[Federal Register Volume 64, Number 156 (Friday, August 13, 1999)]
[Notices]
[Pages 44249-44250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-21043]
[[Page 44249]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41715; SR-GSCC-99-03]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Relating to the
Acceptance of Letters of Credit as Clearing Fund Collateral
August 6, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 3, 1999, Government
Securities Clearing Corporation (``GSCC'') filed with the Securities
and Exchange Commission (``Commission'') and on May 24, 1999, amended
the proposed rule change [File No. SR-GSCC-99-03] 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 from
interested persons on the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The purpose of the proposed rule change is to replace GSCC's
current letter of credit form with a letter of credit form developed by
the Unified Clearing Group.\2\
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\2\ GSCC attached a copy of the uniform letter of credit as
Exhibit A to the filing.
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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 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. GSCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\3\
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\3\ The Commission has modified the text of the summaries
prepared by GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
GSCC's Rule 4, Section 4, permits GSCC to accept letters of credit
(in addition to cash and eligible netting securities) as clearing fund
collateral. GSCC's rules define ``eligible letter of credit'' as a
letter of credit that is, among other things, ``in a form, and contains
such other terms and conditions, as may be required by the
Corporation.'' GSCC has determined that as of September 1, 1999, a
letter of credit delivered to GSCC as clearing fund collateral must be
in the form of the uniform letter of credit (``ULC'') developed by the
Unified Clearing Group (``UCG''). The UCG is an organization comprised
of all major securities and futures clearing corporations and
despositories in the United States.\4\
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\4\ The members of the UCG include the Boston Stock Exchange
Clearing Corporation, The Depository Trust Company, GSCC, MBS
Clearing Corporation, National Securities Clearing Corporation, The
Options Clearing Corporation, Board of Trade Clearing Corporation,
Chicago Mercantile Exchange, Clearing Corporation of New York,
Kansas City Board of Trade, Minneapolis Grain Exchange, New York
Mercantile Exchange, Emerging Markets Clearing Corporation, and
Clearing Corporation for Options and Securities.
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The ULC was developed to (i) foster uniformity among the various
U.S. securities and futures clearing organizations with respect to
letters of credit that are deposited as collateral, (ii) reduce
operational burdens for industry participants and their letter of
credit issues, and (iii) enhance the legal certainty that letters of
credit received by UCG members as collateral will be enforceable. In
developing, the ULC, the UCG consulted with the National Standby Letter
of Credit Commerce of International Financial Services Association
(formerly known as the U.S. Council on International Banking) and
several letter of credit issuing banks.
The ULC consists of a (i) a cover page with variable terms and (ii)
uniform terms. Variable terms include the name of the clearing member,
the beneficiary clearing organization, the issuing bank, the amount of
the credit, and the expiration date. General instructions drafted by
the UCG assist clearing organization members in completing the ULC. In
addition, GSCC has provided supplemental instructions to assist members
specifically with letters of credit furnished to GSCC.
According to GSCC, the ULC provides that the presentment of a
demand for payment can be accomplished at the discretion of the
clearing corporation by hand delivery, facsimile transmission, and
SWIFT. If the demand is made before 3:00 p.m. Central time, the bank
issuing the letter of credit must effect payment within sixty minutes.
The uniform letter of credit also recites certain understandings
regarding the issuing bank's obligation to honor a demand. GSCC states
that these understandings restate the existing principles governing
letters of credit and were added to reduce the likelihood of dispute.
For example, the uniform letter of credit provides that payment will be
made regardless of the solvency, existence, or condition (financial or
other) of the GSCC member.
The proposed rule change will also amend GSCC's definition of
``eligible letter of credit'' to conform it with the uniform letter of
credit.
It is expected that from time to time modifications will be made to
the ULC by the UCG. If and when that occurs, GSCC will require its
members to use the revised form.\5\ Other UCG members that accept
letters of credit as margin also will use the ULC beginning sometime
during calendar year 1999.\6\
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\5\ GSCC will file proposed rule changes with the Commission
prior to requiring members to comply with substantive changes made
to the ULC by the UCG.
\6\ See Securities Exchange Act Release No. 41486 (June 7,
1999), 64 FR 31889 (June 14, 1999) [File No. SR-OCC-99-01]. The
National Securities Clearing Corporation and MBS Clearing
Corporation have also filed proposed rule changes with the
Commission [File Nos. SR-NSCC-99-05 and SR-MBSCC-99-05].
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GSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act and the rules and regulations
thereunder because, among other things, it will promote the prompt and
accurate clearance and settlement of transactions in securities by
facilitating processing and will foster cooperation within the
financial community.
B. Self-Regulatory Organization's Statement on Burden on Competition
GSCC does not believe that the proposed rule change will impose any
burden on competition.
C. Self-Regulatory Organization's Statement on Burden on Comments on
the Proposed Rule Change Received From Members, Participants or Others
No comments on the proposed rule change were solicited or received.
GSCC will notify the Commission of any written comments it receives.
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 the proposed rule change, or
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(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 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-99-03 and should be
submitted by September 3, 1999.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-21043 Filed 8-12-99; 8:45 am]
BILLING CODE 8010-01-M
