[Federal Register Volume 61, Number 236 (Friday, December 6, 1996)]
[Notices]
[Pages 64778-64779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31084]
[[Page 64778]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37996; File No. SR-GSCC-96-11]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change To Extend the Maximum Term for Next-Day and
Forward Settling Repurchase and Reverse Repurchase Agreements
November 27, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 9, 1996, the
Government Securities Clearing Corporation (`'GSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-GSCC-96-11) as described in Items I and II below,
which Items have been prepared primarily by GSCC. The Commission is
publishing this notice and order to solicit comments from interested
persons and to grant accelerated approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
GSCC proposes to amend the eligibility requirements for its netting
services to include next-day and forward settling repurchase and
reverse repurchase agreements (``repos'') with terms that do not exceed
360 calendar days. Under GSCC's current rules, only repos with terms
that do not exceed 195 calendar days are eligible for netting services.
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
In its rule change filing implementing netting and risk management
services for repos, GSCC added a number of provisions to its Rule 11,
including the requirements that a repo must meet in order to be
eligible for netting services.\3\ One such requirement is that the
number of calendar days between the scheduled settlement date for the
close leg and the business day on which the data on the trade is
submitted is not greater than the ``maximum number of Business Days
established by the Corporation for such purpose and published in a
schedule made available to Members, unless the Board determines a
different timeframe to be appropriate * * *.'' \4\
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\3\ Securities Exchange Act Release No. 36491 (November 17,
1995), 60 FR 61577 [File No. SR-GSCC-95-02] (order approving
proposed rule change implementing netting services for the non-same-
day-settling aspects of repo transactions).
\4\ GSCC Rule 11, Section 2(i).
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In the above mentioned filing, GSCC initially proposed that the
maximum number of days between scheduled settlement and data submission
should be no more than 364 calendar days.\5\ After discussion with
Commission staff, GSCC revised its rule filing to limit the maximum
number of days allowable between scheduled settlement and data
submission to 195 calendar days.\6\ Until recently, the maximum
permitted term for repos as set forth in GSCC's schedule was 180
calendar days.
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\5\ Letter from Jeffrey F. Ingber, General Counsel and
Secretary, GSCC, to Jerry W. Carpenter, Assistant Director, Division
of Market Regulation (``Division''), Commission (July 28, 1995).
\6\ Letter from Jeffrey F. Ingber, General Counsel and
Secretary, GSCC, to Christine Sibille, Special Counsel, Division,
Commission (September 14, 1995).
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In response to rising repo volumes and at the request of GSCC's
members, GSCC proposes to extend the maximum allowable number of
calendar days that a repo term may span and still be eligible for
netting services to 360 calendar days. According to GSCC, its members
will benefit from the inclusion of longer-term repos in its netting
service because the inclusion of more repo transactions into the net
should reduce costs as well as clearance and settlement risks.
The decision to extend the allowable repo term was made following
evaluation of GSCC's risk management procedures that pertain to repo
transactions. These procedures have been employed since November 1995
when repos were first included in GSCC's netting service. This period
of analysis has enabled GSCC to conclude that the risk management
procedures currently in place are sufficient to hedge against any
exposure created by longer repo terms. Nevertheless, GSCC will continue
to monitor and evaluate all aspects of repo netting services.
GSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \7\ and the rules and
regulations promulgated thereunder because it promotes the prompt and
accurate clearance and settlement of securities transactions and
safeguards securities and funds in GSCC's custody or control.
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\7\ 15 U.S.C. 78q-1 (1988).
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(B) Self-Regulatory Organization's Statement on 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 received. Members will be notified of the rule change filing, and
comments will be solicited by an important notice to members. GSCC will
notify the Commission of any written comments received by GSCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) of the Act \8\ requires that the rules of a
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. The
Commission believes that the proposed rule change is consistent with
GSCC's obligations under the Act because the proposal permits GSCC to
provide the benefits of centralized, automated settlement to a border
segment of repo's involving government securities.
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\8\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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As stated in previous orders, the Commission believes that GSCC has
put into place adequate risk management procedures to limit the
settlement risk associated with repo transactions.\9\ The Commission
believes that GSCC has adequately analyzed the application of these
risk management procedures to the risks associated with longer term
repo transactions and therefore will be able to adequately safeguard
itself and its participants from the risks associated
[[Page 64779]]
with the inclusion of longer term repo transactions in the netting
system.
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\9\ See, e.g., Securities Exchange Act Release No. 36491, supra
note 3.
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GSCC 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 the filing because
accelerated approval will allow GSCC to immediately expand its netting
services to include repos with terms between 196 and 360 calendar days.
This will permit more participants that conduct repo transactions to
benefit from the positive effects of netting. Furthermore, the
Commission has not received any comment letters and does not expect to
receive any comment letters on the proposal.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549.
Copies of the submissions, 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 Room, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such filings will also be available for
inspection and copying at the principal office of GSCC. All submissions
should refer to the file number SR-GSCC-96-11 and should be submitted
by December 27, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (File No. SR-GSCC-96-11) be, and
hereby is, approved on an accelerated basis.
\10\ 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.\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. 96-31084 Filed 12-5-96; 8:45 am]
BILLING CODE 8010-01-M
