[Federal Register Volume 59, Number 162 (Tuesday, August 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20567]
[[Page Unknown]]
[Federal Register: August 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34529; File No. SR-GSCC-94-04]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of Proposed Rule Change Establishing New
Categories of Netting System Membership for Futures Commission
Merchants
August 12, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 5, 1994, the
Government Securities Clearing Corporation (``GSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-GSCC-94-04) as described in Items I, II, and III
below, which Items have been prepared primarily by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\15 U.S.C. Sec. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change will establish new categories of netting
system membership for futures commission merchants (``FCMs'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
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. The self-regulatory organization
has prepared summaries, set forth in sections A, B, and C below, of the
most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
GSCC was established primarily to provide the government securities
marketplace with risk protections and a means of ensuring orderly
settlement. The initial set of market participants for which it was
intended GSCC provide its netting and risk protection services were
large dealers and interdealer brokers.
Nevertheless, it was recognized at the time GSCC was established
and was made a prerequisite by the Commission for permanent
registration that GSCC's netting system ultimately was not to be solely
for the benefit of the primary dealer community and that additional
classes of market participants would be encompassed as members in the
future.
After consideration of the matter following expressions of interest
in netting system membership by several FCMs, GSCC has determined it
appropriate to establish a Category 1 FCM netting system membership
class and a Category 2 FCM netting system membership class.\2\
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\2\This filing also amends GSCC's rules to expressly provide
that if an applicant qualifies for more than one category of netting
system membership, GSCC will have the discretion to determine which
category of netting system membership that applicant should apply
for and which reporting requirements are applicable.
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FCMs
Typically, an FCM is an entity that solicits orders, accepts
orders, and/or accepts funds for the purchase or sale of exchange
traded options on futures or futures. In effect, an FCM is the
equivalent in the futures industry of a securities broker.
With certain limited exceptions, any person who acts as an FCM must
register as such with the Commodity Futures Trading Commission
(``CFTC''). Once registered, the FCM must comply with the CFTC's rules
on pre-account opening and transactional disclosure, various trading
proscriptions, customer account supervision, minimum net capital,
segregation and protection of customer funds, recordkeeping, and
reporting.
Most FCMs also are members of one or more futures exchanges and
therefore are subject to futures exchange regulation and oversight. If
an FCM is a member of a futures exchange or a registered futures
association it will be audited by a designated organization to assure
compliance with their capital requirements. In addition, FCMs that
desire to clear their own trades on a particular exchange become
clearing members of that futures exchange or its clearing affiliate.
Clearing membership subjects the FCM to additional rules and to closer
oversight from a financial perspective.
Proposed Minimum Financial Standards
The term ``net capital'' as used in GSCC's rules and the
Commission's net capital rule is the approximate accounting equivalent
of the term ``adjusted net capital'' as that term is used in the CFTC
financial requirement rule. In addition, the term ``net worth'' as used
in GSCC's rules is comparable to the concept of ``net worth'' in the
CFTC's financial requirement rule.
Given these similarities, GSCC believes there is a basis for
establishing categories of FCM netting membership with minimum
financial standards and margin requirements that are equivalent to
those for Category 1 and Category 2 dealer netting members.
Specifically, GSCC will establish a Category 1 FCM with minimum
financial standards of $50 million in net worth and $10 million in
excess adjusted net capital and a clearing fund requirement the same as
a Category 1 dealer netting member. A Category 2 FCM will be
established with minimum financial standards of $25 million in net
worth and $10 million in excess adjusted net capital and a clearing
fund requirement the same as for Category 2 dealer netting members.
While dealer netting members are required to file regulatory
financial reports on a monthly basis, the CFTC requires all FCMs,
except introducing brokers, as of the close of business each month only
to make and to keep a record of their computation of adjusted net
capital. In view of this, GSCC will require every FCM netting member to
furnish GSCC each month with a copy of the computation of adjusted net
capital required by the CFTC in addition to furnishing to GSCC a copy
of the CFTC's regulatory financial report at the time that the form is
filed with the CFTC each quarter.
GSCC believes that because the proposed rule change allows GSCC to
broaden access to its netting and risk management services thereby
allowing a greater number of market participants to receive the
benefits of its services it is consistent with Section 17A of the Act
and the rules and regulations thereunder applicable to GSCC.
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 Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Comments on the proposed rule change have not yet been solicited or
received. GSCC members will be notified of the rule filing and comments
will be solicited by a GSCC Important Notice. GSCC will then notify the
Commission of any written comments received by GSCC regarding the
proposed rule change.
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 such proposed rule change or
(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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of GSCC. All submissions
should refer to file number SR-GSCC-94-04 and should be submitted by
September 13, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20567 Filed 8-22-94; 8:45 am]
BILLING CODE 8010-01-M
