[Federal Register: July 22, 1998 (Volume 63, Number 140)] [Notices] [Page 39320-39321] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr22jy98-86] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-40207; File No. SR-GSCC-98-01] Self-Regulatory Organizations; Government Securities Clearing Corporation; Order Approving a Proposed Rule Change Relating to Funds- Only Settlement Payment Procedures July 15, 1998. On February 17, 1998, the Government Securities Clearing Corporation (``GSCC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-GSCC- 98-01) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of proposal was published in the Federal Register on April 21, 1998.\2\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ Securities Exchange Act Release No. 39860 (April 14, 1998), 63 FR 19774. --------------------------------------------------------------------------- I. Description Two important elements of GSCC's risk management process are the daily calculation and collection of clearing fund deposit deficiency amounts and of mark to the market margin. At times, GSCC is obligated to pay a member a FOS amount on a day on which that member also has a clearing fund deficiency call. Pursuant to its current rules, GSCC is required to make the FOS payment to such a member prior to the time the member must make its clearing fund deficiency payment to GSCC.\3\ The proposed rule change permits GSCC to retain FOS payments it owes to a member and to apply such amounts to any clearing fund deposit obligation the member owes to GSCC.\4\ --------------------------------------------------------------------------- \3\ GSCC is required to pay FOS obligations to members by 10:00 a.m. eastern time (``ET''). Members must satisfy clearing fund deficiencies by the later of two hours after the receipt of GSCC's call or 10:00 a.m. ET. However, if the notification is not made earlier then two hours before the close of the cash FedWire, members may satisfy the calls on the next business day. \4\ GSCC does not plan to exercise the offset right unless it has a significant FOS obligation to a member (i.e., $5 million or more), and the member has a significant clearing fund deficiency (i.e., $5 million or more). --------------------------------------------------------------------------- Under the proposed rule change, GSCC is entitled to retain the lesser of the FOS amount or the amount of the clearing fund call (or the entire FOS amount if the difference between the amounts is zero) and apply it to the member's clearing fund deposit requirement. If a member pays all or a portion of its clearing fund deficiency in any type of eligible collateral by a preestablished time before GSCC's deadline to make its own FOS payments to members,\5\ GSCC is only entitled to retain the portion of its FOS obligation to the member in an amount equal to the member's remaining clearing fund deficiency.\6\ --------------------------------------------------------------------------- \5\ GSCC plans to set the preestablished time at fifteen minutes before GSCC's deadline to make it own FOS payments to members. \6\ Pursuant to GSCC's existing rules, a member has the right to substitute eligible collateral for any cash that GSCC applies to its clearing fund deposit as a result of an offset. --------------------------------------------------------------------------- II. Discussion Section 17A(b)(3)(F) of the Act \7\ requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds in its custody or control or for which it is responsible. The Commission believes that the proposed rule change is consistent with this obligation because it will allow GSCC to increase its control over FOS payments it owes to members that have a significant clearing fund deposit obligation. This should [[Page 39321]] help reduce the risk to GSCC that a member will fail after it has received a FOS payment from GSCC but before it has satisfied its clearing fund deficiency call. Thus, the proposal should enhance GSCC's risk management process. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78q-1(b)(3)(F). --------------------------------------------------------------------------- III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of 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-98-01) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\8\ --------------------------------------------------------------------------- \8\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 98-19440 Filed 7-21-98; 8:45 am] BILLING CODE 8010-01-M