[Federal Register Volume 59, Number 121 (Friday, June 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15427]
[[Page Unknown]]
[Federal Register: June 24, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34232; Filed No. SR-DGOC-94-03]
Self-Regulatory Organization; Delta Government Options Corp.;
Notice of Filing of a Proposed Rule Change Relating to the Investment
of Federal Funds Deposited by Participants as Margin Collateral
June 17, 1994
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice if hereby given that on June 2, 1994, Delta
Government Options Corp. (``DGOC'') 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 DGOC. The Commission is publishing this notice to solicit
comments on the proposed rle change from interested persons
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\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
DGOC is proposing amendments to its procedures relating to the
investment of federal funds deposited by participants as margin
collateral. The purpose of the proposed rule change is to expand the
form of acceptable collateral that can be taken in connection with the
investment of cash margin funds in repurchase agreements.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis For, the Proposed Rule Change
In its filing with the Commission, DGOC included statments
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. DGOC has prepared sumaries, set forth in section A, B,
and C below, of the most significant aspects of such statments.
A. Self-Regulatory Organization's Statement of the Purpose Of, and
Statutory Basis for, the Proposed Rule Change
DGOC's proposal will establish a six month pilot program testing a
new service which will expand DGOC's allowable investments of federal
funds deposited by participants as margin collateral. The purpose of
the new service is threefold: first, to employ a prudent methodology to
monetize the asset value of participants' net long positions; second,
to provide a superior rate of return on repurchase agreements for those
participants providing cash collateral; and third, to provide a
commercial inducement for participants to effect a greater proportion
of their over-the-counter transactions through a registered clearing
facility.
The proposed rule change will amend Article VI, Section 601 of
DGOC's procedures to permit DGOC's clearing bank or its affiliate to
invest cash margin deposits in repurchase agreements which are
collateralized by participants' long positions.\2\ The maximum value of
a repurcahse agreement collateralized by a participant's long position
will be determined as follows.
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\2\The value of the repurchase agreements collateralized by a
participant's long positions will be limited to 35% of the
participant's long positions after adjusting for such participant's
performance margin valuation. DGOC also added an Interpretation to
Section 601 limiting the total of all repurchase agreements
collateralized by participants' long positions to the difference
between total cash margin and the greater of either $10 million or
10% of the total cash margin.
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First, the participant's long position will be calculated in
accordance with DGOC's prescribed methodology whereby the long position
equals the sum of the mark-to-market values of each option owned by a
participant less the sum of the mark-to-market values of each option
written by a participant. Second, the long position then will be
reduced in value using DGOC's margin calculation which is comprised of
a performance margin component and a mark-to-market margin component.
Under DGOC's margining system, performance margin is calculated for
both long positions and short positions because performance margin
represents an estimate of the potential reduction in value of both long
and short positions at the close of the next succeeding business day
taking into account the most adverse market movement in the price of
underlying Treasury securities which reasonable could be anticipated.
Performance margin is always a negative number. Mark-to-market margin
represents the net amount of the estimated cost to liquidate a
participant's short positions offset by the estimated proceeds from the
liquidation of its long positions. Mark-to-market margin can be a
positive or negative amount depending upon whether a participant has a
long or short position. Third, the adjusted long position valuation
amount is then multiplied by a loan to value ration, which for the
pilot program will be 35%. The product of this calcualtion is the
maximum that can be loaned through a repurchase agreement to a
participant using the participant's long positions in DGOC options as
collateral.\3\ To prevent an undue concentrated exposure to any single
participant, the amount of such repurchase agreement with any single
participant may not exceed a specified amount which will be determined
during or at the end of the test period.
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\3\As an example, if a participant has a long position of $15
million with a performance margin requirment of $5 million and a
mark-to-market margin valuation of $15 million, the maximum
repurchase agreement allowed would be $3.5 million calculated as
follows: ($15M-$5M) x 35% =$3.5M.
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The proposed rule change is consistent with the requirements of
Section 17A of the Exchange Act and the rules and regulations
thereunder applicable to DGOC. Specifically, Section 17A(b)(3)(F) of
the Exchange Act requires that a clearing agency be organized and its
rules be designed among other things, to promote the prompt and
accurate clearance and settlement of securities transactions and to
remove impediments to and perfect the mechanism of a national system
for the prompt and accurate clearance and settlement of securities
transactions.\4\ The proposed rule change will enable DGOC to provide
greater flexibility to its participants and permit more utilization of
the system by DGOC's participants.
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\4\15 U.S.C. 78q-1(b)(3)(F) (1988).
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B. Self-Regulatory Organization's Statement on Burden on Competition
DGOC perceives no impact on competition by reason of the propose
rule change.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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 self-regulatory organization consents,
the Commission will:
(A) By order approve the 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
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 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 the above-referenced
self-regulatory organization. All submissions should refer to File No.
SR-DGOC-94-03 and should be submitted by July 15, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15427 Filed 6-23-94; 8:45 am]
BILLING CODE 8010-01-M
