[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)]
[Notices]
[Pages 27088-27089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12883]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38603; File No. SR-GSCC-96-12]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Order Approving a Proposed Rule Change Relating to
Interdealer Broker Repurchase Agreement Transactions
May 9, 1997.
On November 21, 1996, the Government Securities Clearing
Corporation (``GSCC'') filed with the Securities and Exchange
Commission (``Commission'') a proposed rule change (File No. SR-GSCC-
96-12) pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934 (``Act'').\1\ On December 3, 1996, GSCC filed with the Commission
an amendment to the proposed rule change. Notice of the proposal was
published in the Federal Register on February 20, 1997.\2\ No comment
letters were received. For the reasons discussed below, the Commission
is approving the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 38287 (February 13,
1997), 62 FR 8068.
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I. Description
Generally, interdealer brokered (``IDB'') submit data to GSCC on
corresponding repo transactions entered into with two non-IDB
counterparties with the intent of maintaining a flat position (i.e.,
the IDB's deliver obligations are equal to its receive obligations).
Thus, the IDB does not have margin or clearing fund consequences from
the trades at GSCC. However, when one non-IDB counterparty fails to
submit in a timely or accurate fashion data related to the transaction,
the IDB's trade with the non-submitting counterparty will not compare
and will not enter GSCC's
[[Page 27089]]
netting system. If the corresponding repo submission compares and
enters the net, the IDB will have a net settlement position and may
incur clearing fund and funds-only settlement assessments.\3\
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\3\ The funds-only settlement assessment is designed to
collateralize a member's net cash payment obligations to GSCC.
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The proposed rule change amends Rule 19, which sets forth special
provisions for brokers repo transactions, by adding Section 3. Section
3 reaffirms the obligation of a non-IDB netting member to submit in a
timely and accurate manner to GSCC or to another registered or exempted
clearing agency data on all of its brokered repo transactions.\4\
Section 3 also provides that if a non-IDB member fails without good
cause to submit data on a brokered repo transaction in a timely or
accurate manner, GSCC may treat the transaction as compared based on
the data submission received from the counterparty IDB for purposes of
assessing clearing fund deposits and funds-only settlement payments.
Prior to GSCC's assessing clearing fund and funds-only settlement
consequence to a non-IDB netting member that has failed to submit such
trade data in a timely and accurate manner, GSCC would attempt to
contact (e.g., by telephone) as promptly as possible such non-IDB
netting member in order to confirm the accuracy of the data submitted
by its IDB netting member counterparty. If the lack of comparison arose
because of operational or other problems on the part of the IDB party
and the non-IDB netting member therefore does not know the trade, GSCC
would not assess margin consequences against the non-IDB netting
member.
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\4\ GSCC rules currently require that repo netting members
submit in a timely manner data on all eligible repo transactions
either to GSCC or to another registered clearing agency or a
clearing agency that has been exempted from registration as a
clearing agency by the Commission. Currently, only one other
registered clearing agency, Delta Clearing Corp., clears and settles
repo transactions in government securities. Typically, dealers enter
into a brokered transaction with the understanding that such trade
will be cleared and settled through a specified clearing agency.
Therefore, if the counterparties to a repo transaction have selected
GSCC as the clearing agency to be used, failure to submit the
relevant data may be a violation of GSCC's rules.
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II. Discussion
Section 17A(b)(3)(F) \5\ of the Act provides that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions and to assure the
safeguarding of securities and funds in the custody or control of the
clearing agency or for which it is responsible. Without this amendment,
a non-IDB that has failed to submit trade data as required by GSCC
rules would not be required to pay the related clearing fund and funds-
only settlement obligations. Instead, these obligations would fall upon
the IDB. Because of their traditional role, IDBs tend to have fewer
financial resources to pay these obligations. The amendment is an
effort to place the financial obligations associated with a trade on
the proper party. By collecting funds from the party that represents
the real settlement risk (i.e., the non-IDB party), the proposal helps
to safeguard the securities and funds in the custody or control of
GSCC.
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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In addition, without this proposal, non-IDBs do not have an
incentive to submit data in a timely fashion because failure to submit
data results in clearing fund and funds-only settlement obligations not
being assessed to them. By ensuring that the non-IDBs will be required
to collateralize their risks whether or not they submit data, the
amendment removes any incentive to fail to fulfill data submission
obligations. Thus, the proposal promotes the prompt and accurate
clearance and settlement of securities transactions.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of Section 17A(b)(3)(F) of
the Act and the rules and regulations thereunder. It is therefore
ordered, pursuant to section 19(b)(2) of the Act, that the proposed
rule change (File No. SR-GSCC-96-12) be, and hereby is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegate authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12883 Filed 5-15-97; 8:45 am]
BILLING CODE 8010-01-M
