[Federal Register Volume 63, Number 67 (Wednesday, April 8, 1998)]
[Notices]
[Pages 17249-17250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9129]
[[Page 17249]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39824; File No. SR-DCC-98-03]
Self-Regulatory Organizations; Delta Clearing Corp.; Notice of
Filing and Order Granting Accelerated, Temporary Approval of a Proposed
Rule Change Relating to Margin Requirements for Overnight Repurchase
Agreements
April 1, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 20, 1998, Delta
Clearing Corp. (``DCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which items have been primarily prepared by DCC.
The Commission is publishing this notice and order to solicit comments
on the proposed rule change from interested persons and to grant
accelerated approval of the proposed rule change through March 31,
1999.
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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 purpose of the proposed rule change is to extend the temporary
approval for DCC's rules regarding the collection of margin for
overnight repurchase and reverse repurchase agreements (``overnight
repos'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DCC included statements
concerning the purpose of and basis for the proposed rule change and
any comments received by DCC on the proposed rule change. The text of
these statements may be examined at the places specified in Item IV
below. DCC has prepared summaries, set forth in sections A, B, and C
below, of the most significant aspects of such statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by DCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
DCC seeks an extension of the temporary approval of its rules
relating to the collection of margin for overnight repos. On April 2,
1997, the Commission granted approval of DCC's overnight repo margining
rules through September 30, 1997.\3\ On September 30, 1997, the
Commission granted accelerated approval of DCC's overnight repo
margining rules through March 31, 1998.\4\
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\3\ Securities Exchange Act Release No. 38471 (April 2, 1997),
62 FR 17257.
\4\ Securities Exchange Act Release No. 39174 (October 7, 1997),
62 FR 52368.
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Prior to the proposed rule change, DCC calculated each
participant's margin requirement for all repos, including overnight
repos, at the end of each business day and required margin to be
deposited by 11:00 a.m. the next business day. DCC does not believe
that this procedure is appropriate for overnight repos because
overnight repos terminate on the following day. As a result, DCC
amended its procedures for calculating and collecting margin for
overnight repos.\5\
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\5\ For a detailed description of DCC's overnight repo margin
procedures, refer to Securities Exchange Act Release No. 38471
(April 2, 1997), 62 FR 17257.
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These procedures require each participant which engages in
overnight repos to deposit with DCC as core margin either $1 million or
a greater amount as determined by DCC at the end of each week based
upon the participant's daily overnight repo exposures during the eight
prior weeks.\6\ If DCC determines as a result of any weekly calculation
that a participant is required to maintain a higher core margin amount
on deposit with DCC, DCC will notify the participant of such higher
core margin requirement by 3:00 p.m. on that date of the calculation,
and the participant is required to deposit by 11:00 a.m. on the
following business day margin whose value equals or exceeds the
participant's additional margin requirement. Such deposit must be in
cash or U.S. Treasury securities.
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\6\ Overnight repos are defined as repo agreements whose off-
date is the immediately succeeding business day following the on-
date for such transactions. Term repos are defined as repos
agreements whose off-date is two or more business days following the
on-date for such transactions.
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In addition to the weekly calculation described above, DCC
calculates on each business day each participant's mark-to-market
exposure from overnight repos. If a participant's exposure from
overnight repos exceeds 65 percent of the participant's core margin
requirement, DCC requires the participant to deposit additional margin
equal to the amount of such excess. Such additional margin must be
deposited with DCC no later than 5:00 p.m. on the applicable business
day. If additional margin is required, DCC may apply towards a
participant's exposures on overnight repos excess margin maintained by
the participant with DCC which is not then being used to collateralize
other margin obligations to DCC. However, DCC may not apply a
participant's core margin amount maintained with DCC towards other
margin obligations to DCC arising from options transactions or term
repos.
In connection with the proposed rule change, DCC agreed that during
the temporary approval period, the Commission may request reports
detailing the operation of the margining system for overnight repos.
DCC instituted the new margining system on July 1, 1997, and has been
periodically providing reports to the Commission since that time.
DCC believes the proposed extension of the temporary approval of
the proposed rule change is consistent with the requirements of Section
17A of the Act\7\ and the rules and regulations promulgated thereunder
because the proposed rule change will better enable DCC to safeguard
the funds and securities under its possession and control by giving DCC
procedures to help assure that it has adequate collateral to address a
participant's default or insolvency.
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\7\ 15 U.S.C. 78q-1
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B. Self-Regulatory Organization's Statement on Burden on Competition
DCC does not believe that the proposed rule change will impact 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
Comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Section 17A (b)(3)(F) \8\ of the Act requires, among other things,
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 it is responsible. The
Commission believes that DCC's proposed rule change is consistent with
this obligation because the proposal provides for: (1) a minimum core
margin requirement to reflect DCC's exposure to each participant's
overnight repo activity and (2) an intraday margin requirement that is
triggered if a participant's mark-to-market exposure is valued at more
than 65 percent of the core requirement. Therefore, the
[[Page 17250]]
Commission believes that the proposal should provide to DCC margin in
an amount that will assist DCC in meeting its obligation to safeguard
securities and funds.
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\8\ 15 U.S.C. 78q-1(b)(3)(F)
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Currently, DCC has operated its new margining system for only nine
months. Therefore, the Commission believes that it is appropriate to
extend temporary approval of the proposal in order that the Commission
and DCC will have opportunity to further monitor the effectiveness of
the new system in practice. Accordingly, the Commission is temporarily
approving the proposed rule change through March 31, 1999. During this
temporary approval period, upon the Commission's request DCC will
submit reports detailing its analysis of its overnight repo margining
system.
DCC 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
the date of publication of notice of filing because accelerated
approval will allow DCC to continued to use its overnight repo
margining procedures without interruption when the current temporary
approval period expires on March 31, 1998.
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, N.W., Washington, D.C. 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, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of DCC. All
submissions should refer to the File No. SR-DCC-98-03 and should be
submitted by April 29, 1998.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-DCC-98-03) be, and hereby
is, approved through March 31, 1999.
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).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-9129 Filed 4-7-98; 8:45 am]
BILLING CODE 8010-01-M
