.3 No comment letters were
received. For the reasons discussed below, the Commission is granting
approval of the proposed rule change.
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\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\2\ Letter from Jeffrey F. Ingber, General Counsel and
Secretary, GSCC, to Christine Sibille, Senior Counsel, Division of
Market Regulation, Commission (August 6, 1996).
\3\ Securities Exchange Act Release No. 37647 (September 5,
1996), 61 FR 48189.
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I. Description
The proposed rule change permits GSCC to reimburse interdealer
broker netting members (``IDBs'') for two costs related to their
participation in GSCC's netting system for repurchase and reverse
repurchase transactions (``repo'') involving government securities as
the underlying instruments.4 Currently, IDB and non-IDB netting
members may submit data on brokered repos to GSCC for clearance and
settlement. GSCC compares, nets, and settles repo close legs and repo
start legs submitted prior to start date (i.e., non-same-day-settling
start legs).
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\4\ Earlier this year, the Commission approved a proposed rule
change filed by GSCC which provided for participation by IDBs in
GSCC's repo netting system. Securities Exchange Act Release No.
37482 (July 25, 1996), 61 FR 40275.
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Because GSCC currently does not settle intraday start legs, the
parties to brokered repos assume the responsibility for the settlement
of such legs outside of GSCC. As a result, IDBs will incur clearance
charges for the settlement of intraday start legs of brokered
repos.5 Under the proposed rule change, GSCC will absorb IDBs'
clearance charges related to the settlement of intraday repo start
legs, up to a dollar amount deemed reasonable by it.
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\5\ Clearance charges are costs charged by clearing agent banks
to their broker-dealer customers related to the settlement of
securities movements obligations. Clearance charges may include both
fixed charges and pass through charges such as the costs of Fedwire.
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In addition, IDBs may incur overnight financing costs resulting
from securities delivered too late in the day to redeliver before the
close of Fedwire.6 In such instances, GSCC will reimburse this
cost to the IDB if the cost was incurred unavoidably and without fault
by the IDB. GSCC will only absorb such charges up to a dollar amount
deemed reasonable by it.
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\6\ Overnight financing costs are costs charged by clearing
agent banks to their broker-dealer customers related to the
financing by banks of securities held from one business day until
the next business day in customers' clearing accounts.
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In certain circumstances, these cost reimbursements also will be
available to a division or separate operating unit within a dealer
netting member. To be eligible, such division or unit must operate in
an overall manner as a broker and must abide by the requirements
imposed on IDBs that participate in the repo netting process.
II. Discussion
Section 17A(b)(3)(F) 7 of the Act requires that the rules of a
clearing agency be designed to remove impediments to and to perfect the
mechanism of a national clearance and settlement system. Although GSCC
provided for participation by IDBs in its repo netting system earlier
this year, IDBs, like all other GSCC repo netting members, must assume
the responsibility for the settlement of intraday start legs outside of
GSCC. By providing a method whereby IDBs can use in an economic fashion
the facilities of GSCC to settle their brokered repos, the proposal
should encourage IDBs to submit their repo transactions to GSCC. As a
result, more repos should be settled through the facilities of a
registered securities clearing agency (i.e., GSCC) which should,
consistent with the requirements of Section 17A(b)(3)(F), further the
establishment of a national clearance and settlement system.
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\7\ 15 U.S.C. Sec. 78q-1(b)(3)(F) (1988).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular 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 change (File No. SR-GSCC-96-08) be and hereby is
approved.
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) (1996).
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Margaret H. MacFarland,
Deputy Secretary.
[FR Doc. 96-28000 Filed 10-31-96; 8:45 am]
BILLING CODE 8010-01-M
