01-13956. Self-Regulatory Organizations; The Government Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to Fee Structures

May 29, 2001.

Pursuant to section 19(b)(1) of the Securities and Exchange Act of 1934 (“Act,”) ^[1] notice is hereby given that on April 18, 2001, the Government Securities Clearing Corporation (“GSCC”) filed with the Securities and Exchange Commission (“Commission”) and on April 27, 2001, amended the proposed rule change as described in Items I, II, and III below, which items have been prepared primarily by GSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties.

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

The proposed rule change will allow GSCC to amend its fee structure to reallocate certain repurchase transaction (“repo”) processing fees in both its delivery-versus-payment (“DVP”) and GCF Repo services to provide for a more equitable distribution among its members. These changes became effective on May 1, 2001.

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

In its filing with the Commission, GSCC included statement concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the rule change. The text of these statements may be examined at the places specified in Item IV below. GSCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.^[2]

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

Effective February 2, 1998, GSCC revised its pricing structure for the cost of carry related to term repo transactions (i.e., repo transactions in which the close leg is scheduled to settle more than one day after the start leg) in its DVP service to: (a) Cover the true cost of providing its netting services to such transactions, which involves significant risk management, operational, and technological resources and (b) more closely reflect the benefits derived by members from the service.^[3] To accomplish these goals, GSCC shifted from a transactional charge to a basis point charge, which is a more appropriate pricing method because it is based on the size of the term repo transaction in dollar terms. It thus reflects the fact that the larger the dollar amount of the repo the more risk it brings to GSCC. Moreover, the larger the dollar amount of the repo the greater the benefits incurred by the member, including balance sheet relief and guaranteed settlement.

The basis point charges that were adopted by GSCC and are currently in effect are as follows: (1) A .015 basis point fee is applied to the gross dollar amount of each repo transaction that has been compared and netted but which has not yet settled and (2) a .060 basis point fee is applied to the net dollar amount of a member's repo transactions within a CUSIP that have been compared and netted; but which has not yet settled. The fee in subsection (1) reflects the potential balance sheet offset benefit derived by the member for its repo activity. The fee in subsection (2) reflects the guarantee of settlement and other risk management benefits provided by GSCC once a member's activity has been netted within a CUSIP. A similar set of fees applies to GCF Repo transactions with no distinction between overnight and term GCF Repo transactions.

The proposed rule change addresses the manner in which the fee in subsection (1) above is applied to brokered term repo transactions. Currently if Dealer A and Dealer B enter into a DVP term repo transaction or a GCF Repo transaction through Repo Broker C, each of Dealer A and Dealer B would be subject to the .015 basis point charge. Repo Broker C, however, would be subject to two .015 basis point charges (i.e., the repo transaction with Dealer A and the reverse with Dealer B for a total .030 basis point fee). It is the inequity in the application of the fee structure to brokers and dealers that GSCC is proposing to address herein.

Specifically, GSCC is proposing to reduce the fee for repo brokers with respect to their DVP term brokered repo transaction activity and their GCF Repo transaction activity to a .010 basis point fee and to increase the fee for all other netting members (including repo brokers with respect to their non-brokered repo transaction activity) to a .020 basis point fee. Therefore, in the example above, each of Dealer A, Dealer B, and Repo Broker C would be required to pay a .020 basis point fee. Repo Broker C's fee reflects a .010 basis point charge for the repo with Dealer A and a .010 basis point charge for the reverse with Dealer B. This results in a more equitable treatment of all of the parties to the transaction.

GSCC is not proposing any changes to the current .060 basis point fee applicable to the net dollar amount of DVP term repo transactions within a CUSIP or GCF Repo transactions. The .060 basis point fee, which is based on netted dollar amounts, does not raise issues of inequitable application because brokers maintain flat positions.

The proposed rule change is consistent with the requirements of Act because it involves changes to GSCC's fee structure that more fairly reflects the distribution of the costs incurred by GSCC in providing services to its members.

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

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

Written comments relating to the proposed rule change have not yet been solicited or received. GSCC will notify the Commission of any written comments received by GSCC.

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)(ii) of the Act and Rule 19b-4(f)(2) thereunder because the proposed rule change is changing a due, fee, or charge imposed by the self-regulatory organization. At any time within sixty days of the filing of such proposed 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 Act.

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, N.W., Washington, D.C. 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 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 GSCC. All submissions should refer to File No. SR-GSCC-2001-04 and should be submitted by June 25, 2001.

For the Commission, by the Division of Market Regulations, pursuant to delegated authority.

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 GSCC.

3.  Securities Exchange Act Release No. 34-39685 (February 27, 1998), 63 FR 10055 [File No. SR-GSCC-97-09] (approving amendments to GSCC's fees for processing term repurchase agreements).