[Federal Register: September 7, 1999 (Volume 64, Number 172)] [Notices] [Page 48692-48693] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr07se99-112] ----------------------------------------------------------------------- SECURITIEIS AND EXCHANGE COMMISSION [Release No. 34-41802; File No. SR-GSCC-99-03] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Granting Accelerated Approval of a Proposed Rule Change Relating to the Acceptance of letters of Credit as Clearing Fund Collateral August 27, 1999. On May 3, 1999, the Government Securities Clearing Corporation (``CSCC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-GSCC-99-03) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ to permit GSCC to replace its current letter of credit form with a letter of credit form developed by the Uniform Clearing Group (``USG'').\2\ Notice of the proposal was published in [[Page 48693]] the Federal Register on August 13, 1999.\3\ No comment letters were received. For the reasons discussed below, the Commission is granting accelerated approval of the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ The UCG is an organization comprised of all major securities and futures clearing corporations and depositories in the United States. The members of the UCG include the Boston Stock Exchange Clearing Corporation, The Depository Trust Company, GSCC, MBS Clearing Corporation, National Securities Clearing Corporation, The Options Clearing Corporation, Board of Trade Clearing Corporation, Chicago Mercantile Exchange, Clearing Corporation of New York, Kansas City Board of Trade, Minneapolis Grain Exchange, New York Mercantile Exchange, Emerging Markets Clearing Corporation, and Clearing Corporation for Options and Securities \3\ Securities Exchange Act Release No. 41715 (August 6, 1999), 64 FR 44249. --------------------------------------------------------------------------- I. Description GSCC's Rule 4, Section 4 permits GSCC to accept letters of credit (in addition to cash and eligible netting securities) as clearing fund collateral. GSCC's rules define ``eligible letter of credit'' as a letter of credit that is, among other things, ``in a form, and contains such other terms and conditions, as may be required by the Corporation.'' GSCC has determined that as of September 1, 1999, a letter of credit delivered to GSCC as clearing fund collateral must be in the form of the uniform letter of credit (``ULC'') developed by the UCG. To accommodate the ULC, the rule change will amend GSCC's definition of ``eligible letter of credit'' to conform it with the uniform letter of credit. The ULC consists of a (i) a cover page with variable terms and (ii) uniform terms. Variable terms include the name of the clearing member, the beneficiary clearing organization, the issuing bank, the amount of the credit, and the expiration date. General instructions drafted by the UCG assist clearing organization members in completing the ULC. In addition, GSCC has provided supplemental instructions to assist members specifically with letters of credit furnished to GSCC. According to GSCC, the ULC provides that the presentment of a demand for payment can be accomplished at the discretion of the clearing corporation by hand delivery, facsimile transmission, or SWIFT message. If the demand is made before GSCC's pre-set cutoff time, the bank issuing the letter of credit must effect payment within sixty minutes. It is expected that from time to time modifications will be made to the ULC by the UCG. If and when that occurs, GSCC will require its members to use the revised form.\4\ --------------------------------------------------------------------------- \4\ GSCC will file a proposed rule change with the Commission prior to requiring members to comply with any substantive change made to the ULC by the UCG. --------------------------------------------------------------------------- II. Discussion Section 17A(b)(3)(F) 5 of the Act requires that the rules of a clearing agency be designed to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions. GSCC and the other members of the UCG developed the ULC to foster uniformity among the various U.S. securities and futures clearing organizations with respect to letters of credit that are deposited as collateral. This uniformity will help reduce operational burdens for industry participants and their letter of credit issuers. It should also enhance the legal certainty that the letters of credit received by GSCC and other UCG members as collateral will be enforceable.\6\ Accordingly, the Commission finds that the rule change is consistent with GSCC's obligations under the Act. --------------------------------------------------------------------------- \5\ 15 U.S.C. 78q-1(b)(3)(F). \6\ For example, the ULC recites certain understandings regarding the issuing bank's obligation to honor a demand. GSCC states that these understandings restate the existing principles governing letters of credit and were added to reduce the likelihood of dispute. --------------------------------------------------------------------------- GSCC has requested that the Commission find good cause for approving the proposed rule change prior to the thirtieth day after the date publication of notice of the filing. The Commission finds good cause for so approving the proposed rule change because accelerated approval will permit GSCC to implement the ULC by September 1, 1999, at which time its previous letters of credit expire. Since September 1, 1999, is the scheduled implementation date of the ULC by certain UCG members, accelerated approval will also provide for a more coordinated implementation of the ULC. Furthermore, the Commission has not received any comment letters and does not expect to receive any comment letters on the proposal. III. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-GSCC-99-03) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\7\ --------------------------------------------------------------------------- \7\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 99-23109 Filed 9-3-99; 8:45 am] BILLING CODE 8010-01-M