[Federal Register Volume 67, Number 62 (Monday, April 1, 2002)]
[Notices]
[Pages 15438-15440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-7784]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-45647; File No. SR-GSCC-2001-15]
Self-Regulatory Organizations; Government Securities Clearing
Corporation; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change Regarding Certain Highly Leveraged Members
March 26, 2002.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 16, 2001, the
Government
[[Page 15439]]
Securities Clearing Corporation (``GSCC'') filed with the Securities
and Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which items have been prepared
primarily by GSCC. The Commission is publishing this notice and order
to solicit comments from interested persons and to grant accelerated
approval of the proposal.
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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
The proposed rule change amends GSCC Rules to require certain
highly leveraged GSCC members to make and maintain with GSCC additional
deposits to the clearing fund. The proposed rule change also amends the
definition of ``excess capital.''
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, GSCC 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. GSCC 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 the text of the summaries
prepared by GSCC.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
On May 14, 2001, GSCC filed a proposed rule change with the
Commission clarifying GSCC's rights with respect to its treatment of
highly leveraged members.\3\ GSCC stated that it was important for it
to be able to monitor the ratio of each member's clearing fund
requirement to that member's level of excess regulatory capital,\4\ and
wished to advise its members of specific actions that it would take
pursuant to its rules with respect to any member that has a ratio in
excess of 0.5. GSCC informed its members that it would require a highly
leveraged member to provide it with comfort that it could fulfill its
obligations to GSCC and that GSCC would be entitled to obtain or
exchange margin information with respect to such member with other
clearing organizations.
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\3\ See Exchange Act Release No. 44995 (October 26, 2001), 66 FR
55724 (November 2, 2001) (File No. GSCC-2001-06).
\4\ In this context, the term ``excess regulatory capital'' is
used to include excess net capital, excess liquid capital, or excess
adjusted net capital, as applicable, all of which are measures of an
organization's net worth after adjusting for the liquidity of its
balance sheet.
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GSCC now proposes to take additional actions with respect to
certain highly leveraged members. Specifically, GSCC proposes to
require each highly leveraged member with a ratio of clearing fund
requirement to excess regulatory capital greater than 1.0 to make and
maintain with GSCC an additional deposit to the clearing fund. This
deposit would be equal to twenty-five percent of the amount by which
the member's ``excess capital differential,'' which is being defined as
the amount by which a netting member's required clearing fund
requirement exceeds the member's level of excess regulatory capital.\5\
GSCC believes that this clearing fund premium is appropriate in view of
the additional credit risk that such highly leveraged members pose to
GSCC.\6\ These rights are in addition to any other rights and remedies
that GSCC possesses pursuant to its rules.
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\5\ GSCC Rule 1 and Rule 4, Section 3.
\6\ GSCC will take the actions described in this rule filing
against inter-dealer broker netting members as well if they have a
ratio of clearing fund requirement to excess regulatory capital of
greater than 1.0.
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GSCC also proposes to make a minor change to the definition of
``excess capital'' to reflect the fact that some regulators (such as
bank regulators) do not require the entities they regulate to maintain
a minimum level of net liquid assets.\7\
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\7\ GSCC Rule 1.
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GSCC believes that the proposed rules changes are consistent with
the requirements of Section 17A of the Act and the rules and
regulations thereunder because they provide protection for GSCC with
respect to the additional risk that highly leveraged members pose to
GSCC and therefore better enable GSCC to safeguard the securities and
funds in its custody or control or for which it is responsible.
(B) Self-Regulatory Organization's Statement on Burden on Competition
GSCC does not believe that the proposed rules changes will have an
impact or impose a burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants, or Others
Written comments relating to the proposed rules changes have not
yet been solicited or received. Members will be notified of the rule
change filing and comments will be solicited by an Important Notice.
GSCC will notify the Commission of any written comments received by
GSCC.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder and particularly with the requirements of Section
17A(b)(3)(F).\8\ Section 17A(b)(3)(F) requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds that are in its custody or control or for which it is
responsible. The Commission believes that requiring each highly
leveraged GSCC member with a ratio of clearing fund requirement to
excess regulatory capital greater than 1.0 to make and maintain an
additional deposit to the clearing fund will give GSCC additional
resources to protect itself and its members' securities and funds from
the additional credit risk that highly leveraged members pose. As such,
the Commission believes GSCC's proposal is consistent with its
obligation to assure the safeguarding of securities and funds that are
in its custody or control or for which it is responsible.
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\8\ 15 U.S.C. 78q-1(b)(3)(F).
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GSCC has requested that the Commission approve the proposed rule
change prior to the thirtieth day after publication of the notice of
the filing. The Commission finds good cause for approving the rule
change prior to the thirtieth day after publication because such
approval will immediately allow GSCC to better protect itself with
respect to highly leveraged members.
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 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
[[Page 15440]]
available for inspection and copying in the Commission's Public
Reference Room, 450 Fifth Street, NW, Washington, DC 20549. Copies of
such filing will also be available for inspection and copying at the
principal office of GSCC. All submissions should refer to File No. SR-
GSCC-2001-15 and should be submitted by April 22, 2002.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\9\ that the proposed rule change (File No. SR-GSCC-2001-15) be and
hereby is approved.
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\9\ 15 U.S.C. 78s(b)(2).
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-7784 Filed 3-29-02; 8:45 am]
BILLING CODE 8010-01-P