98-10421. Self-Regulatory Organizations; Government Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Funds-Only Settlement Payment Procedures  

  • [Federal Register Volume 63, Number 76 (Tuesday, April 21, 1998)]
    [Notices]
    [Pages 19774-19775]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-10421]
    
    
    -----------------------------------------------------------------------
    
    SECURITIES AND EXCHANGE COMMISSION
    
    [Release No. 34-39860; File No. SR-GSCC-98-01]
    
    
    Self-Regulatory Organizations; Government Securities Clearing 
    Corporation; Notice of Filing of a Proposed Rule Change Relating to 
    Funds-Only Settlement Payment Procedures
    
    April 14, 1998.
        Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
    (``Act''),1 notice is hereby given that on February 17, 
    1998, the Government Securities Clearing Corporation (``GSCC'') filed 
    with the Securities and Exchange Commission (``Commission'') the 
    proposed rule change as described in Items I, II, and III below, which 
    items have been prepared primarily by GSCC. The Commission is 
    publishing this notice to solicit comments on the proposed rule change 
    from interested persons.
    ---------------------------------------------------------------------------
    
        \1\ 15 U.S.C. 78s(b)(1).
    ---------------------------------------------------------------------------
    
    I. Self-Regulatory Organization's Statement of the Terms of 
    Substance of the Proposed Rule Change
    
        The proposed rule change will amend GSCC's rules regarding funds-
    only settlement (``FOS'') payments procedures to permit GSCC to retain 
    significant FOS payments it owes to a member to offset such amounts 
    against any significant clearing fund deposit obligation the member 
    owes to GSCC.
    
    II. Self-Regulatory Organization's Statement of the Purpose of, and 
    Statutory Basis for, the Purposed Rule Change
    
        In its filing with the Commission, GSCC 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. GSCC has prepared summaries, set forth in sections (A), 
    (B), and (C) below, of the most significant aspects of such 
    statements.2
    ---------------------------------------------------------------------------
    
        \2\ The Commission has modified parts of these statements.
    ---------------------------------------------------------------------------
    
    (A) Self-Regulatory Organization's Statement of the Purpose of, and 
    Statutory Basis for, the Proposed Rule Change
    
        Two important elements of GSCC's risk management process are the 
    daily calculation and collection of clearing fund deposit deficiency 
    amounts and of mark to the market margin. The amount of a member's 
    clearing fund deposit generally is the sum of (1) the absolute value of 
    its average FOS amounts, (2) the highest of several margin calculations 
    using the absolute value of each of the member's net settlement 
    positions, and (3) the highest of two volatility calculations using the 
    market value of each repo transaction that comprises its outstanding 
    net settlement position.3 The mark to the market collections 
    are included as part of GSCC's FOS payment procedures and are 
    calculated and collected on every forward settling position (i.e., a 
    position not scheduled to settle the next day). The calculated mark to 
    the market amount is collected from a member with a debit and paid to a 
    member with a credit.4
    ---------------------------------------------------------------------------
    
        \3\ GSCC's Rule 4, Clearing Fund, Margin, and Loss Allocation.
        \4\ For example, if the contract value exceeds the market value, 
    the mark to the market amount will be collected from the buyer and 
    paid to the seller. Conversely, if the market value exceeds the 
    contract value, the mark to the market amount will be collected from 
    the seller and paid to the buyer.
    ---------------------------------------------------------------------------
    
        At times, GSCC is obligated to pay a member a FOS amount on a day 
    on which that member also has a clearing fund deficiency call. Pursuant 
    to its rules, GSCC is required to make the FOS payment to such a member 
    prior to the time the member must make its clearing fund deficiency 
    payment to GSCC.5 This results in exposure to GSCC and its 
    members for a period of time due to the potential that the member will 
    fail after it has received a FOS payment from GSCC but before it has 
    satisfied the clearing fund deficiency call. The proposed rule change 
    will permit GSCC to retain FOS payments it owes to a member and to 
    offset such amounts against any clearing fund deposit obligation the 
    member owes to GSCC.6
    ---------------------------------------------------------------------------
    
        \5\ GSCC is authorized to pay FOS obligations to members by 
    10:00 a.m. eastern time (``ET''). Members must satisfy clearing fund 
    deficiences by the later of two hours after the receipt of GSCC's 
    call or 10:00 a.m. ET. However, if the notification is not made 
    earlier than two hours before the close of the cash FedWire, members 
    may satisfy the calls on the next business day.
        \6\ GSCC does not plan to exercise the offset right unless it 
    has a significant FOS obligation to a member (i.e., $5 million or 
    more) and the member has a significant clearing fund deficiency 
    (i.e., $5 million or more).
    ---------------------------------------------------------------------------
    
        Under the proposed amendment to Rule 13 Section 5, GSCC will be 
    entitled to retain the lesser of the FOS amount or the amount of the 
    clearing fund call (or the entire FOS amount if the difference between 
    the amounts is zero) and apply it to the member's clearing fund deposit 
    requirement. If a member pays all or a portion of its clearing fund 
    deficiency in any type of eligible collateral by a preestablished time 
    before GSCC's deadline to make its own FOS payments to 
    members,7 GSCC will only be entitled to offset its FOS 
    obligation to the member against the member's remaining clearing fund 
    deficiency. Pursuant to GSCC's existing rules, a member will have the 
    right to substitute eligible collateral for any cash that GSCC applies 
    to its clearing fund deposit as a result of an offset.
    ---------------------------------------------------------------------------
    
        \7\ GSCC currently plans to set the preestablished time at 
    fifteen minutes before GSCC's deadline to make its own FOS payments 
    to members.
    ---------------------------------------------------------------------------
    
        GSCC believes that the proposed rule change is consistent with 
    Section 17A(b)(3)(F) because the proposed rule change should enhance 
    its risk management process by increasing settlement efficiency and 
    reducing payment related risks to GSCC and its members.\8\
    ---------------------------------------------------------------------------
    
        \8\ 15 U.S.C. 78q-1(b)(3)(F).
    ---------------------------------------------------------------------------
    
    (B) Self-Regulatory Organization's Statement on Burden on Competition
    
        GSCC does not believe that the proposed rule change will have an 
    impact on or impose a burden on competition.
    
    (C) Self-Regulatory Organization's Statement on Comments on the 
    Proposed Rule Change Received From Members, Participants, or Others
    
        Written comments relating to the proposed rule change have not yet 
    been solicited or received. GSCC will notify members of the rule change 
    filing and comments will be solicited by an important notice. GSCC will 
    notify the Commission of any written comments received by GSCC.
    
    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
    
    [[Page 19775]]
    
    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 GSCC consents, the Commission will:
        (A) By order approve such filing or
        (B) Institute proceedings to determine whether the rule filing 
    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 NW., Washington, D.C. 20549. 
    Copies of the submission, all subsequent amendments, all written 
    statements with respect to the rule filing that are filed with the 
    Commission, and all written communications relating to the rule filing 
    between the Commission and any person, other than those that may be 
    withheld from the public in accordance with provisions of 5 U.S.C. 552, 
    will be available for inspection and copying in the Commission's Public 
    Reference Room in Washington, D.C. Copies of such filing will also be 
    available for inspection and copying at the principal office of GSCC. 
    All submissions should refer to the File No. SR-GSCC-98-01 and should 
    be submitted by May 12, 1998.
    
        For the Commission by the Division of Market Regulation, 
    pursuant to delegated authority.\9\
    ---------------------------------------------------------------------------
    
        \9\ 17 CFR 200.3-3(a)(12).
    ---------------------------------------------------------------------------
    
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 98-10421 Filed 4-20-98; 8:45 am]
    BILLING CODE 8010-02-M
    
    
    

Document Information

Published:
04/21/1998
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
98-10421
Pages:
19774-19775 (2 pages)
Docket Numbers:
Release No. 34-39860, File No. SR-GSCC-98-01
PDF File:
98-10421.pdf