[Federal Register Volume 62, Number 127 (Wednesday, July 2, 1997)]
[Notices]
[Pages 35859-35860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-17252]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38769; File No. SR-MBSCC-97-02]
Self-Regulatory Organizations; MBS Clearing Corporation; Order
Approving a Proposed Rule Change Relating to the Valuation of
Securities Deposited as Collateral in the Participants Funds to Satisfy
Daily Margin Requirements
June 24, 1997.
On February 12, 1997, MBS Clearing Corporation (``MBSCC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change (File No. SR-MBSCC-97-02) pursuant to Section 19(b) (1) of
the Securities Exchange Act of 1934 (``Act'').\1\ On March 26, 1997,
MBSCC filed an amendment to the proposed rule change.\2\ Notice of the
proposal was published in the Federal Register on April 28, 1997.\3\ 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\ Letter form Richard J. Paley, MBSCC (March 25, 1997).
\3\ Securities Exchange Act Release No. 38536 (April 22, 1997),
62 FR 22983.
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I. Description
MBSCC's rules allow participants to satisfy their margin
requirements by depositing approved forms of collateral such as cash,
securities,\4\ and letters of credit into the participants fund.
Recently, securities have become the dominant form of acceptable
collateral used by participants to satisfy their margin requirements.
As a result of this increased use of securities, MBSCC reappraised the
value given to securities deposited as collateral for participants
funds obligations.
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\4\ Securities acceptable as collateral include direct
obligations of the United States (i.e., Treasury Bills, Treasury
Notes, and Treasury Bonds) (``Treasury securities'') and mortgage-
backed securities issued by the Government National Mortgage
Association, the Federal National Mortgage Association, and the
Federal Home Loan Mortgage Corporation.
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Currently, MBSCC values mortgage-backed securities at the lesser of
par or current market value, and it values Treasury securities at
current market value. MBSCC revalues both types of securities daily and
analyzes them for pending maturity.
Under the proposal, MBSCC will value mortgage-backed securities
with a remaining maturity of one year or more at the lesser of par or
95 percent of the current market value and Treasury securities with a
remaining maturity of one year or more at 95 percent of their
[[Page 35860]]
current market value.\5\ MBSCC will value mortgage-backed securities
with a remaining maturity of less than one year at the lesser of par or
the current market value and Treasury securities with a remaining
maturity of less than one year at the current market value. MBSCC will
continue to revalue securities daily and analyze them for pending
maturity before the depositing participant is credited.\6\
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\5\ The proposal also provides that from time to time MBSCC may
use a lower percentage of the current market value in determining
the collateral value of mortgage-backed securities or Treasury
securities.
\6\ Because par value for mortgage-backed securities is $100,
the proposed rule change will apply a five percent haircut only to
those mortgage-backed securities that have a current market value of
$105 or less. For example, a mortgage-backed security with a current
market value exceeding $105 is and will continue to be revalued to a
par value of $100. However, a mortgage-backed security with a
current market value of $105 will now be revalued to $99.75 or 95
percent of current market value. Similarly, a mortgage-backed
security with a current market value of $99 will be revalued to
$94.05.
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II. Discussion
Section 17A(b) (3) (F) of the Act requires that the rules of a
clearing agency be designed to ensure the safeguarding of securities
and funds in its custody or control or for which it is responsible.\7\
The Commission believes that MBSCC's proposed rule change is consistent
with its obligations under Section 17A of the Act. By amending this
valuation procedures, MBSCC's valuation should more accurately reflect
the actual values of the securities deposited as collateral.
Accordingly, MBSCC will have greater certainly that the securities
deposited by a participant will be sufficient to satisfy the
participant's obligations to MBSCC in the event that the participant
becomes insolvent or defaults.
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\7\ 15 U.S.C. 78q-1(b) (3) (F).
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III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A 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-97-02) be and hereby
is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a) (12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-17252 Filed 7-1-97; 8:45 am]
BILLING CODE 8010-01-M
