[Federal Register Volume 59, Number 97 (Friday, May 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12302]
[[Page Unknown]]
[Federal Register: May 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34066; File No. SR-MBS-94-02]
Self-Regulatory Organizations; MBS Clearing Corporation; Notice
of Filing of Proposed Rule Change Relating to the Establishment of the
Electronic Pool Notification Service
May 13, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 6, 1994, the MBS
Clearing Corporation (``MBS'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change (File No. SR-MBS-
94-02) as described in Items I, II, and III below, which Items have
been prepared primarily by the self-regulatory organization. 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) (1988).
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I. Self-Regulatory Organizations Statement of the Terms of Substance of
the Proposed Rule Change
The proposed rule change will add Articles VI, VII, VIII, IX, and X
to MBS's rules relating to the establishment of MBS's electronic pool
notification (``EPN'') service.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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. The self-regulatory organization
has prepared summaries, set forth in section A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to add Articles VI, VII,
VIII, IX, and X to MBS's rules relating to the establishment of MBS's
EPN service. EPN is a real-time, store and forward message switch that
will provide an electronic communications network through which EPN
Users will be able to transmit mortgage-backed securities pool
allocation information regarding securities deliveries for settlement
quickly and efficiently. An EPN Message will be required to contain (i)
the lot-sequence of Good Delivery Millions (i.e., the number of million
dollar lots delivered in accordance with PSA guidelines); (ii) a pool
number that references a specific pool of mortgages; (iii) the
principal amount at date of issue; (iv) the coupon rate; and (v) a
termination code. In addition, an EPN Message may contain additional
information, such as the maturity date, CUSIP number, current
outstanding principal amount, an MBS trade number, internal control
number, and interest accrued, among other things.
Currently, in order for participants to notify other participants
of pool information, participants must manually phone or fax the
information to other participants. Because of the nature of this method
of exchanging information, busy signals are common. Historically,
billions of dollars of fails have been incurred each month because
sellers are not able to communicate with buyers because of the buyer's
phone, fax, and staffing limitations. The proposed rule change,
therefore, will establish rules for the EPN service which should make
this process more efficient and more reliable.
MBS has decided that a complete stand-alone set of rules for EPN
was preferable to trying to integrate the EPN rules into existing MBS
rules. As a result, many of the EPN rules mirror existing MBS rules and
make those rules applicable to users of the EPN service. To this end,
there has been an attempt to use the same terms and definitions that
MBS uses in its current rules wherever possible.
The EPN rules do differ, however, from existing MBS rules in
several respects. First, the EPN rules describe EPN and define new
terms related to EPN such as ``EPN Eligible Security,'' ``EPN User,''
``EPN User Profile,'' ``EPN User Agreement,'' ``EPN User Fund,'' ``EPN
Service,'' ``Message Detail Report,'' ``Message Purge Report,''
``Message Recovery Report,'' and ``Messages,'' etc. These reflect
applicable names for existing functions and new services and concepts
that do not exist in the current MBS rules. For example, because users
of the EPN service will not necessarily be full participants of MBS,
they are called ``EPN Users.'' In addition, the EPN User fund entails
the same concept as the current participants fund.
Another change from existing rules concerns who can become an EPN
User. Because EPN is essentially a sophisticated e-mail-database system
that does not involve the clearance or settlement of securities, the
risk to MBS from defaulting EPN Users is limited to their fees. As a
result, the standards for the approval of applicants to become an EPN
User is significantly less than is required of applicants who wish to
become full participants of MBS. It is anticipated that applicants who
would not qualify as participants of MBS could still become EPN Users.
Because the EPN service will time stamp messages, the new rules
provide that this time stamp will determine good delivery. The rules
also provide the several reports will be issued to EPN Users, one of
which will constitute a confirmation. In addition, as stated above, the
new EPN rules provide for an EPN User Fund. This is intended to be
similar in purpose to, but smaller in scope than, the existing
participants fund. This will protect MBS in the event that any EPN User
defaults in payments of fees. Finally, like MBS's existing rules, the
EPN rules expressly limit MBS's liability in the performance of its
obligations to the same extent as MBS's existing rules.
MBS believes that the proposed rule change is consistent with
Section 17A of the Act and the rules and the regulations thereunder in
that it promotes the prompt and accurate clearance and settlement of
securities transactions.
B. Self-Regulatory Organization's Statement on Burden on Competition
MBS does not believe that the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants, or Others
The proposed rule change was developed through discussions with
participants and the Computer-To-Computer-Interface User
Committee.Written comments from MBS participants or others have not
been solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 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 90 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 self-regulatory organization 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 submission
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549. Copies
of the submissions, 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 NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of MBS. All submissions
should refer to File Number SR-MBS-94-02 and should be submitted by
June 10, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-12302 Filed 5-19-94; 8:45 am]
BILLING CODE 8010-01-M
