[Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
[Notices]
[Pages 8475-8477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4607]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38302; File No. SR-GSCC-96-14]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change To Eliminate
Grandfather Privileges
February 18, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 8476]]
(``Act''),\1\ notice is hereby given that on December 19, 1996, the
Government Securities Clearing Corporation (``GSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No SR-GSCC-96-14) 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. 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 eliminate the ability
of GSCC's interdealer broker netting members (``IDB'') to trade with
certain nonmembers identified on GSCC's grandfather list.
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 prepare 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 Organizations's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In May 1993, GSCC established limitations on the trading activity
of IDBs with firms that are not a members of GSCC's netting system.\3\
GSCC restricted category 1 IDBs to trading only with GSCC netting
members and limited the trading activity of category 2 IDBs with
nonmember firms to ten percent. At that time, GSCC decided to allow
IDBS to continue to trade with certain nonmember firms (``grandfather
nonmembers'') that historically have had access to the IDB's screens
and that GSCC has identified on its grandfather list.\4\ GSCC believed
that it was unfair to penalize IDBs for continuing to trade with firms
that GSCC was not yet successful in bringing into its netting system
membership. Accordingly, category 1 IDBs can continue to trade with the
grandfathered nonmember dealers and trading between category 2 IDBs and
grandfathered firms does not count toward category 2 IDBs' ten percent
limit.
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\3\ Securities Exchange Act Release No. 32722 (August 5, 1993),
58 FR 42993 (order approving establishment of new membership
categories).
\4\ The grandfather list includes the following firms:
Aubrey G. Lanston & Co., Inc.
The Nikko Securities Co., Ltd. (Tokyo)
Nikko Europe PLC (London)
Nomura International Inc. (Tokyo)
Nomura Securities Co., Ltd. (Tokyo)
Nomura International PLC (London)
Daiwa Europe Ltd. (London)
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Since 1993, GSCC has made numerous attempts to encourage each of
the grandfathered firms either to join GSCC's netting system or to have
their eligible trades submitted to the net by an affiliated netting
member.\5\ GSCC also has established a category of netting system
membership for foreign entities. Thus, all entities on the grandfather
list are now eligible for direct netting membership in GSCC.
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\5\ The number of grandfathered firms has decreased from twelve
to seven.
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GSCC believes that trades between an IDB and a grandfathered firm
expose GSCC to greater risks than trades between an IDB and a netting
member because trades with a grandfathered firm are not eligible for
netting by GSCC. As a result, when an IDB has offsetting trades with a
netting member and a grandfathered firm, only the trade with the
netting member will be netted thereby leaving the IDB instead of a
grandfathered firm with a position.\6\
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\6\ While the number of trades between IDBs and grandfathered
firms is a relatively small percentage of the IDB's trades, they are
significant in absolute terms.
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Therefore, GSCC is proposing to eliminate the grandfather list,
effective June 30, 1997. GSCC believes that the effective date provides
grandfathered firms with sufficient time to join GSCC's netting system
or to adjust to nongrandfathered status. Once the grandfather list has
been eliminated, category 2 IDBs, which do virtually all of the
brokered transactions with the current grandfathered firms, will have
to trade with the formerly grandfathered firms that do not join GSCC's
netting system under the category 2 IDB's authority to engage in ten
percent of its trading activity with nonmember firms. Category 1 IDBs
will be prohibited from doing any netting eligible activity with a
formerly grandfathered firm that does not join GSCC's netting system.
GSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \7\ and the rules and
regulations thereunder because it would end the exposure to GSCC that
the trading by the IDBs with grandfathered firms creates.
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\7\ 15 U.S.C. 78q-1.
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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 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 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 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 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, 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
[[Page 8477]]
refer to the file number SR-GSCC-96-14 and should be submitted by March
18, 1997.
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. 97-4607 Filed 2-24-97; 8:45 am]
BILLING CODE 8010-01-M
