[Federal Register: March 1, 2004 (Volume 69, Number 40)]
[Notices]
[Page 9657]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01mr04-107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49305; File No. SR-BSECC-2003-01]
Self-Regulatory Organizations; Boston Stock Exchange Clearing
Corporation; Order Approving Proposed Rule Change To Clarify Liability
and Clearing Agency Services
February 23, 2004.
I. Introduction
On May 29, 2003, the Boston Stock Exchange Clearing Corporation
(``BSECC'') filed with the Securities and Exchange Commission
(``Commission'') proposed rule change SR-BSECC-2003-01 pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\
On July 21, 2003, August 25, 2003, and September 12, 2003, BSECC
amended the proposed rule change. Notice of the proposal was published
in the Federal Register on January 13, 2004.\2\ No comment letters were
received. For the reasons discussed below, the Commission is approving
the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 49027 (January 6, 2004),
69 FR 2027.
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II. Description
The purpose of the proposed rule change is to delete or amend
certain sections of the BSECC Rules to clarify BSECC's liability and
clearing agency services.
BSECC is seeking to make several changes to its Rules as they
pertain to BSECC's liability in order to maintain a consistent approach
with the Boston Stock Exchange's (``BSE'') recently approved proposed
rule change clarifying BSE's liability with respect to its members'
contractual obligations.\3\ These changes being made by BSECC:
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\3\ The Commission approved a companion proposed rule change
filed by the Boston Stock Exchange to amend various Articles of its
Constitution and sections of its Rules to clarify the liability of
the exchange with respect to its members' contractual obligations.
Securities Exchange Act Release No. 49304 (February 23, 2004), [File
No. SR-BSE-2002-06].
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(1) Clarify in Rule II, Section 1, that BSECC's clearing fund is to
make good losses suffered by BSECC without the losses of its members
having priority;
(2) Eliminate a provision in Rule II, Section 5(e), which allows
the retained earnings of BSECC to be used to satisfy any loss or
liability resulting from a BSECC member's default;
(3) Eliminate language in Rule III, Section 3(a), stating that
BSECC guarantees settlement of all trades executed on the floor of BSE;
\4\
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\4\ BSE guarantees exchange trades until they are accepted by
the National Securities Clearing Corporation.
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(4) Amend Rule III, Section 3(e), to make BSECC loans to members to
complete settlement with the National Securities Clearing Corporation
(``NSCC'') discretionary, not automatic. The current automatic loan
provision is inconsistent with the purpose of the proposed rule change
that members will be solely liable for their transactions and that
BSECC is not the ultimate guarantor for its members;
(5) Amend Rule XI, Section 3, to increase the maximum fine for any
offense of BSECC Rules from $1,000 to $5,000 and increase from $5,000
to $30,000 the amount that fines imposed in the last six months must
exceed before BSECC is required to give the member notice of its right
to appeal; and
(6) Strengthen BSECC's indemnification clause found in Rule XII,
Section 6, by stating that each member will remain ``solely
responsible'' and liable for its transactions; The proposed rule change
also deletes all references to Boston Representative Broker/Dealer
Accounts, BSE Service Corporation, and Institutional Members. Such
references are no longer applicable as they relate to services or lines
of business in which BSECC is no longer involved. Also, BSECC has in
various places added references to NSCC due to the merger of NSCC and
The Depository Trust Company.
BSECC is not making these amendments in response to any recent or
perceived action by any of its members. Rather, BSECC is seeking to
clarify, by eliminating inconsistencies and providing succinct
language, and to enhance its position which it holds with respect to
liability on the part of its members.
III. Discussion
Section 17A(b)(3)(F) of the Act 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.\5\ The Commission finds that BSECC's
proposed rule change is consistent with this requirement because it
will clarify and enhance BSECC's Rules so that it can better protect
itself and its members from the risk of default.
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\5\ 15 U.S.C. 78q-1(b)(3)(F).
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IV. 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-BSECC-2003-01) be and hereby
is approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary .
[FR Doc. 04-4433 Filed 2-27-04; 8:45 am]
BILLING CODE 8010-01-P