[Federal Register Volume 61, Number 174 (Friday, September 6, 1996)]
[Notices]
[Pages 47229-47231]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22723]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37623; File Nos. SR-SCCP-96-07]
Self-Regulatory Organization; Stock Clearing Corporation of
Philadelphia; Notice of Filing and Order Granting Accelerated Approval
on a Temporary Basis of a Proposed Rule Change Seeking Permanent
Approval of the Participants Fund Formulas
August 29, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on August 20, 1996, the Stock
Clearing Corporation of Philadelphia (``SCCP'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-SCCP-96-07) as described in Items I and II below,
which items have been prepared primarily by SCCP. The Commission is
publishing this notice and order to solicit comments from interested
persons and to grant accelerated approval of the proposed rule change
through December 31, 1996.
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\1\ 15 U.S.C. 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 seeks permanent approval of SCCP's
participants fund formulas. The Commission previously granted partial
temporary approval to a proposed rule change establishing SCCP's
participants fund formulas as part of the conversion of SCCP's money
settlement system from a next-day funds settlement (``NDFS'') to a
same-day funds settlement (``SDFS'') system.\2\
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\2\ Securities Exchange Act Release No. 36875 (February 22,
1996), 61 FR 7846 [File No. SR-SCCP-95-06] (order granting partial
temporary approval and partial permanent approval of a proposed rule
change to convert the settlement system to a same-day funds
settlement system).
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, SCCP included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments that it received on the proposed rule change.
The text of these statements may be examined at the places specified in
Item IV below. SCCP 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 the text of the summaries
submitted by SCCP.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On February 22, 1996, SCCP converted its processing environment
from an NDFS system to an SDFS system. In an effort to reduce risk in
an SDFS settlement environment, SCCP and the Philadelphia Depository
Trust Company (``Philadep'') implemented a new system and new controls
with enhanced processing capabilities. The Commission approved SCCP's
SDFS system on a permanent basis for all aspects of the filling except
the participants fund formulas.\4\
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\4\ Supra note 2.
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SCCP Rule 4, governing SCCP's participants fund, and the procedures
regarding the participants fund formulas were amended to provide for an
all cash participants fund. The all cash requirement applies to both
the required deposit and any additional or voluntary deposits made by
participants.
Particpants that choose to make voluntary deposits in most
situations are able to increase their level of activity at SCCP and
receive interest rebates from SCCP for deposits in excess of $50,000.
Pursuant to Rule 4 and SCCP's procedures, SCCP calculates
participants' required cash deposits pursuant to the following
formulas:
(a) Inactive Account: $5,000.\5\
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\5\ Securities Exchange Release No. 37554 (August 9, 1996), 61
FR 42929 [File No. SR-SCCP-96-03] (order granting temporary approval
of a proposed rule change to establish a separate participant
category for inactive accounts through December 31, 1996).
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[[Page 47230]]
(b) Full Service (``CNS'') Account--The contribution of a CNS
Participant is based upon the larger of: (1) the participant's
monthly average of trading activity during the preceding three
months, $1,000 for every twenty-five trading units of one hundred
shares; or (2) the participant's aggregate dollar amount of all long
trades at their execution price for the prior three months
multiplied by two percent. The required contributions are rounded
upward to $5,000 increments, and the average is a rolling average.
(c) Regional Interface Operations (``RIO'') Account--The
contribution of a RIO Participant is based on the participant's
monthly average of trading activity during the preceding three
months, $1,000 for every twenty-five trading units of one hundred
shares (with a $10,000 minimum and a $75,000 maximum contribution).
The required contributions are rounded upward to $5,000 increments.
RIO is defined as a participant account whereby the participant
elects to settle with a clearing corporation other than SCCP.
(d) Layoff Account--The contribution of a Layoff Participant is
set at a uniform rate of $25,000. A Layoff Participant is defined as
a participant account whereby the participant elects to settle with
a clearing corporation other than SCCP for trades not executed on
the Philadelphia Stock Exchange.
(e) Specialist Margin Account--The contributions of a Specialist
Margin Participant is set at a uniform rate of $35,000.
(f) Non-Specialist Margin Account--The contribution of a Non-
Specialist Margin Participant is set at a uniform rate of $35,000.
SCCP recalculates each participants's participants fund deposit
requirement at the end of each month based on the previous three months
prior to the most recent month. SCCP notifies its participants of any
required deposit increases and the amount of such additional deposit
within ten business days of the end of the month. Participants whose
deposit requirements decreased are notified at least quarterly although
they may inquire and withdraw excess deposits monthly. Participants may
leave excess cash deposits in the participants fund.
During the pendency of the temporary approval period, SCCP has more
fully considered the adequacy of the participants fund formulas and the
risk profile of SCCP and its participants in an SDFS environment. SCCP
has provided material to the Commission to demonstrate the
effectiveness of the risk management controls of the SDFS system in
monitoring and reducing risk. The temporary approval period for the
participants fund formulas expires on August 31, 1996. Therefore, SCCP
requests that the Commission permanently approve SCCP's SDFS program in
its entirety.
SCCP believes the proposed rule change is consistent with Section
17A of the Act and the rules and regulations thereunder because the
rule proposal assures the safeguarding of securities and funds in its
custody or control or for which SCCP is responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
SCCP does not believe that the proposed rule change will impose any
inappropriate 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
received. SCCP will notify the Commission of any written comments
received by SCCP
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Section 17a(b)(3)(F) of the Act \6\ 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. At this time, the Commission believes that
SCCP's proposed rule change relating to the participants fund formulas
is consistent with SCCP's obligations under Section 17A(b)(3)(F) to
assure the safeguarding of securities and funds in its custody or
control because SCCP's participants fund formulas, in conjunction with
SCCP's other sources of liquidity (i.e., lines of credit), provide
certain protections for SCCP and its participants from financial loss
associated with member defaults and insolvencies.
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\6\ 15 U.S.C. 78q-1(b)(3)(F) (1988).
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However, the Commission continues to have concerns about the
adequacy of SCCP's participants fund formulas in providing a sufficient
source of cash liquidity and the formulas' conformity with the
standards set forth by the Division of Market Regulation
(``Division'').\7\ The Commission believes that clearing agencies
operating SDFS systems must have sufficient liquidity from a
combination of cash and lines of credit to ensure that settlement
occurs at the end of the business day even if a participant fails to
settle with the clearing agency or if the clearing agency experiences a
systems problem. The Commission further believes that a clearing agency
must have immediate access to an amount of cash which will enable the
clearing agency to fund settlement for most participant failures or
systems problems without having to immediately draw on its lines of
credit (i.e., a clearing agency's lines of credit should be its
secondary source of liquidity and not its primary source). The
Commission is concerned with the level of cash provided by SCCP's
formulas and whether that level of cash liquidity is sufficient given
the demand for liquidity under an SDFS environment and SCCP's use of
the participants fund to finance specialist purchases.\8\ For these
reasons, the Commission is approving the proposed rule change through
December 31, 1996. During the period of temporary approval, the
Commission and SCCP will continue to monitor and to analyze the
adequacy of SCCP's participants fund formulas.
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\7\ Securities Exchange Act Release No. 16900 (June 17, 1980),
45 FR 41920 (order publishing standards to be used by the Division
in reviewing the grant of full registration of clearing agencies).
\8\ For a complete description of SCCP's financing program,
refer to Securities Exchange Act Release No. 20221 (September 23,
1983), 48 FR 45167 (order approving full registration of SCCP, et
al.).
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SCCP 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 filing. The Commission finds good
cause for approving the proposed rule change prior to the thirtieth day
after the date of publication of notice of filing because the proposed
rule change will allow SCCP to continue to apply its participants fund
formulas when the current temporary approval expires on August 31,
1996.
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, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such
[[Page 47231]]
filing will also be available for inspection and copying at the
principal office of SCCP. All submissions should refer to the file
number SR-SCCP-96-07 and should be submitted by September 27, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-SCCP-96-07) be, and hereby
is, temporarily approved through December 31, 1996.
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) (1996).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-22723 Filed 9-5-96; 8:45 am]
BILLING CODE 8010-01-M
