[Federal Register Volume 59, Number 49 (Monday, March 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5807]
[[Page Unknown]]
[Federal Register: March 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33722; File No. SR-ICC-94-03]
Self-Regulatory Organizations; The Intermarket Clearing
Corporation; Filing and Order Granting Temporary Approval on an
Accelerated Basis to a Proposed Rule Change Relating to Revisions to
the Standards for Letters of Credit Deposited as Margin
March 7, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on February 23, 1994, The
Intermarket Clearing Corporation (``ICC'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared
primarily by ICC. The Commission is publishing this notice and order to
solicit comments from interested persons and to grant accelerated
approval of the proposed rule change through December 31, 1994.
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\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change requests that the Commission extend its
temporary approval of ICC's modifications to its rules setting forth
the standards for letters of credit deposited with ICC as a form of
margin.\2\
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\2\Securities Exchange Act Release Nos. 32003 (March 16, 1993),
58 FR 15389 [File No. SR-ICC-92-01] (order approving revised letter
of credit standards through December 31, 1994).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, ICC 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. ICC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The proposed rule change requests that the Commission extend its
temporary approval of ICC's modifications to its rule 502(a)(3), which
sets forth the standards for letters of credit deposited with ICC as
margin. The modifications which are the subject of this proposed rule
filing are the same modifications which were previously approved by the
Commission.\3\
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\3\For a detailed discussion of the revised standards, refer to
Securities Exchange Act Release Nos. 32003, supra note 2.
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First, ICC intends to require that letters of credit state
expressly that payment must be made prior to the close of business on
the third banking day following demand. Second, ICC proposes to amend
its rules to eliminate the issuer's right to revoke the letter of
credit. Third, unless otherwise permitted by ICC, ICC's proposal
requires letters of credit to expire on a quarterly basis rather than
annually. Fourth, ICC proposes to add language to its rules to make
explicit ICC's authority to draw upon a letter of credit at any time,
whether or not the clearing member that deposited the letter of credit
has been suspended or is in default, if ICC determines that such a draw
is advisable to protect ICC, other clearing members, or the general
public.
Finally, ICC proposes to amend its rules to grant its chairman
limited discretion to accept a letter of credit that varies from the
standards set forth in its rules. This discretionary power will be
limited by the following factors: (1) Before using this power, the
chairman must consult with the staffs of ICC's regulatory agencies,
which include the Commission and the Commodity Futures Trading
Commission (``CFTC''); (2) this power can be used only in unusual
circumstances and only on a temporary basis; (3) after exercising such
power, the chairman must advise ICC's board of directors; and (4) ICC
must promptly notify clearing members affected by the exercise of this
power.\4\ ICC believes the proposed rule change is consistent with the
requirements of section 17A of Act.\5\ Specifically, ICC believes the
proposed rule change promotes the protection of investors by enhancing
ICC's ability to safeguard the securities and funds in its possession
or subject to its control.
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\4\Factors (1) and (2) are set forth in ICC Rule 502(a)(3).
Factors (3) and (4) are set forth in the letter from James C. Yong,
Vice President and Assistant Secretary, ICC, to Jerry W. Carpenter,
Branch Chief, Division of Market Regulation (``Division''),
Commission (March 1, 1993), which amended File No. SR-ICC-92-01. ICC
has represented that the March 1, 1993, letter with all its
requirements for use by ICC's Chairman of his limited discretion to
accept a letter of credit that varies from the standards is
applicable to this proposed rule filing. Conversation between James
C. Yong, Vice President and Assistant Secretary, ICC, to Jerry W.
Carpenter, Branch Chief, Division, Commission (March 4, 1994).
\5\15 U.S.C. 78q-1
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B. Self-Regulatory Organization's Statement on Burden on Competition
ICC does not believe that the proposed rule change will impose any
burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Comments were not and are not intended to be solicited with respect
to the proposed rule change, and none were received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
For the reasons set forth in the previous Commission order
approving ICC's revised standards for letters of credit deposited as
margin, the Commission believes that the proposal is consistent with
ICC's obligations under section 17A(b)(3)(F) of the Act.\6\ Among other
things, the revised standards: (1) Should make the letters of credit
ICC will accept as margin deposits more liquid than under the previous
standards and, consequently, should permit ICC to more safely rely upon
such letters of credit; (2) should result in more frequent assessments
of the financial conditions of clearing members depositing letters of
credit and thereby should facilitate the discovery of any adverse
developments in a more timely manner: and (3) should make letters of
credit a more reliable form of margin deposit than previously because
issuers will no longer be able to revoke letters of credit at times
when clearing members most need credit facilities (e.g., when a
clearing member is experiencing financial difficulties or during times
of market volatility).\7\ By approving the proposed rule change on a
temporary basis through December 31, 1994, ICC, the Commission, and
other interested parties will be able to assess further any effects
these revised standards have on letter of credit issuance and on margin
deposited at ICC.\8\
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\6\15 U.S.C. 78q-1(b)(3)(F) (1988). Among other things, section
17A(b)(3)(F) requires that the rules of a clearing agency be
designed to assure the safeguarding of securities and funds which
are in the custody or control of the clearing agency or for which
the clearing agency is responsible.
\7\For a detailed discussion of the Commission's basis for
approving ICC's revised standards, refer to Securities Exchange Act
Release Nos. 32003, supra note 2.
\8\The Commission and ICC currently are studying concentration
limits on letters of credit deposited as margin. The Division
believes that clearing agencies that accept letters of credit as
margin deposits or clearing fund contributions should limit their
exposure by imposing concentration limits on the use of letters of
credit. Generally, clearing agencies impose limitations on the
percentage of an individual member's required deposit or
contribution that may be satisfied with letters of credit,
limitations on the percentage of the total required deposits or
contributions that may be satisfied with letters of credit by any
one issuer, or some combination of both. ICC has no concentration
limits on the use of letters of credit issued by U.S. institutions.
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ICC 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 the filing. The Commission finds good cause
for so approving because the Commission believes it is desirable that
the revised standards that were implemented under the previous
temporary approval order remain in place pending permanent approval.
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 Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of ICC. All submissions
should refer to the file number SR-ICC-94-04 and should be submitted by
April 4, 1994.
V. Conclusion
On the basis of the foregoing, the Commission finds that ICC's
proposed rule change is consistent with the Act and in particular with
Section 17A of the Act.
It is therefore ordered, under section 19(b)(2) of the Act, that
the proposal (File No. SR-ICC-94-03) be, and hereby is, approved
through December 31, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5807 Filed 3-11-94; 8:45 am]
BILLING CODE 8010-01-M
