[Federal Register: June 23, 1999 (Volume 64, Number 120)] [Notices] [Page 33540-33541] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr23jn99-143] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-41534; File No. SR-EMCC-99-4] Self-Regulatory Organizations; Emerging Markets Clearing Corporation; Notice of Filing of a Proposed Rule Change Regarding Expansion of Eligible Instruments June 16, 1999. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on March 26, 1999, the Emerging Markets Clearing Corporation (``EMCC'') filed with the Securities and Exchange Commission (``Commission'') the proposal rule change (File No. SR-EMCC-99-04) as described in Items I, II, and III below, which items have been prepared primarily by EMCC. 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 purpose of the proposed rule change is to expand the types of instruments eligible for clearance and settlement at EMCC. II. Self-Regulatory Organization's Statement of the Purpose of, Statutory Basis for, the Proposed Rule Change In its filing with the Commission, EMCC 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. EMCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspect of such statement.\2\ --------------------------------------------------------------------------- \2\ The Commission has modified the text of the summaries prepared by EMCC. --------------------------------------------------------------------------- (A) Self-Regulatory Organization's Statement of the Purpose of, Statutory Basis for, the Proposed Rule Change The purpose of the proposed rule change is to expand the types of instruments eligible for processing by EMCC. To accomplish this, the proposed rule change will amend the definition of ``eligible sovereign debt,'' which is set forth in Rule 1, to mean any instruments which either: (1) Are issued by or on behalf of an emerging markets sovereign issuer or an agency or instrumentality thereof (including, without limitation, any central bank thereof); provided that, in the case of any instrument issued by an agency or instrumentality, the credit quality of those instruments is judged by one or more NRSROs or by market participants generally on the basis of the credit quality of the related sovereign issuer; or (2) Have the timely payment of principal and interest guaranteed by an issuer who meets the criteria set forth in (1). As with all instruments that are EMCC eligible, these instruments must also meet the existing criteria set forth in Rule 3, Section 1 that they must be eligible for settlement at a qualified securities depository and that they must be U.S. dollar denominated. The dollar denominated non-Brady sovereign debt of Brazil, Argentina, and Mexico has been eligible at EMCC since August 1998. Since that time, there have been two extreme market events affecting emerging market debt generally, one in August/September 1998 and another in January 1999. According to EMCC, it is the consensus of current members that having non-Brady sovereign debt of Brazil, Argentina, and Mexico eligible at EMCC during these events significantly reduced settlement risk and increased safety and soundness. EMCC also believes that these events demonstrated that EMCC's risk management systems and procedures, as well as their clearance and settlement systems and procedures, are well suited to non-Brady sovereign debt, even during times of market stress and extreme violability. EMCC staff and members attribute this primarily to the facts that (1) the distinction between Brady and non-Brady sovereign debt (i.e., whether or not it originated as part of a loan restructuring) is not relevant to the market behavior of the instruments and (2) the trading and settlement practices for both types of sovereign instruments are virtually identical. EMCC believes that the proposed rule change is consistent with the requirements of section 17A of the Act \3\ and the rules and regulations thereunder because the inclusion of dollar denominated sovereign debt will help to reduce risk and respect to the [[Page 33541]] clearance and settlement of those specific instruments as well as will help to reduce risk with respect to the emerging market marketplace generally. --------------------------------------------------------------------------- \3\ 15 U.S.C. 78g-1. --------------------------------------------------------------------------- (B) Self-Regulatory Organization's Statement on Burden on Competition EMCC does not believe that the proposed rule change will impose any 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 of received. EMCC will notify the Commission of any written comments received by EMCC. 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 funds 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, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 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 such filing also will be available for inspection and copying at the principal office of EMCC. All submissions should refer to File No. SR- EMCC-99-4 and should be submitted by July 14, 1999. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\4\ --------------------------------------------------------------------------- \4\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-15911 Filed 6-22-99; 8:45 am] BILLING CODE 8010-01-M