Self-Regulatory Organizations; Government Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Interdealer Broker Repurchase Agreement Transactions

[Federal Register Volume 62, Number 35 (Friday, February 21, 1997)]
[Notices]
[Pages 8068-8069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4232]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38287; File No. SR-GSCC-96-12]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of a Proposed Rule Change Relating to 
Interdealer Broker Repurchase Agreement Transactions

February 13, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 21, 1996, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-GSCC-96-12) as described in Items I, II, and III 
below, which items have been prepared primarily by GSCC. On December 3, 
1996, GSCC filed with the Commission an amendment to the 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).
    \2\ Letter from Karen Walraven, Vice President and Associate 
Counsel, GSCC (November 26, 1996).
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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 amend GSCC rules to 
authorize GSCC to assess the clearing fund margin and mark-to-market 
consequences of a brokered repurchase agreement transaction (``repro'') 
that is uncompared on one side as if it were fully compared.

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 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. GSCC 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 GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Occasionally, an interdealer broker (``IDB'') and one of its non-
IDB counterparties to a repo transaction submit to GSCC on a timely 
basis the relevant data for a transaction, but the other non-IDB 
counterparty fails to submit in a timely or accurate fashion data 
related to the transaction. When this occurs, the IDB's trade with the 
non-submitting counterparty will not compare and will not enter GSCC's 
netting system. The corresponding side between the IDB and the 
submitting counterparty will compare and will enter the net assuming 
all comparison requirements have been met. As a result, the IDB will 
not have offsetting compared and netted trades with its two 
counterparties and will carry a net settlement position. Thus, the IDB 
may incur clearing fund and mark-to-market (particularly forward 
margin) assessments. Given the intermediary role of IDBs in the 
marketplace and their more limited financial resources, GSCC believes 
that its risk management process works best and most safely if IDBs are 
netted out of their positions as intermediaries in brokered repo 
transactions.
    To promote the overall risk management process, GSCC believes that 
the clearing fund and the funds-only settlement consequences of any 
trade that does not compare because of a non-IDB's failure to submit 
data should fall on that non-IDB counterparty and not on the IDB. Thus, 
GSCC proposes to amend Rule 19, which sets forth special provisions for 
brokered repo transactions, by adding Section 3 to: (1) reaffirm the 
obligation

[[Page 8069]]

of a non-IDB netting member to submit in a timely and accurate manner 
to GSCC or to another registered or exempted clearing agency data on 
all of its brokered repo transactions \4\ and (2) provide that if a 
non-IDB member fails without good cause to submit data on a brokered 
repo transaction in a timely or accurate basis, GSCC may treat the 
transaction as compared based on the data submission received from the 
counterparty IDB for purposes of assessing all clearing fund. Prior to 
GSCC's assessing clearing fund and funds-only settlement consequences 
to a non-IDB netting member that has failed to submit such trade data 
in a timely and accurate basis, GSCC would attempt to contact (e.g., by 
telephone) as promptly as possible such non-IDB netting member in order 
to confirm the accuracy of the data submitted by its IDB netting member 
counterparty. If the lack of comparison arose because of operational or 
other problems on the part of the IDB party and the non-IDB netting 
member therefore does not know the trade, GSCC would not assess margin 
consequences against the non-IDB netting member.
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    \4\ GSCC rules currently require that repo netting members 
submit either to GSCC or to another registered clearing agency or a 
clearing agency that has been exempted from registration as a 
clearing agency by the Commission in a timely manner data on all 
eligible repo transactions. Currently, only one other registered 
clearing agency clears and settles repo transactions in government 
securities. Typically, dealers enter into a brokered transaction 
with the understanding that such trade will be cleared and settled 
through a specified clearing agency. Therefore if the counterparties 
to a repo transaction have selected GSCC as the clearing agency to 
be used, failure to submit the relevant data may be a violation of 
GSCC's rules.
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    GSCC believes the proposed rule change is consistent with the 
requirements of Section 17A of the Act and the rules and regulations 
thereunder because the rule proposal will promote the prompt and 
accurate clearance and settlement of securities transactions and will 
assure the safeguarding of securities and funds in the custody or 
control of GSCC or for which GSCC is responsible.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    GSCC does not believe that the proposed rule change will 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

    No written comments have been solicited or received. 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 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 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-96-12 and should be submitted by March 
14, 1997.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-4232 Filed 2-20-97; 8:45 am]
BILLING CODE 8010-01-M