[Federal Register Volume 62, Number 24 (Wednesday, February 5, 1997)]
[Notices]
[Pages 5502-5503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2780]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38215; File No. SR-GSCC-96-13]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Order Approving a Proposed Rule Change Relating to the
Eligibility of Treasury Inflation Indexed Securities for Netting
Services
January 29, 1997.
On November 21, 1996, the Government Securities Clearing
Corporation (``GSCC'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change (File No. SR-GSCC-
96-13) pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'').\1\ Notice of the proposal was published in the Federal
Register on December 20, 1996.\2\ No comment letters were received. For
the reasons discussed
[[Page 5503]]
below, the Commission is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 38048 (December 13,
1996) 61 FR 67371.
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I. Description
The proposed rule change amends GSCC's rules to make the U.S.
Department of the Treasury's Treasury Inflation Indexed Security
(``TIIS'') eligible for clearance and settlement at GSCC.\3\ The first
auction of TIIS by the Department of the Treasury will occur on January
29, 1997, and such securities will be issued on February 6, 1997. TIIS
is a book-entry security that is designed to protect investors from
inflation by adjusting semiannually the principal amount of the
investors' holdings while maintaining a fixed interest rate. The amount
of the principal adjustment is computed 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. TIIS will be redeemed at maturity at
the greater of its inflation adjusted principal or its par amount.
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\3\ The Department of the Treasury has adopted amendments to its
Uniform Offering Circular for the Sale and Issue of Marketable Book-
Entry Treasury Bills, Notes, and Bonds (31 CFR Part 356) to
accommodate the issuance of TIIS. Department of the Treasury
Circular, Public Debt Service No. 1-93 (December 30, 1996) 62 FR 846
(January 6, 1997).
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Although the interest rate is fixed, the coupon payments will be
variable because the interest is paid on a varying amount of principal.
Because this will be the first security with variable interest payments
eligible for netting at GSCC, GSCC has enhanced its automated
systems.\4\ Since December 16, 1996, GSCC has been conducting tests
with GSCC members in order to ensure that participants are able to
properly provide and receive data regarding transactions in these new
securities.
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\4\The following enhancements have been made to GSCC's automated
system. GSCC has created a database of historical CPI indexes in
order to determine accrued interest, which will be used in valuing
positions for settlement purposes and for forward margin and
clearing fund calculations. GSCC has modified the security database
to permit it to designate TIIS as a variable rate security. GSCC has
modified participant input and output formats to take into account
different and additional data elements.
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GSCC also 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 TIIS transactions.
Consistent with these discussions, participants will submit
transactions using their contract price. GSCC will compare and will
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 contract price plus the inflation
adjusted accrued interest. Inflation adjusted accrued interest will
equal the original par value multiplied by the CPI index ratio
multiplied by the interest rate multiplied by the term.
II. Discussion
Section 17A(b)(3)(F) \5\ of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes GSCC's rule change meets these goals by establishing a
clearance and settlement system for TIIS whereby GSCC can provide the
benefits of centralized automated settlement to a broader segment of
government securities transactions. In addition, the inclusion of TIIS
trades in GSCC's netting system provides several benefits to
participants such as guaranteed settlement, automated coupon tracking,
and automated output. By automating and enhancing the settlement
process, GSCC's proposal is consistent with the prompt and accurate
clearance and settlement of securities.
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with requirements of the Act and in particular
with the requirements of Section 17A of the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-GSCC-96-13) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-2780 Filed 2-4-97; 8:45 am]
BILLING CODE 8010-01-M
