[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Notices]
[Pages 49281-49283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24862]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39054; File No. SR-GSCC-97-04]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing of a Proposed Rule Change Relating to the
Implementation of a Fine Schedule
September 11, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
[[Page 49282]]
(``Act''),\1\ notice is hereby given that on May 21, 1997, the
Government Securities Clearing Corporation (``GSCC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-GSCC-97-04) as described in Items I, II, and II
below, which items have been prepared primarily by GSCC. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change will implement a fine schedule in order to
ensure compliance by members with deadlines for payment of funds
settlement debts and satisfaction of clearing fund deposit deficiency
calls. The fine schedule is attached as Exhibit 1 to this notice.
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 the 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.\2\
---------------------------------------------------------------------------
\2\ The Commission has modified the text of the summaries
prepared by GSCC.
---------------------------------------------------------------------------
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
GSCC believes that the most critical elements of its risk
management process are the timely collections of mark-to-market and
clearing fund margin amounts. Therefore, it is essential for GSCC to
ensure the compliance by netting members with GSCC's deadlines for
payment of funds settlement debits and satisfaction of clearing fund
deposit deficiency calls. Failures to meet these deadlines result in
increased exposure as well as potentially higher costs to GSCC and its
members.
Currently, members must pay funds-only settlement obligations via
GSCC's designated depository institution in Fed funds by 10:00 a.m. In
addition, members must satisfy clearing fund deficiencies within two
hours after notification from GSCC. Typically, GSCC telephones its
members by 8:30 a.m. to notify members of a call for an additional
clearing fund deposit. The telephone call is followed up by telefax.
The exact time that the telephone call is made is recorded and becomes
the formal time that the call is made. Therefore, the usual deadline
for satisfaction of a clearing fund deficiency is around 10:30 a.m.\3\
---------------------------------------------------------------------------
\3\ Recently, GSCC released a White Paper to its members and
other interested parties that discussed various initiatives GSCC
plans to implement in the coming years. Among other things, GSCC
outlined future plans to enhance its risk management process by
conducting a second afternoon funds-only settlement and by
calculating and collecting clearing fund margin more dynamically.
---------------------------------------------------------------------------
In order to promote greater compliance with GSCC's funds debit and
deficiency call deadlines, the proposed rule change will implement a
fine schedule.\4\ According to GSCC, the fine schedule will enable it
to assess predetermined monetary penalties against members who fail to
meet their financial responsibilities on a timely basis. The severity
of any fine will be a function of the magnitude and recent history of
the subject member's late payments. In addition, the proposed rule
change will eliminate the current limitation of $5,000 on the maximum
size of any single fine GSCC may impose.
---------------------------------------------------------------------------
\4\ A copy of GSCC's fine schedule is attached as Exhibit A to
the proposed rule change, which is available for inspection and
copying at the Commission's Public Reference Room or through GSCC.
---------------------------------------------------------------------------
GSCC proposes to implement the fine schedule as it relates to late
payment of a funds-only settlement obligation concurrently with the
establishment of an ``autodebit'' arrangement, which will be the
subject of a future rule filing. The autodebit arrangement involves an
agreement between GSCC and participating banks that allows GSCC to use
the banks to effect timely cash payments between it and participating
netting members in settlement of their morning funds-only settlement
obligations with GSCC. GSCC believes that this arrangement will being
more certainty and will increase the timeliness of payment of funds-
only settlement obligations with GSCC. Netting members that participate
appropriately in the autodebit process will not be subject to fines for
late payment of funds settlement obligations.
GSCC believes that the proposed rule change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act \5\ and the rules and
regulations thereunder because it will assure the safeguarding of
securities and funds which are in the custody or control of GSCC or for
which it is responsible.
---------------------------------------------------------------------------
\5\ U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
GSCC does not believe that the proposed rule change will have an
impact 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
Written comments relating to the proposed rule change have not yet
been solicited or received. Members will be notified of the filing of
the proposed rule change and comments will be solicited by an Important
Notice. GSCC will notify the Commission of any written comments
received by GSCC.
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 GSCC 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 submissions should
file six copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549. Copies of this
submission, all subsequent amendments, all written statements with
respect to the proposed rule change that are filed with the Commission,
and all written communications 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, 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 the file
number SR-GSCC-97-04 and should be submitted by October 10, 1997.
[[Page 49283]]
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------
\6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
Exhibit 1--GSCC Fine Schedule
Late Payment of Funds Settlement Debit/Late Satisfaction of Clearing
Fund Deficiency Call
------------------------------------------------------------------------
Any
lateness
more
Amount First Second Third than 1
occasion occasion occasion hour or
fourth
occasion
------------------------------------------------------------------------
$1 to $100M..................... (\1\) $100 $200 $500
Greater than $100M to $1MM...... (\1\) 300 600 1,000
Greater than $100MM to $2MM..... (\1\) 600 1,200 2,000
Greater than $2MM............... $250 1,000 2,000 3,000
------------------------------------------------------------------------
Notes
(1) A warning letter is sent to senior officials of the offender
describing the nature of the violation and the consequences of
successive violations.
(2) Each instance of late payment of a funds settlement debit or
late satisfaction of a Clearing fund deficiency call is deemed to be
a separate occasion. Such instances are combined, regardless of
type, to determine the number of occasions.
(3) The number of occasions is determined over a moving 30
calendar-day period beginning with date of the first occasion.
(4) A specific determination will be made by the Membership &
Standards Committee of the Board of Directors when the number of
occasions exceeds four, or when the number of occasions of lateness
of more than an hour exceeds two.
(5) The Membership & Standards Committee reserves the discretion
to waive or reduce scheduled fines when a particular occasion is not
deemed to be the fault of the affected member.
[FR Doc. 97-24862 Filed 9-18-97; 8:45 am]
BILLING CODE 8010-01-M
