[Federal Register Volume 64, Number 69 (Monday, April 12, 1999)]
[Notices]
[Pages 17705-17707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9016]
[[Page 17705]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41247; File No. SR-EMCC-99-2]
Self-Regulatory Organizations; Emerging Markets Clearing
Corporation; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change Allowing EMCC To Conduct Trade Data
Comparisons
April 2, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 8, 1999, as amended
on March 18, 1999, and March 26, 1999, the Emerging Markets Clearing
Corporation (``EMCC'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change as described in
Items I and II below, which items have been prepared primarily by EMCC.
The Commission is publishing this notice and order to solicit comments
from interested persons and to grant accelerated approval of the
proposed rule change.
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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 proposed rule change will allow EMCC (1) to accept trade data
directly from either members or service bureaus and (2) to compare
trades.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, EMCC included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change to
conduct trade data comparisons.\2\ The text of these statements may be
examined at the places specified in Item IV below. EMCC has prepared
summaries, set forth in sections A, B, and C below, of the most
significant aspects of such statements.\3\
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\2\ The complete text of the proposed rule change is attached as
Exhibit A to EMCC's filing, which is available for inspection and
copying at the Commission's public reference room and through EMCC.
\3\ The Commission has modified the text of the summaries
prepared by EMCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Currently, EMCC members submit transaction data for trades that
will settle at EMCC to a ``locked-in trade source.'' The locked-in
trade source (currently Match-Em or Trax) compares the trade data and
sends a locked-in trade to EMCC. The proposed rule change eliminates
the procedures for submitting locked-in trades. Instead, EMCC will
accept trade data directly from members or ``service bureaus'' and will
compare the trades.\4\ Members will be required to notify EMCC whether
they will be submitting trade data directly or through a service
bureau. EMCC will accept trade data only from the member's designated
source.
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\4\ The term service bureau is defined in EMCC's Rules as an
entity designated by EMCC to submit trade data to EMCC on behalf of
EMCC's members. At this time Match-Em and Trax are the two entities
EMCC has designated as service bureaus.
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The following paragraphs describe the changes to EMCC's Rules to
allow trade data to be accepted directly from members or service
bureaus and to allow EMCC to provide trade data comparisons.\5\
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\5\ References to EMCC's rule numbers in this filing reflect
numbering changes proposed in File No. SR-EMCC-99-10, Securities
Exchange Act Release No. 40810, International Series Release No.
1174 (December 18, 1998), 63 FR 71532.
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Rule 1--Definitions
The proposed rule change adds the terms ``comparison operation.''
``conditional matching field,'' and ``service bureau'' to Rule 1.\6\
The terms ``locked-in trade'' and ``locked-in trade source'' will be
deleted because they will no longer be relevant.
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\6\ The term comparison operation is defined in EMCC rules as
the operations having to do with EMCC eligible instruments to which
EMCC's Rules apply. The term conditional matching field is defined
as a trade data field designated by EMCC as such. For the definition
of service bureau, refer to footnote 4.
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The proposed rule change modifies the definition of ``compared
trade'' to reflect that trade data will not be transmitted to EMCC by a
locked-in trade source and that EMCC will compare the trade data. The
definitions of Match-EM and Trax is modified to reflect that they will
no longer be locked-in trade sources but ``service bureaus.''
Rule 4--Clearing Fund, Margin and Loss Allocation
The proposed rule change amends footnote 2 in Rule 4 to reflect
that EMCC will no longer be accepting trade data from a locked-in trade
source.
Rule 5--General Provisions and Rule 6--Receipt of Data
The proposed rule change deletes the portions of Rule 6 pertaining
to the receipt of trade data from a locked-in trade source and moves
Sections 2 and 3 of old Rule 6 to Sections 4 and 5 of Rule 5.
Rule 6--Comparison Operation
New Rule 6 governs EMCC's comparison operation. Rule 6 authorizes
members to submit trade data concerning an EMCC eligible instrument
transaction with another member to EMCC. EMCC members can submit trade
data directly to EMCC or through a service bureau. If a member submits
trade data to EMCC using a service bureau, the trade will be reported
when EMCC accepts the trade data and not when the service bureau
accepts the data.
Rule 6, Section 3 provides that trade data submitted to EMCC must
(i) be in such formats, (ii) be submitted by such times, (iii) include
such identifying details, and (iv) meet such operational parameters as
established by EMCC or a qualified securities depository.\7\ Once trade
data is accepted by EMCC, EMCC will compare the trade data and will
match it based on established criteria. The actual times, formats, and
other details are set forth in EMCC's functional specifications. If
trade data does not satisfy the EMCC's requirements, then EMCC will
reject such trade data and notify the member. This section also states
that if the trade data submitted by a member contains a field which has
been identified as a conditional matching field and the trade data
submitted by the counterparty also contains such conditional matching
field, EMCC will not match the trade unless the conditional matching
fields match.
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\7\ The term qualified securities depository is defined in
EMCC's Rules as a securities depository which has entered into an
agreement with EMCC to effect book-entry transfers of EMCC eligible
instruments to and by EMCC.
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Rule 6, Section 3 also contains three footnotes. Footnote 1
indicates that the formats for submission of trade data may vary
depending upon whether a member submits trade data to EMCC directly or
through a service bureau. Footnote 2 indicates that trade data that
EMCC does not accept because of an ineligible ISIN, counterparty
member, or interdealer broker field will not be reflected in any
report. Footnote 3 indicates that, for the purposes of comparing a
trade, a difference in net consideration amounts submitted by the
counterparties to a transcript of less
[[Page 17706]]
than or equal to $25 will be considered a match. In addition, prices
submitted by the counterparties to a transaction will be considered to
match if the difference between the two price amounts is less than or
equal to either price multiplied by .0001.
Rule 6, Section 4 governs the reporting of the results of the
comparison operation.\8\ Under the proposed rule change, trade data
will be categorized as compared, uncompared, alleged, or rejected.
These terms are defined as follows:
\8\ Appendix B sets forth the information that will be contained
in EMCC's reports indicating the results of its comparison
operation. The categories of information contained in the reports
will vary depending on the method by which a member submits data to
EMCC.
(1) Compared trades will be those trades for which a comparison
has been effected;
(2) Uncompared will be those items which a member submitted but
no corresponding data was received from a counterparty;
(3) Alleged will be those trades submitted by another member
against the member and for which the member either did not submit
any trade data or did not submit trade data which matched in all
required respects;
(4) Rejected will be those items which did not meet the required
operational parameters.
In addition to the reports described above, EMCC will continue
producing ``accepting trade reports'' with respect to compared trades.
The accepted trade reports will continue to indicate whether a trade is
a ``netting trade'' or is to be settled on a trade-for-trade basis.\9\
Footnote 4 of Section 4 provides that compared trades which are matched
after the established cut-off time on SD-2 will settle on a trade-for-
trade basis.
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\9\ Rule 7 will continue to govern, receive, deliver, and
settlement obligations relating to compared trades.
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Pursuant to the proposed rule change, members will be able to
modify a previously submitted uncompared trade by submitting new trade
data so long as the new trade data includes the reference number
previously assigned by the member to the uncompared trade. Members will
not be able to modify the ISIN, trade date, or settlement date of an
uncompared trade, and EMCC will reject any such modification.
Modifications will be required to be submitted to EMCC in such form and
by such time as EMCC establishes from time to time.
EMCC will continue to process alleged trades until the earlier of
(1) the submission of matching trade data by the member against whom
the trade is alleged or (2) the cut-off time for inclusion of compared
trades on the SD-1 accepted trade report.
Each uncompared trade, including modified uncompared trades, will
be included in the comparison operation until the earlier of (1) its
designation as a compared trade and the reflection as such on an
accepted trade report or (2) the cut-off time for inclusion of compared
trades on the SD-1 accepted trade report. All trades remaining
uncompared after such time will be processed in accordance with the
provisions of Rule 8.
Proposed Rule 6, Section 6 will govern the submission of
cancellation instructions. According to the proposal, EMCC will
prohibit partial cancellations and will not cancel a compared trade
unless it receives matching instructions from the counterparty. The
accepted trade report will indicate whether a cancellation of a
compared trade has been processed by EMCC.
Rule 7--Novation and Guaranty of Obligations and Receive, Deliver and
Settlement Obligations
The proposed rule change amends Rule 7, Section 2 to explicitly
state that transactions reported as canceled on an accepted trade
report will result in the extinguishing of the related receive and
deliver obligations previously created by EMCC.
Rule 8--Settlement Instructions Only Report
The production of the ``settlement instructions only report'' by
EMCC and the effect of such reports will remain the same. The proposed
changes to Rule 8 reflects the elimination of the locked-in trade
source and the offering of comparison processing by EMCC.
Rule 15--Ceasing To Act for a Member; Rule 17--Insolvency of a Member;
and Addendum B--Statement of Policy With Respect to Interdealer Broker
Required Fund Deposits
The language referring to a locked-in trade source is being
eliminated, and where appropriate, a reference to service bureau is
being inserted.
Addendum A--Statement of Policy Pertaining to Inter-Dealer brokers Who
Do Not Qualify Under the Provisions of Rule 2
Addendum A has expired and therefore is being eliminated.
In addition, the proposed rule change amends footnote 6 of Rule 4,
Section 10 to provide that the limited use of clearing fund deposits as
collateral for intraday financing proposes, as described in Section
10(2)(B), will expire on the date on which all members are netting
members. There will no longer be a reference to expiration on EMCC's
first anniversary as a registered clearing agency.
EMCC believes that the proposed rule change is consistent with the
requirements Section 17A of the Act \10\ and the rules and regulations
thereunder because the ability to accept trade data directly from
members and to offer comparison services will facilitate the prompt and
accurate clearance and settlement of emerging market securities
transactions.
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\10\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
EMCC 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
No written comments relating to the proposed rule change have been
solicited or received. EMCC will notify the Commission of any written
comments received by EMCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A(b)(3)(F) of the Act \11\ 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 that allowing EMCC to accept trade data directly from members
should promote the prompt and accurate clearance and settlement of
securities transactions by providing EMCC members with a choice of how
they can best provide EMCC with trade data. Also, by allowing EMCC to
conduct the comparison of trade data EMCC will be better able to make
sure that the comparison of trades is conducted timely and accurately.
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\11\ 15 U.S.C. 78q-1(b)(3)(F).
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EMCC 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 approving the proposed rule change prior to the thirtieth day
after publication of notice because such approval will allow EMCC and
its members to realize the benefits of having EMCC provide the
additional services as soon as possible.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
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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-
0609. 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, N.W.,
Washington, D.C. 20549-0609. Copies of such filing also will be
available for inspection and copying at the principal office of EMCC.
All submissions should refer to File No. SR-EMCC-99-2 and should be
submitted by May 3, 1999.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (File No. SR-EMCC-99-2) be and
hereby is approved.
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\12\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-9016 Filed 4-9-99; 8:45 am]
BILLING CODE 8010-01-M
