[Federal Register: October 30, 2003 (Volume 68, Number 210)]
[Notices]
[Page 61846-61848]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30oc03-113]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48692; File No. SR-SCCP-2003-04]
Self-Regulatory Organizations; Stock Clearing Corporation of
Philadelphia; Notice of Filing of a Proposed Rule Change Relating to
Permanent Approval of SCCP's Restructured Limited Clearing Business
October 24, 2003.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on June 20, 2003, the Stock
Clearing Corporation of Philadelphia (``SCCP'')
[[Page 61847]]
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change, as described in Items I, II, and III below, which
items have been prepared primarily by SCCP. 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).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
In the proposed rule change, SCCP seeks to obtain permanent
approval of SCCP's restructured business whereby it provides limited
clearance and settlement services.
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 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.\2\
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\2\ The Commission has modified parts of these statements.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to obtain permanent
approval of SCCP's restructured and limited clearance and settlement
business. In connection with the withdrawal by the Philadelphia Stock
Exchange, Inc. (``Phlx'') from the securities depository business
(offered by its wholly owned subsidiary the Philadelphia Depository
Trust Company (``Philadep'') and its restructuring and limiting its
clearance and settlement business (offered by its wholly owned
subsidiary SCCP), Phlx, SCCP, Philadep, National Securities Clearing
Corporation (``NSCC''), and The Depository Trust Company (``DTC''),
entered into an agreement dated as of June 18, 1997 (``Agreement'').
Under the Agreement, the parties worked together to assure the orderly
transition of most of the day-to-day depository and clearance services
of the Philadep and SCCP to DTC and NSCC. Pursuant to the Agreement,
SCCP ceased operating its continuous net settlement (``CNS'') system
for conducting settlements between SCCP and its participants. As a
result, SCCP ceased providing the cash settlement services attendant to
Philadep's same-day funds settlement system and the Philadep settlement
process. However, pursuant to the Agreement, SCCP continued to offer
limited clearing and settlement services to PHLX members.
In December 1997, the Commission approved proposed rule changes
which gave effect to the Agreement, which reflected Philadep's
withdrawal from the depository business, and which temporarily approved
SCCP's restructured and limited clearance and settlement business.\3\
Subsequently, the Commission has extended the temporary approval
several times so that SCCP could continue to offer restructured and
limited clearance and settlement services.\4\
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\3\ Securities Exchange Act Release No. 39444 (December 11,
1997), 62 FR 66703 (December 19, 1997) (SR-DTC-97-16, SR-NSCC-97-08,
SR-Philadep-97-04, SR-SCCP-97-04). At that time, the Commission
stated that, ``However, because a part of SCCP's proposed rule
change concerns the restructuring of SCCP's operations to enable
SCCP to offer limited clearing and settlement services to certain
Phlx members, the Commission finds that it is appropriate to grant
only temporary approval to the portion of SCCP's proposed rule
change that amends SCCP's By-Laws, Rules, or Procedures. This will
allow the Commission and SCCP to see how well SCCP's restructured
operations are functioning under actual working conditions and to
determine whether any adjustments are necessary. Thus, the
Commission is approving the portion of SCCP's proposal that amends
its By-Laws, Rules and Procedures through December 31, 1998.''
\4\ Securities Exchange Act Release Nos. 40872 (December 31,
1998), 64 FR 1264 (January 8, 1999) (SR-SCCP-98-05); 42320 (January
6, 2000), 65 FR 2218 (January 13, 2000) (SR-SCCP-99-04); 43781
(December 28, 2000), 66 FR 1167 (January 5, 2001) (SR-SCCP-00-05);
45227 (January 3, 2002), 67 FR 1259 (January 9, 2002) (SR-SCCP-2001-
11); and 47016 (December 17, 2000), 67 FR 78556 (December 24, 2002)
(SR-SCCP-2001-12).
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SCCP is hereby proposing that the Commission grant permanent
approval to its providing these limited clearance and settlement
services. SCCP believes that its restructured operations have
functioned consistent with its original proposed rule change. More
specifically, SCCP believes its operations are functioning well under
actual working conditions.
In the original rule filing approving SCCP's restructured business,
many SCCP rules were amended and discussed at length. No new rule
changes are proposed at this time. Thus, the purpose of the proposed
rule change is to acquire permanent approval of SCCP's restructured and
limited clearing and settlement services, as discussed in more detail
below.
Under its proposal, SCCP will continue to offer trade confirmation
and recording services to Phlx members effecting transactions through
regional interface operations (``RIO'') accounts and ex-clearing
accounts. SCCP will not provide clearing guarantees for these
transactions.
SCCP will continue to provide margin accounts for margin members
that clear and settle their transactions through SCCP's Omnibus
Clearance and Settlement Account at NSCC.\5\ SCCP will continue to have
the right to demand at any time that a margin member provide additional
margin based upon SCCP's review of the margin member's security
positions held in its margin account at SCCP. SCCP will retain the
margin thresholds specified in its Procedures and will continue to have
the right to require adequate assurances or additional margin in
addition to the minimum margin thresholds in order to protect SCCP in
issues deemed by SCCP to warrant additional protection. SCCP may also
continue to demand any such margin payments in federal funds in
accordance with its Procedures.
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\5\ SCCP will continue to offer margin services only to: (1)
PHLX equity specialists for their specialists and alternative
specialists transactions, as well as for their propriety
transactions in securities for which they are appointed as
specialists or alternative specialists and (2) PHLX members listed
on a schedule that are not PHLX equity specialists for their
propriety transactions. Under the Agreement, SCCP may add other PHLX
members to the schedule subject to NSCC's approval.
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SCCP will continue to issue margin calls to any margin member when
the margin requirement exceeds the ``account equity,'' as defined in
SCCP's Rules. SCCP may waive any amount that would trigger a margin
call not exceeding $500. Any failure to meet a margin call will subject
such delinquent margin member to SCCP's rules governing disciplinary
proceedings and penalties as well as to the late penalties specified in
SCCP rules. SCCP can cease to act for such delinquent margin members
and can retain a lien on all such margin members' accounts and
securities therein.
SCCP will continue to maintain records on each individual margin
account. SCCP will continue to maintain the Omnibus Clearance and
Settlement Account at NSCC to reflect all positions in SCCP's margin
accounts. SCCP will continue to guarantee the settlement obligations of
the Omnibus Clearance and Settlement Account to NSCC. In turn, pursuant
to the Agreement, Phlx would continue to guarantee SCCP's obligations
to NSCC.
SCCP's books and records for the Omnibus Clearance and Settlement
Account will continue to reflect all activity that occurs in such
account at NSCC. At any time prior to midnight Philadelphia time on the
next business day after SCCP receives a margin
[[Page 61848]]
member's trade, SCCP will continue to be entitled to reverse the trade
from the member's account. SCCP would continue to settle the Omnibus
Clearance and Settlement Account with NSCC each business day in
accordance with NSCC's Rules and Procedures. Accordingly, SCCP would
continue to be subject to NSCC's Rules.
Through the Omnibus Clearance and Settlement Account, SCCP will
continue to have one composite settlement per day with NSCC. SCCP will
maintain line of credit (``LOC'') arrangements with one or more
commercial banks sufficient to support anticipated funding needs of the
underlying margin accounts.
To ensure that margin members have an efficient way to obtain
securities depository services after the closure of Philadep's
depository service, SCCP opened a NSCC-sponsored depository account at
DTC. In the event that margin members effect trades in securities not
eligible for custodial services in DTC's book-entry system, SCCP would
continue to utilize the Direct Clearing Service to settle these
transactions. SCCP would continue to perform bookkeeping and
reconciliation services for the Omnibus Clearance and Settlement
Account and its related DTC custody account pursuant to SCCP
Procedures.
Clearly SCCP, as a NSCC clearing member and NSCC sponsored
participant of DTC, will continue to be required to provide NSCC with
clearing fund contributions.
SCCP will continue to apply a fixed $35,000 contribution for the
specialist margin account and non-specialist margin account categories
and a contribution of $10,000 to $75,000 for RIO accounts, depending
upon monthly trading activity. Participants engaging in more than one
account type activity will continue to be subject only to the formula
that would generate the highest contribution.
SCCP believes permanent approval of SCCP's restructured and limited
clearance and settlement services is consistent with the requirements
of the Act and the rules and regulations thereunder and in particular
with Section 17A(b)(3)(F) which requires that a clearing agency be
organized and its rules be designed, among other things, to promote the
prompt and accurate clearance and settlement of securities
transactions, to safeguard funds and securities in its possession and
control, and to remove impediments to perfect the mechanism of a
national system for the prompt and accurate clearance and settlement of
securities transactions. SCCP believes that permanent approval of
SCCP's restructured business should promote the prompt and accurate
clearance and settlement of securities transactions by integrating and
consolidating clearing services available to the industry; further, it
should assure the safeguarding of securities and funds in the custody
or control of SCCP 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
Written comments were neither solicited nor received.
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 SCCP 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.
Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to
File No. SR-SCCP-2003-04. This file number should be included on the
subject line if e-mail is used. To help us process and review comments
more efficiently, comments should be sent in hardcopy or by e-mail but
not by both methods. 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 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 SCCP.
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. 03-27346 Filed 10-29-03; 8:45 am]
BILLING CODE 8010-01-P