[Federal Register Volume 64, Number 151 (Friday, August 6, 1999)]
[Notices]
[Pages 43006-43007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20300]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41673; File No. SR-EMCC-99-7]
Self-Regulatory Organizations; Emerging Markets Clearing
Corporation; Notice of Filing of a Proposed Rule Change Regarding
Clearing Agency Cross-Guaranty Agreements
July 30, 1999.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 4, 1999, the Emerging
Markets Clearing Corporation (``EMCC'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change (File No.
SR-EMCC-99-07) as described in Items I, II, and III below, which items
have been prepared primarily by EMCC. 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. 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 implement clearing
agency cross-guaranty agreements between EMCC and other clearing
agencies.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, EMCC 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. EMCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of such
statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by EMCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
EMCC's Rule 21 authorizes EMCC to enter into ``clearing agency
cross guaranty agreements.'' \3\ On June 2, 1999, EMCC entered into
clearing agency cross-guaranty agreements with the National Securities
Clearing Corporation (``NSCC''), the Government Securities Clearing
Corporation (``GSCC''), and the International Securities Clearing
Corporation (``ISCC''). According to EMCC, the form of agreement with
each of these entities is substantially similar to the form of
agreement approved by the Commission in rule changes previously
submitted by NSCC, MBSCC, GSCC, and ISCC.\4\
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\3\ Under EMCC's Rule 1, ``clearing agency cross-guaranty
agreement'' means an agreement between EMCC and another clearing
entity relating to the guaranty by EMCC of certain obligations of a
member to such clearing agency.
\4\ Securities Exchange Act Release Nos. 37616 (August 28,
1996), 61 FR 46887 (September 5, 1996), and 39020 (September 4,
1997), 62 FR 47862 (September 11, 1997).
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Generally, the limited guaranty provided for by the clearing agency
cross-guaranty agreements is invoked when a clearing entity ceases to
act for a common member. This limited guaranty enables clearing
agencies that have entered into limited cross guaranty agreements to
benefit from a defaulting member's excess collateral at other clearing
agencies in which the defaulting member was a participant. The guaranty
provides that resources of the defaulting common member remaining after
the defaulting common member's obligations to the guaranteeing clearing
agency have been satisfied may be used to satisfy and unsatisfied
obligations to the other clearing agencies. The guaranty is limited to
the extent of the resources relative to the defaulting common
[[Page 43007]]
member remaining at the guaranteeing clearing agency.
EMCC believes that the clearing agency cross-guaranty agreements
should be beneficial because the funds that may be made available to it
may provide resources that may make a pro rata charge against its
clearing fund unnecessary or lesser in amount.
The benefits accruing to EMCC from a Clearing agency cross-guaranty
agreement are illustrated by the following example:
Broker-dealer BD upon insolvency owes EMCC a net of $5 million and
is owed a net of $3 million by Clearing Entity X. BD is a member of
both clearing agencies. In the absence of a clearing agency cross-
guaranty agreement, Clearing Entity X would be obligated to pay $3
million to BD's bankruptcy estate, and EMCC would have a claim for $5
million against BD's bankruptcy estate as a general creditor with no
assurance as to the extent of recovery. Under an effective cross-
guaranty agreement, however, Clearing Entity X would pay to EMCC the $3
million it owed to BD. As a result, EMCC's net exposure to the
defaulting common member BD would be reduced.
EMCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act \5\ and the rules and
regulations thereunder because it promotes the safeguarding of
securities and funds in the clearing agency's custody or control and
for which it is responsible and fosters cooperation and coordination
with other entities engaged in the clearance and settlement of
securities transactions.
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\5\ 15 U.S.C. 78q-1.
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(B) Self-Regulatory Organization's Statement on Burden on Competition
EMCC 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
No written comments relating to the proposed rule change have been
solicited or received. EMCC will notify the Commission of any written
comments received by EMCC.
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, 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, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of EMCC. All submissions
should refer to File No. SR-EMCC-99-7 and should be submitted by August
27, 1999.
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. 99-20300 Filed 8-5-99; 8:45 am]
BILLING CODE 8010-01-M
