97-4232. Self-Regulatory Organizations; Government Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Interdealer Broker Repurchase Agreement Transactions  

  • [Federal Register Volume 62, Number 35 (Friday, February 21, 1997)]
    [Notices]
    [Pages 8068-8069]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-4232]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-38287; File No. SR-GSCC-96-12]
    
    
    Self-Regulatory Organizations; Government Securities Clearing 
    Corporation; Notice of Filing of a Proposed Rule Change Relating to 
    Interdealer Broker Repurchase Agreement Transactions
    
    February 13, 1997.
        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 (File No. SR-GSCC-96-12) as described in Items I, II, and III 
    below, which items have been prepared primarily by GSCC. On December 3, 
    1996, GSCC filed with the Commission an amendment to the proposed rule 
    change.\2\ 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. 78s(b)(1).
        \2\ Letter from Karen Walraven, Vice President and Associate 
    Counsel, GSCC (November 26, 1996).
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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 amend GSCC rules to 
    authorize GSCC to assess the clearing fund margin and mark-to-market 
    consequences of a brokered repurchase agreement transaction (``repro'') 
    that is uncompared on one side as if it were fully compared.
    
    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 that 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.\3\
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        \3\ The Commission has modified the text of the summaries 
    submitted by GSCC.
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    (A) Self-Regulatory Organization's Statement of the Purpose of, and 
    Statutory Basis for, the Proposed Rule Change
    
        Occasionally, an interdealer broker (``IDB'') and one of its non-
    IDB counterparties to a repo transaction submit to GSCC on a timely 
    basis the relevant data for a transaction, but the other non-IDB 
    counterparty fails to submit in a timely or accurate fashion data 
    related to the transaction. When this occurs, the IDB's trade with the 
    non-submitting counterparty will not compare and will not enter GSCC's 
    netting system. The corresponding side between the IDB and the 
    submitting counterparty will compare and will enter the net assuming 
    all comparison requirements have been met. As a result, the IDB will 
    not have offsetting compared and netted trades with its two 
    counterparties and will carry a net settlement position. Thus, the IDB 
    may incur clearing fund and mark-to-market (particularly forward 
    margin) assessments. Given the intermediary role of IDBs in the 
    marketplace and their more limited financial resources, GSCC believes 
    that its risk management process works best and most safely if IDBs are 
    netted out of their positions as intermediaries in brokered repo 
    transactions.
        To promote the overall risk management process, GSCC believes that 
    the clearing fund and the funds-only settlement consequences of any 
    trade that does not compare because of a non-IDB's failure to submit 
    data should fall on that non-IDB counterparty and not on the IDB. Thus, 
    GSCC proposes to amend Rule 19, which sets forth special provisions for 
    brokered repo transactions, by adding Section 3 to: (1) reaffirm the 
    obligation
    
    [[Page 8069]]
    
    of a non-IDB netting member to submit in a timely and accurate manner 
    to GSCC or to another registered or exempted clearing agency data on 
    all of its brokered repo transactions \4\ and (2) provide that if a 
    non-IDB member fails without good cause to submit data on a brokered 
    repo transaction in a timely or accurate basis, GSCC may treat the 
    transaction as compared based on the data submission received from the 
    counterparty IDB for purposes of assessing all clearing fund. Prior to 
    GSCC's assessing clearing fund and funds-only settlement consequences 
    to a non-IDB netting member that has failed to submit such trade data 
    in a timely and accurate basis, GSCC would attempt to contact (e.g., by 
    telephone) as promptly as possible such non-IDB netting member in order 
    to confirm the accuracy of the data submitted by its IDB netting member 
    counterparty. If the lack of comparison arose because of operational or 
    other problems on the part of the IDB party and the non-IDB netting 
    member therefore does not know the trade, GSCC would not assess margin 
    consequences against the non-IDB netting member.
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        \4\ GSCC rules currently require that repo netting members 
    submit either to GSCC or to another registered clearing agency or a 
    clearing agency that has been exempted from registration as a 
    clearing agency by the Commission in a timely manner data on all 
    eligible repo transactions. Currently, only one other registered 
    clearing agency clears and settles repo transactions in government 
    securities. Typically, dealers enter into a brokered transaction 
    with the understanding that such trade will be cleared and settled 
    through a specified clearing agency. Therefore if the counterparties 
    to a repo transaction have selected GSCC as the clearing agency to 
    be used, failure to submit the relevant data may be a violation of 
    GSCC's rules.
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        GSCC believes the proposed rule change is consistent with the 
    requirements of Section 17A of the Act and the rules and regulations 
    thereunder because the rule proposal will promote the prompt and 
    accurate clearance and settlement of securities transactions and will 
    assure the safeguarding of securities and funds in the custody or 
    control of GSCC or for which GSCC is responsible.
    
    (B) Self-Regulatory Organization's Statement on Burden on Competition
    
        GSCC 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
    
        No written comments have been solicited or received. 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
    
        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, NW., Washington, DC 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 Room, 450 Fifth Street, NW., Washington, 
    DC 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-96-12 and should be submitted by March 
    14, 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).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 97-4232 Filed 2-20-97; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
02/21/1997
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
97-4232
Pages:
8068-8069 (2 pages)
Docket Numbers:
Release No. 34-38287, File No. SR-GSCC-96-12
PDF File:
97-4232.pdf