49280 Federal Register / Vol. 62, No. 182 / Friday, September 19, 1997 / Notices

2The Commission has modified the text of the

summaries prepared by DTC.

3For a complete description of BDS, refer to

Securities Exchange Act Release No. 34600 (August

25, 1994), 59 FR 45317 [File No. SR–DTC–94–05]

(order approving proposed rule change).

4For example, DTC has advised the Commission

that one participant has requested that DTC develop

a certain imaging functionality for BDS. That

specific service, however, would not be used by

other participants that utilize BDS.

5 DTC has advised the Commission that it will

charge fees for customization of BDS based on a

consistently applied methodology. 6 15 U.S.C. 78q–1(b)(3)(A).

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2The Commission has modified the text of the

summaries submitted by GSCC.

solicit comments from interested

persons on the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will allow

DTC to enter into contracts with

individual participants to provide

customized processing services under

DTC’s branch deposit service (‘‘BDS’’).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC 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. DTC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

BDS currently allows DTC

participants to route securities

certificates and related documentation

from their branches and other satellite

offices directly to DTC rather than to the

participants’ own central locations for

processing before being deposited at

DTC.3 DTC has advised the Commission

that some participants have requested

customization of BDS in order to suit

their individual needs.4 The purpose of

the proposed rule change is to permit

DTC to enter into contracts with

individual participants to provide such

customized processing services under

BDS. Under the proposed rule change,

however, DTC would not be obligated to

enter into any such contracts with

participants or to offer the same terms

under any such contracts to all

participants.5

DTC believes that the proposed rule

change is consistent with the

requirements of section 17A(b)(3)(A) of

the Act 6 and the rules and regulations

thereunder because it promotes

efficiencies in the clearance and

settlement of securities transactions.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DTC believes that no burden will be

placed on competition as a result of the

proposed rule change.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

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 DTC 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. 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 DTC. All submissions should

refer to File No. SR–DTC–97–13 and

should be submitted by October 10,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24969 Filed 9–18–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39066; File No. SR–GSCC–

97–05]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of a

Proposed Rule Change To Modify

Rules Relating to the Loss Allocation

Process

September 12, 1997.

Pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 8, 1997, the Government Securities

Clearing Corporation (‘‘GSCC’’) filed

with the Securities and Exchange

Commission (‘‘Commission’’) and on

July 23, 1997, amended the proposed

rule change (File No. SR–GSCC–97–05)

as described in Items I, II, and III below,

which items have been prepared

primarily by GSCC. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to modify GSCC rules relating

to its loss allocation process.

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 that 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
Federal Register / Vol. 62, No. 182 / Friday, September 19, 1997 / Notices 49281

3 Interdealer broker netting members already have

a $5 million cap per loss event on their liability for

loss allocation. 4 17 CFR 200.30–3(a)(12).

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

GSCC’s loss allocation process is

designed to provide members with

incentives to assess the creditworthiness

of their counterparties. Thus, to the

extent that GSCC, using its own capital,

does not absorb the loss that results

from a member default, it allocates the

loss among members pro rata based on

the extent of their recent activity with

the defaulting member. In order to

determine which members will be

subject to loss allocation, GSCC will

look at trading activity that entered

GSCC’s netting system during as many

days as is necessary to reach a level of

activity that is equal to or greater than

five times the dollar value of the

liquidated positions.

Over the years, a number of members

and prospective members have raised an

issue regarding the application of the

loss allocation process for losses arising

from blind brokered transactions. Their

concern is that members that are not

interdealer brokers neither have

knowledge nor have control over

whether they may be matched against

any other member. Thus, they have no

ability to limit the amount of trading

that they do on a blind basis against a

member on which they would otherwise

place trading limits for credit or other

reasons. The concern by a dealer firm

over the inability to exercise control

from a credit perspective over its trading

activity with particular counterparties

has been heightened with last year’s

introduction of blind brokering activity

involving repurchase agreement

transactions.

GSCC believes that while the

possibility of a loss allocation occurring

is de minimis the concern over bearing

a disproportionate amount of loss is a

legitimate one that needs to be

addressed. Among other methods, GSCC

considered simply mutualizing among

all netting members, either in an equal

or pro rata manner, any loss allocation

arising from blind brokered activity. The

disadvantage of this approach is that it

removes any incentive for a member to

assess the creditworthiness of one’s

counterparties. GSCC believes that the

loss allocation process should continue

to function in a manner that preserves

to some extent this incentive.

In order to balance these

considerations, GSCC is seeking

authority to cap at a preset level the

degree to which any netting member

that is not an interdealer broker is liable

for loss allocation arising from blind

brokered activity.3 The proposed cap

per loss event will be equal to the lesser

of $5 million or five percent of the total

loss amount arising from blind brokered

activity that is allocated to members that

are not interdealer brokers as a group.

To the extent that this cap is applicable,

any amounts not collected from

individual netting members will be

reallocated to the entire netting

membership pro rata based on each

member’s average daily clearing fund

deposit requirement over the twelve

month period prior to the insolvency.

GSCC believes that the $5 million cap

will provide to all members the same

level of protection that interdealer

broker members currently have for blind

brokered activity. GSCC also states that

because dealer members do not control

the degree to which they may be

matched by interdealer brokers against

other members, the number of trades

that they engage in with an insolvent

member is outside of their control. The

5% limit is intended to compensate for

this lack of control by ensuring that no

single member will be liable for an

amount of loss for blind brokered

activity that is significantly greater than

the amount of loss allocated to other

dealer members.

GSCC believes the proposed rule

change is consistent with the

requirements of section 17A of the Act

and the rules and regulations

thereunder because the rule proposal

will promote the prompt and accurate

clearance and settlement of securities

transactions and will assure the

safeguarding of securities and funds in

the custody or control of GSCC or for

which GSCC is responsible.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule change 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

No written comments have been

solicited or received. 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

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 GSCC 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. 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

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 submission should

refer to the file number SR–GSCC–97–

05 and should be submitted by October

10, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24860 Filed 9–18–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39054; File No. SR–GSCC–

97–04]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of a

Proposed Rule Change Relating to the

Implementation of a Fine Schedule

September 11, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934