[Federal Register Volume 62, Number 68 (Wednesday, April 9, 1997)]
[Notices]
[Pages 17259-17260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8997]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38472; File No. SR-GSCC-97-02]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of A Proposed Rule Change Relating To
Comparison of Transactions Between Insolvent And Solvent Members
April 2, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 11, 1997, 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.
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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
GSCC is proposing that it have the authority to issue a comparison
of a transaction based solely on data submitted by one netting member
when the counterparty to the trade becomes insolvent.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed 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\
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\2\ The Commission has modified the text of the summaries
submitted by GSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(i) Under the ordinary application of its rules, a transaction is
not eligible for netting and guaranteed settlement by GSCC until and
unless it is compared. Except for purchases made through the U.S.
government's auction of Treasury securities, GSCC's rules provide that
a comparison can only be generated upon the matching of data provided
by two members. GSCC believes that this poses a potential problem from
a risk management perspective in a situation where a netting member
becomes insolvent and does not submit trades it or an executing firm
for which it acts entered into prior to its insolvency. Absent the
taking by GSCC of extraordinary action to compare the trade, such
trades will not be netted and guaranteed. In such situations, GSCC
believes it necessary and appropriate for it to have the clear
authority under its rules to deem a transaction compared based solely
on the data submitted by the insolvent member's counterparty. However,
this needs to be done in a manner that does not expose GSCC to
liability to a netting member for fraudulent or collusive activity.
In order to accomplish these goals, GSCC is proposing that it have
the authority to issue a comparison of a transaction basedon data
submitted by a solvent netting member, which may be an interdealer
broker, under the following circumstances: (1) The data submitted by
the solvent member indicates that the counterparty to the transaction
is either an insolvent member or an executing firm that uses the
insolvent member as its submitting member; (2) the solvent member has
submitted in a timely manner all of its activity with the insolvent
member or executing firm; (3) if GSCC had announced to its members that
it would cease to act for the insolvent member as of a specified date
and time (and, thus, not accept any further trades submitted against
such member), the transaction was executed before such specified date
and time; (4) the transaction is not an ``off-the-market'' transaction
as defined in GSCC's rules,\3\ and (5) GSCC has made a determination
that the transaction was entered into by the solvent member or an
executing firm that uses the solvent member as its submitting member in
good faith and not primarily in order to take advantage of the
insolvent member's financial condition.
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\3\ GSCC has filed a proposed rule change (File No. SR-GSCC-97-
01) that will add a definition of ``off-the-market'' transactions to
its rules. Essentially, an off-the-market transaction is a trade
that has a price that differs significantly from the prevailing
market price.
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(ii) The proposed rule change is consistent with the requirements
of Section 17A the Act and the rules and regulations thereunder because
they will make clear GSCC's authority to take action to compare trades
in an insolvency situation without exposing GSCC to liability to a
netting member for fraudulent or collusive activity.
B. Self-Regulatory Organization's Statement on Burden on Competition
GSCC does not believe that the proposed rule change will have an
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
Written comments relating to the proposed rule change have not yet
been solicited or received. Members will be notified 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 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 the GSCC consents, the Commission will:
(A) By order approve such proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
[[Page 17260]]
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 Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
GSCC. All submissions should refer to File No. SR-GSCC-97-02 and should
be submitted by April 30, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-8997 Filed 4-8-97; 8:45 am]
BILLING CODE 8010-01-M
