[Federal Register Volume 63, Number 37 (Wednesday, February 25, 1998)]
[Notices]
[Pages 9621-9622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-4756]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39684; File No. SR-DCC-98-01]
Self-Regulatory Organizations; Delta Clearing Corp.; Notice of
Filing of a Proposed Rule Change to Permit the Use of Mortgage Backed
Securities as Margin Collateral
February 19, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 5, 1998, Delta
Clearing Corp. (``Delta'') filed with the Securities Exchange
Commission (``Commission'') the proposed rule change (File No. SR-DCC-
98-01) as described in Items I, II, and III below, which items have
been prepared primarily by Delta. 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
Delta proposes to modify its procedures in order to accept mortgage
backed securities as margin collateral.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Delta 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. Delta 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 Delta.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Currently, Delta only accepts federal funds \3\ or treasury
securities as margin collateral. Delta proposes revisions to its
procedures which would authorized Delta to accept mortgage backed
securities as margin collateral.\4\
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\3\ Federal funds are defined in Delta's procedures as cash
balances available for immediate withdrawal in accounts maintained
at banks that are members of the Federal Reserve System.
\4\ Mortgage backed securities are defined in Delta's procedures
as book entry securities directly issued by the Federal National
Mortgage Association (``FNMA'') or the Federal Home Loan Mortgage
Corporation (``FHLMC'') whose underlying value is represented by a
pool of mortgages. These may be fixed rate or adjustable rate
mortgage backed securities backed by fixed rate or adjustable rate
mortgage loans, respectively. Such securities must be transferable
through the federal reserve system. Delta is not authorized to clear
mortgage backed securities that have underlying assets that are
mortgage backed securities rather than a pool of mortgage loans.
Delta also is not authorized to clear notional, interest only,
principal only, accrual and partial accrual securities, or floaters
and inverse floaters, as such terms are defined in Schedule A to
Delta's procedures. Securities Exchange Act Release No. 39241
(October 14, 1997), 62 FR 54663 (order approving proposed rule
change authorizing Delta to clear mortgage repos).
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Delta's participants may clear and settle repurchase and reverse
repurchase agreements in treasury securities (``treasury repos'') and
repurchase and reverse repurchase agreements in mortgage backed
securities (``mortgage repos'') through Delta's system. Some
participants have chosen to clear and to settle only mortgage repos
through Delta. For those participants, there is an additional cost
associated with obtaining treasury securities for purposes of supplying
margin collateral. Because those participants already possess mortgage
backed securities related to the transactions they are clearing through
Delta, it is a more straightforward process for them to honor their
margin obligations with these mortgage backed securities.
Delta believes that, with the appropriate haircuts, the provision
of margin in the form of mortgage backed securities poses no additional
risk to the system. Delta notes that the Commission under its uniform
net capital rule generally applies the same haircuts to treasury
securities and mortgage backed securities.\5\ Consistent with Delta's
treatment of treasury securities used for margin collateral, Delta
proposes that mortgage backed securities should be valued in accordance
with the schedule of applicable haircuts found in Rule 15c3-
1(c)(2)(vi)(A)(1) under the Act.\6\ Delta also notes that its clearing
bank, The Bank of New York, will accept mortgage backed securities in
accordance with Delta's proposal without further haircuts.
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\5\ Rule 15c3-1(c)(2)(vi)(A)(1), 17 CFR 240.15c3-
1(c)(2)(vi)(A)(1).
\6\ Section 3(a)(42)(B) of the Act defines government securities
to include securities which are issued or guaranteed by corporations
in which the United States has a direct or indirect interest and
which are designated by the Secretary of the Treasury for exemption
as necessary or appropriate in the public interest or for the
protection of investors. The Department of Treasury has designated
securities issued by FNMA and by FHLMC as exempt. Notice issued by
the Department of Treasury (October 7, 1987), 52 FR 38559.
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Delta believes the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to Delta and in particular with Section 17A(b)(3)(F) of the
Act \7\ which requires that a clearing agency be organized and its
rules be designed to promote the prompt and accurate clearance and
settlement of securities transactions and to remove impediments to and
perfect the mechanism of a national system for the prompt and accurate
clearance and settlement of securities transactions. Delta believes the
proposed rule changes will permit wider use of its system by providing
participants with the opportunity to efficiently meet margin
requirements consistent with Delta's obligation to safeguard funds and
securities.
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\7\ 15 U.S.C. 78q-1(b)(3)(F).
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[[Page 9622]]
(B) Self-Regulatory Organization's Statement on Burden on Competition
Delta does not believe that the proposed rule change will impose
any burden on competition not necessary or appropriate in furtherance
of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Comments were neither solicited nor received.
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 Delta 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, including whether the proposed rule
change is consistent with the Act. 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. 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 Delta. All submissions should
refer to the file number SR-DCC-98-01 and should be submitted by March
18, 1998.
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. 98-4756 Filed 2-24-98; 8:45 am]
BILLING CODE 8010-01-M
