[Federal Register Volume 62, Number 108 (Thursday, June 5, 1997)]
[Notices]
[Pages 30918-30919]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-14690]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38697; File No. SR-MBSCC-97-03]
Self-Regulatory Organizations; MBS Clearing Corporation; Order
Approving a Proposed Rule Change Relating to the Establishment of the
Comparison Only System
May 30, 1997.
On February 18, 1997, the MBS Clearing Corporation (``MBSCC'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change (File No. SR-MBSCC-97-03) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of
the proposal was published in the Federal Register on April 7, 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. 38461 (April 1, 1997),
62 FR 16634.
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I. Description
The proposed rule change modifies MBSCC's rules to establish the
Comparison Only System (``COS'') and to create a new category of
participant, a ``limited purpose participant,'' eligible to use this
system. As a result of interest expressed by the Federal National
Mortgage Association and other organizations, MBSCC developed COS.
Under current MBSCC rules, MBSCC processes securities through its
Comparison and Clearing System (``CCS'') which provides a comparison
and confirmation service, risk management services, and a multilateral
netting service. The proposed COS is a more limited system than the CCS
in that it will only provide comparison and confirmation services. COS
will be a system restricted to those that trade in a principal capacity
(i.e., as dealers) where specified trade data must exactly and promptly
compare between like contra-sides.
Because the COS is limited to comparison, participants will not be
required to meet specific net capital or net worth financial
requirements. COS will require each limited purpose participant to
submit financial information to demonstrate its financial ability to
meet its cash balance debit obligations to MBSCC, which are limited to
the fees for using the COS and any late fees imposed. It is expected
that these fees will be significantly lower than those imposed on
participants in the CCS; therefore, no basic deposit fee will be
required of COS participants. MBSCC will bill the limited purpose
participant on a monthly basis. The bill will be payable to MBSCC via
the federal funds wire. Similarly, limited purpose participants are not
subject to margin and participants fund requirements.
Under COS, after a trade is negotiated by the parties, trade data
will be submitted electronically by the parties to MBSCC for
comparison. The submitted trade data will be compared in MBSCC's AM or
PM processing pass. If a trade compares, MBSCC will issue a purchase
and sale report to each side of the trade.\3\ The purchase and sale
report will serve as the sole binding confirmation of the matched
trade.\4\ Trades compared through COS will be settled outside of the
MBSCC system. Trades that do not compare will be reported as unmatched
on a transaction
[[Page 30919]]
summary report sent to the parties. Individually or jointly, the
parties must then resolve or delete the unmatched trade by taking one
or more of the following on-line actions: delete, DK (don't know),
affirm, and new input. Unmatched trades will remain on a transaction
summary report until resolved. Until an unmatched trade is resolved or
deleted, the participant(s) that have not taken one or more of the on-
line actions will be subject to the imposition of any associated late
fees by MBSCC. Late fees are similarly assessed against the
participant(s) with unmatched trades in CCS. For purposes of computing
the late fees, each missed processing pass after a two pass grace
period will result in a separate assessment against the participant(s).
If the unmatched trade is resolved, MBSCC will compare and confirm it
with a purchase and sale report as described above.
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\3\ For a trade to compare in COS, certain trade data will have
to match exactly. Specifically, the trade data will be buyer
account, seller account, class code or CUSIP/pool number, price,
trade type, trade date, settlement date, and par value.
\4\ Under MBSCC's rules, as the sole confirmation, the purchase
and sale report will evidence a valid, binding, and enforceable
contract, and MBSCC will be entitled to rely upon the purchase and
sale report for all purposes under their rules. MBSCC Rules, Article
II, Rule 4, Section 2.
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II. Discussion
Section 17A(b)(3)(F) \5\ of the Act requires that the rules of a
clearing agency be designed to promote the prompt and accurate
clearance and settlement of securities transactions. The Commission
believes that MBSCC's proposed rule change is consistent with MBSCC's
obligation under the Act because the COS provides a more efficient
means to compare trade data for mortgage-backed securities.
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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The objective of COS is to improve the means by which trades in
mortgage-backed securities are compared by providing a centralized and
automated alternative to the current method of verbal contact and
physical processing. By automating the means by which trade data is
compared, MBSCC is fulfilling its statutory obligation of promoting 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-MBSCC-97-03) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated 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. 97-14690 Filed 6-4-97; 8:45 am]
BILLING CODE 8010-01-M
