00-16064. Self-Regulatory Organizations; MBS Clearing Corporation; Notice of Filing of Proposed Rule Change Relating to Letters of Credit

June 20, 2000.

Pursuant to Section 19(b) ^[1] of the Securities Exchange Act of 1934 (“Act”), notice is hereby given that on April 11, 2000, the MBS Clearing Corporation (“MBSCC”) filed with the Securities and Exchange Commission (“Commission”) and on June 13, 2000, amended the proposed rule change as described in Items I, II, and III below, which Items have been prepared primarily by MBSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The proposed rule change will prohibit MBSCC from accepting a letter of credit from a participant when the participant or an affiliate of that participant issues the letter of credit.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, MBSCC 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. MBSCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.^[2]

(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 modify Article IV, Rule 2, Section 9 of MBSCC's rules, which governs deposits of letters of credit by participants to the participants fund for margin purposes. This rule provides that MBSCC may approve as the issuer of a letter of credit any domestic or foreign bank or trust company meeting the requirements set forth in procedures adopted from time to time by MBSCC.

The proposed rule change will amend Article IV, Rule 2, Section 9 by adding a new subsection (b) which will prohibit MBSCC from accepting a letter of credit from a participant that is issued by that participant or by an affiliate of that participant.^[3] The proposed rule change will codify MBSCC's historical practice of requiring that a letter of credit deposited by a participant to the participants fund be issued by an approved letter of credit issuer other than the participant or an affiliate of the participant.

The proposed rule change also makes a technical modification to Article III, Rule 5 of MBSCC's rules to correct the reference contained within such rule from “Rule 4” to “Rule 5.”

MBSCC believes that the proposed rule change is consistent with the requirements of Section 17A(b)(3)(A) ^[4] of the Act and the rules and regulations thereunder because it is designed to assure the safeguarding of securities and funds that are in the custody or control of MBSCC or for which it is responsible.

(B) Self-Regulatory Organization's Statement on Burden on Competition

MBSCC does not believe that the proposed rule change will have an impact on 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

No written comments relating to the proposed rule change have been solicited or received. MBSCC will notify the Commission of any written comments received by MBSCC.

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 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, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 in Washington, D.C. Copies of such filing will also be available for inspection and copying at MBSCC's principal office. All submissions should refer to File No. SR-MBSCC-00-01 and should be submitted by July 17, 2000.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.^[5]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  The Commission has modified the text of the summaries prepared by MBSCC.

3.  Article I, Rule 1 of MBSCC's rules will be amended as follows. “The term an ‘Affiliate’ of, or a person ‘Affiliated’ with, a specified person, means a person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. For purposes of this definition, the term ‘control’ (including the terms ‘controls,’ ‘controlled by,’ and ‘under common control with’) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.”

4.  15 U.S.C. 78q-1(b)(3)(A).

5.  17 CFR 200.30-3(a)(12).