[Federal Register Volume 61, Number 178 (Thursday, September 12, 1996)]
[Notices]
[Pages 48186-48187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23312]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37639; File No. SR-DCC-96-09]
Self-Regulatory Organizations; Delta Clearing Corp.; Notice of
Filing of Proposed Rule Change Regarding Securities Eligible as Margin
September 4, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 2, 1996, Delta
Clearing Corp. (``DCC'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I, II, and III below, which items have been prepared primarily by
DCC. On August 16, 1996, DCC filed an amendment to its proposed rule
change.\2\ 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) (1988).
\2\ Letter from John Grebenstein, Executive Director, DCC, to
Michele Bianco, Division of Market Regulation, Commission (August
16, 1996).
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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 amend DCC's rules to allow
participants the option of posting margin with DCC in the form of U.S.
Treasury notes or U.S. Treasury bonds to amend the haircuts applicable
to securities deposited as margin.
II. Self-Regulatory Organization's Statement of the Terms of the
Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, DCC 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. DCC 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 parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Currently, DCC participants may post margin in either U.S. Treasury
bills or in central bank funds (e.g., Federal funds).\4\ The purpose of
the proposed rule change is to amend DCC's procedures for the clearance
and settlement of over-the-counter options and of repurchase and
reverse repurchase agreements to allow participants the option of
posting margin either in central bank funds or in U.S. Treasury bills,
notes, or bonds.
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\4\ With respect to options, participants also can post margin
in the form of cover (i.e., Treasury securities that would be
deliverable upon exercise of an option).
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DCC participants trade and maintain inventories in a wide range of
U.S. Treasury securities. However, participants do not always maintain
inventory in U.S. Treasury bills that are eligible as DCC margin
collateral. Consequently, participants incur additional costs in order
to satisfy DCC's requirement that margin collateral be supplied in U.S.
Treasury bills.
DCC also believes that expanding the allowable margin collateral to
include U.S. Treasury notes and bonds will improve participants'
ability to meet margin calls in a timely fashion because they will be
able to select from a greater portion of the securities in their
securities inventories to meet their margin requirements. DCC also
believes that because the U.S. Treasury securities markets is extremely
liquid that DCC's acceptance of U.S. Treasury notes and bonds as
collateral will not impede DCC's ability to liquidate if necessary and
thus not increase the risk to DCC or to the national clearance and
settlement system.
Furthermore, DCC believes that with the appropriate ``haircut''
margin calls met using U.S. Treasury notes and bonds will pose no
additional risk to the system. As its haircuts, DCC is proposing to use
the Commission's schedule for valuation of government securities as set
forth in the Commission's uniform net capital rule.\5\ DCC believes
that this approach is conservative because the Commission's schedule
provides for a larger percentage reduction in the valuation of U.S.
Treasury securities with greater maturities. The magnitude of the
reduction in value is consistent with DCC's methodology of assuming a
three standard deviation movement in the
[[Page 48187]]
yield of the security based on the last one hundred day period's
closing prices. DCC's clearing bank, Bank of New York, will accept
these securities without further haircut. However, if the Bank of New
York alters its haircut schedule such that this proposed rule change is
not acceptable to it, DCC will submit a proposed rule change seeking
Commission approval to amend its rule to conform to the Bank of New
York haircut schedule.
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\5\ 17 CFR 240.15c-1 (1996). The schedule for valuation of
government securities is set forth in paragraph (c)(2)(vi)(A) of
Rule 15c3-1.
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DCC believes that the proposed rule change is consistent with
Section 17A of the Act and the rules and regulations thereunder
applicable to DCC. In particular, Section 17A(b)(3)(F) of the Act \6\
which requires that a clearing agency be organized and its rules be
designed to promote the prompt and accurate clearance and settlement of
securities transactions and to remove impediments to and to perfect the
mechanism of a national system for the prompt and accurate clearance
and settlement of securities transactions. DCC believes the proposed
rule change will permit wider utilization of the system by providing
participants with the opportunity to meet efficiently margin
requirements consistent with DCC's obligations to safeguard funds and
securities.
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\6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
DCC does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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 N.W., Washington, D.C. 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 Room in Washington, D.C. Copies of such
filing will also be available for inspection and copying at the
principal office of DCC. All submissions should refer to the file
number SR-DCC-96-09 and should be submitted by October 3, 1996.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-23312 Filed 9-11-96; 8:45 am]
BILLING CODE 8010-01-M
