98-19440. Self-Regulatory Organizations; Government Securities Clearing Corporation; Order Approving a Proposed Rule Change Relating to Funds- Only Settlement Payment Procedures

[Federal Register Volume 63, Number 140 (Wednesday, July 22, 1998)]
[Notices]
[Pages 39320-39321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19440]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40207; File No. SR-GSCC-98-01]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Order Approving a Proposed Rule Change Relating to Funds-
Only Settlement Payment Procedures

July 15, 1998.
    On February 17, 1998, the Government Securities Clearing 
Corporation (``GSCC'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change (File No. SR-GSCC-
98-01) pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act'').\1\ Notice of proposal was published in the Federal 
Register on April 21, 1998.\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. 39860 (April 14, 1998), 
63 FR 19774.
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I. Description

    Two important elements of GSCC's risk management process are the 
daily calculation and collection of clearing fund deposit deficiency 
amounts and of mark to the market margin. At times, GSCC is obligated 
to pay a member a FOS amount on a day on which that member also has a 
clearing fund deficiency call. Pursuant to its current rules, GSCC is 
required to make the FOS payment to such a member prior to the time the 
member must make its clearing fund deficiency payment to GSCC.\3\ The 
proposed rule change permits GSCC to retain FOS payments it owes to a 
member and to apply such amounts to any clearing fund deposit 
obligation the member owes to GSCC.\4\
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    \3\ GSCC is required to pay FOS obligations to members by 10:00 
a.m. eastern time (``ET''). Members must satisfy clearing fund 
deficiencies by the later of two hours after the receipt of GSCC's 
call or 10:00 a.m. ET. However, if the notification is not made 
earlier then two hours before the close of the cash FedWire, members 
may satisfy the calls on the next business day.
    \4\ GSCC does not plan to exercise the offset right unless it 
has a significant FOS obligation to a member (i.e., $5 million or 
more), and the member has a significant clearing fund deficiency 
(i.e., $5 million or more).
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    Under the proposed rule change, GSCC is entitled to retain the 
lesser of the FOS amount or the amount of the clearing fund call (or 
the entire FOS amount if the difference between the amounts is zero) 
and apply it to the member's clearing fund deposit requirement. If a 
member pays all or a portion of its clearing fund deficiency in any 
type of eligible collateral by a preestablished time before GSCC's 
deadline to make its own FOS payments to members,\5\ GSCC is only 
entitled to retain the portion of its FOS obligation to the member in 
an amount equal to the member's remaining clearing fund deficiency.\6\
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    \5\ GSCC plans to set the preestablished time at fifteen minutes 
before GSCC's deadline to make it own FOS payments to members.
    \6\ Pursuant to GSCC's existing rules, a member has the right to 
substitute eligible collateral for any cash that GSCC applies to its 
clearing fund deposit as a result of an offset.
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II. Discussion

    Section 17A(b)(3)(F) of the Act \7\ requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds in its custody or control or for which it is responsible. The 
Commission believes that the proposed rule change is consistent with 
this obligation because it will allow GSCC to increase its control over 
FOS payments it owes to members that have a significant clearing fund 
deposit obligation. This should

[[Page 39321]]

help reduce the risk to GSCC that a member will fail after it has 
received a FOS payment from GSCC but before it has satisfied its 
clearing fund deficiency call. Thus, the proposal should enhance GSCC's 
risk management process.
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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-GSCC-98-01) 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. 98-19440 Filed 7-21-98; 8:45 am]
BILLING CODE 8010-01-M