02-3047. Self-Regulatory Organization; Government Securities Clearing Corporation; Order Granting Accelerated Approval of a Proposed Rule Change Relating to a New Governance Structure

January 31, 2002.

On October 11, 2001, the Government Securities Clearing Corporation (“GSCC”) filed with the Securities and Exchange Commission (“Commission”) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] a proposed rule change (File No. GSCC-2001-13). On December 26, 2001, GSCC filed an amendment to the proposed rule change. Notice of the proposal was published in the Federal Register on January 15, 2001.^[2] No comment letters were received.^[3] For the reasons discussed below, the Commission is approving the proposed rule change on an accelerated basis.

I. Description

The proposed rule change will amend GSCC's rules to reflect GSCC's new ownership and governance structure that will result from the integration of GSCC, MBS Clearing Corporation (“MBSCC”), and Emerging Markets Clearing Corporation (“EMCC”) with the Depository Trust & Clearing Corporation (“DTCC”) whereby GSCC. MBSCC, and EMCC will become operating subsidiaries of DTCC.^[4]

In order for GSCC to maintain orderly and efficient operations, GSCC will implement a three-tiered governance structure. The first tier will be the Board of Directors of GSCC that will be identical in composition to the Board of Directors of MBSCC, EMCC, DIT, NSCC, and DTCC. GSCC's business will be managed under the direction of the GSCC Board, which will set the basic policy direction for GSCC. The second tier will consist of committees of or established by the GSCC Board and committees of or established by the DTCC Board.^[5] The third tier will be GSCC management, which will oversee the daily routine operations of GSCC. The changes to GSCC's rules will reassign various management responsibilities to the GSCC Board, the new committees, or GSCC management in light of the revised management structure summarized above.

II. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder and particularly with the requirements of section 17A(b)(3)(A) ^[6] of the Act, which requires, among other things, that a clearing agency be so organized and have the capacity to facilitate the prompt and accurate clearance and settlement of securities transactions. The Commission finds that the proposed rule change is consistent with this obligation because GSCC's new governance structure should help ensure that GSCC's operations will continue to be conducted in an efficient and orderly manner once it is integrated into the DTCC organization.

The Commission has previously found that GSCC's integration plan satisfies the requirement of section 17A(b)(3)(C) ^[7] that GSCC assure the fair representation of its members in the selection of its directors and in the administration of its affairs.^[8] The Commission finds that this proposal is also consistent with the fair representation requirement because the integration plan has been refined so that the Board committees primarily responsible for GSCC's operations are now also joint committees of the GSCC Board.

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 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 filing because such approval will allow GSCC to implement changes to its governance structure in an efficient, orderly, and expeditious manner once its integrated into the DTCC organization.

III. Conclusion

On the basis of the foregoing, the Commission finds that the proposal is consistent with the 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-2001-13) be, and hereby is, approved.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  Securities Exchange Act Release No. 45248 (Jan. 7, 2002), 67 FR 2005.

3.  This proposed rule change had a fifteen day comment period.

4.  For explanations of the mechanics of these integration plans, refer to Securities Exchange Act Release Nos. 44989 (Oct. 25, 2001), 66 FR 55220 (Nov. 1, 2001) (order approving integration of GSCC); 44988 (Oct. 25, 2001), 66 FR 55222 (Nov. 1, 2001) (order approving integration of MBSCC); and 44987 (Oct. 25, 2001), 66 FR 55218 (Nov. 1, 2001) (order approving integration of EMCC). The Depository Trust Company (“DTC”) and National Securities Clearing Corporation (“NSCC”) are currently operating subsidiaries of DTCC. Securities Exchange Act Release Nos. 41786 (Aug. 24, 1999), 64 FR 47882 (Sept. 1, 1999) and 41800 (Aug. 27, 1999), 64 FR 48694 (Sept. 7, 1999) (orders approving integration of DTC, NSCC, and DTCC).

5.  Many of GSCC's Board committees will be joint committees of the Boards of DTCC and its operating subsidiaries. For example, there will be a DTCC/DTC/NSCC/GSCC/MBSCC/EMCC Nominating Committee, a DTCC/DTC/NSCC/GSCC/MBSCC/EMCC Fixed Income Operations and Planning Committee, a DTCC/DTC/NSCC/GSCC/MBSCC/EMCC Audit Committee, and a GSCC/MBSCC Membership and Risk Management Committee.

6.  15 U.S.C. 78q-1(b)(3)(A).

7.  15 U.S.C. 78q-1(b)(3)(C).

8.  Securities Exchange Act Release No. 44989 (Oct. 25, 2001), 66 FR 55220 (Nov. 1, 2001) (order approving integration of GSCC).

9.  17 CFR 200.30-3(a)(12).