[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)]
[Notices]
[Pages 27091-27093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12827]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38594; File No. SR-MCC-97-01]
Self-Regulatory Organizations; Midwest Clearing Corporation;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating to the Return of Sponsored Account Fund Deposits
May 9, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 27, 1997, Midwest
Clearing Corporation, (``MCC'') 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
MCC. The Commission is publishing this notice to solicit comments from
interested persons on 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 purpose of the proposed rule change is to adopt a form of
indemnity agreement in accordance with Article XI, Rule 2, Section 11
of MCC's rules.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, MCC 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. MCC has prepared summaries, set forth in sections A, B,
[[Page 27092]]
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 MCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On January 5, 1996, the Commission approved a proposed rule change
filed by MCC relating to its withdrawal from the securities clearance
and settlement business in conjunction with an agreement with the
National Securities Clearing Corporation (``NSCC'').\3\ Under the
agreement, MCC became an NSCC member and agreed to sponsor at NSCC
certain floor members and member organizations (``sponsored
participants'') of MCC's parent corporation, the Chicago Stock Exchange
(``CHX''). The purpose of sponsoring participants was to provide
specialists, market makers, and floor brokers of CHX that are not
members of a registered clearing agency (other than MCC) with access to
the services of a registered clearing agency. As of January 21, 1997,
MCC had 33 sponsored participants.
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\3\ For a description of the agreement, refer to Securities
Exchange Act Release No. 36684 (January 5, 1996), [File No. SR-MCC-
95-04] (order approving proposed rule change).
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To reduce MCC's exposure to the sponsored participant's trading
activity, Article XI, Rule 11 of MCC's rules require sponsored
participants to contribute to a sponsored account fund. All
contributions to the sponsored account fund must be in cash. If MCC
ceases to act on behalf of a sponsored participant for any reason,
Article XI, Rule 11(h) and Article IX, Rule 2, Section 11 of MCC's
rules permit MCC to retain the sponsored participant's sponsored
account fund deposit until the sponsored participant satisfies certain
requirements.\4\ A sponsored participant may choose the method by which
to protect MCC from potential losses. One method is by entering into a
form of indemnity agreement acceptable to MCC.
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\4\ Article XI, Rule 11(h) states that the return of sponsored
account fund deposits is governed by Article IX, Rule 2, Section 11.
Generally, Article IX, Rule 2, Section 11 provides that whenever a
sponsored participant ceases to be a participant, the amount of its
contribution to the sponsored account fund must be returned to it
ninety days after:
(i) All transactions open at the time it ceases to be a
sponsored participant from which losses or payments chargeable to
the sponsored participants fund might result have been closed,
(ii) All obligations, contingent or otherwise, that are
chargeable or may become chargeable against its contributions
pursuant to MCC's rules have been satisfied or, at the discretion of
MCC, have been deducted, and
(iii) Either another sponsored participant has been substituted,
with the approval of MCC, on all transactions and obligations of the
sponsored participant, or the participant has presented to MCC such
indemnities or guarantees as MCC deems satisfactory.
If the sponsored participant does not satisfy all the
requirements set forth in paragraph (iii) above, MCC may retain for
up to four years, the greater of:
(a) 25 percent of a sponsored participant's average sponsored
account fund requirement over the twelve months immediately prior to
the date the sponsored participant ceases to be such, or
(b) $100,000 (or the Participant's entire Participants Fund
deposit if the actual deposit is less than $100,000).
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The purpose of the proposed rule change is to adopt an acceptable
form of indemnity agreement.\5\ Under the form of indemnity agreement,
a sponsored participant agrees to indemnify and hold MCC and its
officers, directors, and certain other personnel harmless from any loss
(including attorneys' fees) caused by the sponsored participant. The
sponsored participant also agrees to indemnify MCC, its officers, and
certain other personnel for other losses that could be charged against
the sponsored account fund generally to the same, or in certain cases,
a lesser extent, than if the sponsored participant had not received its
deposit back.
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\5\ A copy of the form agreement is attached as Exhibit A to
MCC's proposed rule change which is available for inspection and
copying at the Commission's Public Reference Room or through MCC.
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Pursuant to the form of indemnity agreement, the amount owing for
these other losses (i) Will not exceed the amount the sponsored
participant had on deposit at the time of the sponsored participant's
withdrawal from MCC and (ii) will not be applicable if the underlying
conduct giving rise to the loss occurred after the withdrawal. In
addition, the indemnity will cease in its entirety after four years
from the date the indemnity is signed.
While MCC believes that the form of indemnity agreement will be
deemed satisfactory in many cases, MCC still reserves the right to
require, in its discretion, additional indemnities and guarantees above
and beyond the form of indemnity agreement or to decline to accept any
indemnity agreement or guarantee in lieu of retaining sponsored account
fund deposits. This may be necessary, for example, if the withdrawing
sponsored participant is on the verge of bankruptcy or insolvency.
MCC believes that the proposed rule change is consistent with
Section 17A(b)(3)(f) \6\ of the Act in that it will facilitate the
prompt and accurate clearance and settlement of securities transactions
and will assure the safeguarding of securities and funds which are in
MCC's custody or control or for which MCC is responsible.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Self-Regulatory Organization's Statement on Burden on Competition
MCC 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
MCC has neither solicited nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become effective pursuant to Section
19(b)(3) (A)(i) \7\ of the Act and pursuant to Rule 19b-4(e)(1) \8\
promulgated thereunder because the proposal constitutes a stated
policy, practice, or interpretation with respect to the meaning,
administration, or enforcement of an existing rule of MCC. At any time
within sixty days of the filing of such rule change, the Commission may
summarily abrogate such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act.
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\7\ 15 U.S.C. 78s(b)(3)(A)(ii).
\8\ 17 CFR 240.19b-4(e)(1).
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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, 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 also will be available
for inspection and copying at the principal office of MCC. All
submissions should
[[Page 27093]]
refer to File No. SR-MCC-97-01 and should be submitted by June 6, 1997.
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. 97-12827 Filed 5-15-97; 8:45 am]
BILLING CODE 8010-01-M
