[Federal Register Volume 62, Number 176 (Thursday, September 11, 1997)]
[Notices]
[Pages 47862-47863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24136]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39020; File No. SR-NSCC-97-11]
Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing and Order Granting Accelerated Approval
of Proposed Rule Change Relating to Limited Cross-Guaranty Agreements
September 4, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on September 3, 1997, the
National Securities Clearing Corporation (``NSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which items have been
prepared primarily by NSCC. The Commission is publishing this notice
and order to solicit comments from interested persons and to grant
accelerated approval of 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 obtain Commission
approval of the limited cross-guaranty agreements between NSCC and each
of the International Securities Clearing Corporation (``ISCC''), the
Government Securities Clearing Corporation (``GSCC''), and the MBS
Clearing Corporation (``MBSCC'').
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NSCC 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. NSCC 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
submitted by NSCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to obtain Commission
approval of the limited cross-guaranty agreements between NSCC and each
of ISCC, GSCC, and MBSCC. NSCC represents that the limited cross-
guaranty agreements are substantially similar to the form of limited
cross-guaranty agreement previously approved by the Commission in
filings made by GSCC, ISCC, and MBSCC.\3\
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\3\ See Securities Exchange Act Release No. 37616 (August 28,
1996), 61 FR 46887 (order approving proposed rule changes riled by
MBSCC, GSCC, and ISCC seeking authority to enter into limited cross-
guaranty agreements).
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The limited cross-guaranty agreements between the clearing agency
counterparties provide a guarantee that can be invoked in the event of
a default of a common member. The guarantee is applicable only to the
extent that the common member has unsatisfied obligations at one
clearing agency and excess resources at another clearing agency. The
guarantee is limited to the amount of the defaulting common member's
resources remaining at the guaranteeing clearing agency. The agreements
also set forth each clearing agency's priority structure with respect
to the order in which it will make guaranty payments to other clearing
agencies with which it has entered into a limited cross-guaranty
agreement.\4\ The agreements also provide that demand for payment must
be made within six months of the suspension of the common member.
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\4\ Such priority schedule may be amended by later limited
cross-guaranty agreements with other entities by delivery of an
amended priority schedule to the counterparty.
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NSCC amended its rules in File No. SR-NSCC-93-07 to accommodate
limited cross-guaranty agreements.\5\ NSCC Rule 25 provides that in
addition to a member's other obligations to NSCC under its rules, each
member is obligated to NSCC for an amount equal to any guaranty payment
NSCC is required to make to a cross-guaranty party pursuant to the
terms of any clearing agency cross-guaranty agreement.
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\5\ Securities Exchange Act Release No. 33548 (January 31,
1994), 59 FR 5638 (order approving proposed rule change). The
proposed rule change incorporated the limited guaranty provisions
into NSCC's rules and approved NSCC's limited cross-guaranty
agreement with The Depository Trust Company.
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NSCC believes that the proposed rule change is consistent with the
requirements of Section 17A of the Act because it promotes the
safeguarding of
[[Page 47863]]
securities and funds in the clearing agency's custody or control or for
which it is responsible and fosters cooperation and coordination with
other entities engaged in the clearance and settlement of securities
transactions.
B. Self-Regulatory Organization's Statement on Burden on Competition
NSCC does not believe that the proposed rule change will have an
impact on or impose a 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. NSCC will notify the Commission of any written
comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Section 17A(b)(3)(F) \6\ of the Act requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible and to foster cooperation and coordination
with persons engaged in the clearance and settlement of securities
transactions. The Commission believes that the proposal is consistent
with NSCC's obligations to assure the safeguarding of securities and
funds in its custody or control or for which it is responsible because
the agreement should reduce NSCC's risk of loss due to a member's
default.\7\ The agreement should also mitigate the systemic risks posed
to the national clearance and settlement system as a result of a
defaulting common member and thus should foster cooperation and
coordination with persons engaged in the clearance and settlement of
securities transactions.
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
\7\ This order also approves future limited cross-guarantee
agreements into which NSCC or OCC may enter which other clearing
agencies provided that the form of such agreements are substantially
similar to the form of agreement approved in this filing.
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NSCC has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after the
date of publication of notice of the filing. The Commission finds good
cause for approving the proposed rule change prior to the thirtieth day
after publication of notice because it will permit NSCC to put a risk
reduction mechanism into place in an expedient fashion.
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 the filing will also be available for
inspection and copying at the principal office of NSCC. All submissions
should refer to File No. SR-NSCC-97-11 and should be submitted by
October 2, 1997.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-NSCC-97-11) be and
hereby is approved.
\8\ 15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-24136 Filed 9-10-97; 8:45 am]
BILLING CODE 8010-01-M
