[Federal Register Volume 61, Number 246 (Friday, December 20, 1996)]
[Notices]
[Pages 67371-67372]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32335]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38048; File No. SR-GSCC-96-13]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Relating to the
Eligibility of Treasury Inflation Protection Securities for Netting
Services
December 13, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 21, 1996, the
Government Securities Clearing Corporation (``GSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II, and III below, which items have
been prepared primarily by GSCC. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 789s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change will make the U.S. Department of
Treasury's Treasury Inflation Protection Security eligible for
clearance and settlement at GSCC.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, GSCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. GSCC 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 GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to make the Treasury
Inflation Protection Security eligible for clearance and settlement at
GSCC. The Treasury Inflation Protection Security is a marketable, book-
entry inflation protection security that is being issued by the
Department of the Treasury,\3\ GSCC believes that in order to maximize
the desirability of the Treasury Inflation Protection Security from a
trading perspective and to ensure that their introduction does not
result in any increased clearance and settlement risk for the
marketplace, GSCC should be able to compare, net, and settle these
securities. Therefore, GSCC is planning to make the Treasury Inflation
Protection Security eligible for its netting process prior to the U.S.
Department of Treasury's first auction of the Treasury Inflation
Protection Security, which is scheduled for the January 1997 auction of
the ten-year note. Other maturities will be issued later.
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\3\ The Department of Treasury has proposed amendments to 31 CFR
Part 356 (Uniform Offering Circular for the Sale and Issue of
Marketable Book-Entry Treasury Bills, Notes, and Bonds) to
accommodate the issuance of the Treasury Inflation Protection
Security. Department of Treasury Circular, Public Debt Service No.
1-93 (September 23, 1966), 61 FR 50924 (September 27, 1996).
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The Treasury Inflation Protection Security provides inflation
protection by adjusting semiannually the principal amount of investors'
holdings by multiplying the stated value at issuance (i.e., par amount)
by an index ratio. The applicable index will be the U.S. City Average
All Items Consumer Price Index for All Urban Consumers (``CPI'')
published by the Bureau of Labor Statistics of the U.S. Department of
Labor. The Treasury Inflation Protection Security will be redeemed at
maturity at the greater of its inflation adjusted principal or its par
amount.
The Treasury Inflation Protection Security will be issued with a
stated fixed rate of interest based on the rate determined at auction.
Although the interest rate is fixed, because the interest rate is paid
on a varying amount of principal, the coupon payments will also be
variable. This will be the first time that GSCC has made a variable-
rate security eligible for netting.
For GSCC to process the Treasury Inflation Protection Security, the
following enhancements must be made to GSCC's automated system.
1. Creation and maintenance of a database of historical CPI
indexes. This data is necessary for determining accrued interest, which
is used in valuing positions for settlement purposes and for forward
margin and clearing fund calculations.
2. Modification of the security database to permit GSCC to
designate the Treasury Inflation Protection Security as a variable rate
security.
3. Modifications to participant input and output formats to take
into account different and additional data elements.
After these enhancements have been made, GSCC plans to test with
GSCC members before ``going live'' with the new service in order to
ensure that participants are able to properly provide and receive data
regarding transactions in these new securities.
GSCC worked with the Public Securities Association to determine a
uniformly acceptable method for the industry to reflect the inflation
index in the calculation of final money on Treasury Inflation
Protection Security transactions. Consistent with these discussions,
participants will submit transactions using a price that has not been
adjusted for inflation. GSCC will compare and report transactions based
on its Final Settlement Money formula. Final Settlement Money will
equal the original par value multiplied by the CPI index ratio
multiplied by the unadjusted price plus the inflation adjusted accrued
interest. Inflation adjusted accrued interest will equal the original
par value multiplied by the inflation ratio multiplied by the CPI index
ratio multiplied by the interest rate multiplied by the term.
GSCC believes that the proposed rule change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act \4\ and the rules and
regulations thereunder because it is designed to promote the prompt and
accurate clearance and settlement of securities transactions.
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\4\ 15 U.S.C. 78q-1(b) (3) (F).
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(B) Self-Regulatory Organization's Statement of Burden on Competition
GSCC does not believe that the proposed rule change will have an
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
Written comments relating to the proposed rule change have not yet
been solicited or received. Members will be notified of the rule change
filing, and comments will be solicited by an important notice. GSCC
will notify the
[[Page 67372]]
Commission of any written comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which GSCC consents, the Commission will:
(A) By order approve such proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Room, 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 GSCC. All
submissions should refer to the file number SR-GSCC-96-13 and should be
submitted by January 13, 1997.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-32335 Filed 12-19-96; 8:45 am]
BILLING CODE 8010-01-M
