[Federal Register Volume 62, Number 182 (Friday, September 19, 1997)]
[Notices]
[Pages 49281-49283]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24862]


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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

[[Page 49282]]

(``Act''),\1\ notice is hereby given that on May 21, 1997, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-GSCC-97-04) as described in Items I, II, and II 
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.
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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 will implement a fine schedule in order to 
ensure compliance by members with deadlines for payment of funds 
settlement debts and satisfaction of clearing fund deposit deficiency 
calls. The fine schedule is attached as Exhibit 1 to this notice.

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 the 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

    GSCC believes that the most critical elements of its risk 
management process are the timely collections of mark-to-market and 
clearing fund margin amounts. Therefore, it is essential for GSCC to 
ensure the compliance by netting members with GSCC's deadlines for 
payment of funds settlement debits and satisfaction of clearing fund 
deposit deficiency calls. Failures to meet these deadlines result in 
increased exposure as well as potentially higher costs to GSCC and its 
members.
    Currently, members must pay funds-only settlement obligations via 
GSCC's designated depository institution in Fed funds by 10:00 a.m. In 
addition, members must satisfy clearing fund deficiencies within two 
hours after notification from GSCC. Typically, GSCC telephones its 
members by 8:30 a.m. to notify members of a call for an additional 
clearing fund deposit. The telephone call is followed up by telefax. 
The exact time that the telephone call is made is recorded and becomes 
the formal time that the call is made. Therefore, the usual deadline 
for satisfaction of a clearing fund deficiency is around 10:30 a.m.\3\
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    \3\ Recently, GSCC released a White Paper to its members and 
other interested parties that discussed various initiatives GSCC 
plans to implement in the coming years. Among other things, GSCC 
outlined future plans to enhance its risk management process by 
conducting a second afternoon funds-only settlement and by 
calculating and collecting clearing fund margin more dynamically.
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    In order to promote greater compliance with GSCC's funds debit and 
deficiency call deadlines, the proposed rule change will implement a 
fine schedule.\4\ According to GSCC, the fine schedule will enable it 
to assess predetermined monetary penalties against members who fail to 
meet their financial responsibilities on a timely basis. The severity 
of any fine will be a function of the magnitude and recent history of 
the subject member's late payments. In addition, the proposed rule 
change will eliminate the current limitation of $5,000 on the maximum 
size of any single fine GSCC may impose.
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    \4\ A copy of GSCC's fine schedule is attached as Exhibit A to 
the proposed rule change, which is available for inspection and 
copying at the Commission's Public Reference Room or through GSCC.
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    GSCC proposes to implement the fine schedule as it relates to late 
payment of a funds-only settlement obligation concurrently with the 
establishment of an ``autodebit'' arrangement, which will be the 
subject of a future rule filing. The autodebit arrangement involves an 
agreement between GSCC and participating banks that allows GSCC to use 
the banks to effect timely cash payments between it and participating 
netting members in settlement of their morning funds-only settlement 
obligations with GSCC. GSCC believes that this arrangement will being 
more certainty and will increase the timeliness of payment of funds-
only settlement obligations with GSCC. Netting members that participate 
appropriately in the autodebit process will not be subject to fines for 
late payment of funds settlement obligations.
    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A(b)(3)(F) of the Act \5\ and the rules and 
regulations thereunder because it will assure the safeguarding of 
securities and funds which are in the custody or control of GSCC or for 
which it is responsible.
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    \5\ U.S.C. 78q-1(b)(3)(F).
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(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

    Written comments relating to the proposed rule change have not yet 
been solicited or received. Members will be notified of the filing of 
the proposed rule change 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

    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 submissions should 
file six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549. Copies of this 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications 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 submissions should refer to the file 
number SR-GSCC-97-04 and should be submitted by October 10, 1997.


[[Page 49283]]


    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.

Exhibit 1--GSCC Fine Schedule

  Late Payment of Funds Settlement Debit/Late Satisfaction of Clearing  
                          Fund Deficiency Call                          
------------------------------------------------------------------------
                                                                   Any  
                                                                lateness
                                                                  more  
             Amount                 First    Second     Third    than 1 
                                  occasion  occasion  occasion   hour or
                                                                 fourth 
                                                                occasion
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$1 to $100M.....................    (\1\)      $100      $200      $500 
Greater than $100M to $1MM......    (\1\)       300       600     1,000 
Greater than $100MM to $2MM.....    (\1\)       600     1,200     2,000 
Greater than $2MM...............     $250     1,000     2,000     3,000 
------------------------------------------------------------------------

Notes

    (1) A warning letter is sent to senior officials of the offender 
describing the nature of the violation and the consequences of 
successive violations.
    (2) Each instance of late payment of a funds settlement debit or 
late satisfaction of a Clearing fund deficiency call is deemed to be 
a separate occasion. Such instances are combined, regardless of 
type, to determine the number of occasions.
    (3) The number of occasions is determined over a moving 30 
calendar-day period beginning with date of the first occasion.
    (4) A specific determination will be made by the Membership & 
Standards Committee of the Board of Directors when the number of 
occasions exceeds four, or when the number of occasions of lateness 
of more than an hour exceeds two.
    (5) The Membership & Standards Committee reserves the discretion 
to waive or reduce scheduled fines when a particular occasion is not 
deemed to be the fault of the affected member.

[FR Doc. 97-24862 Filed 9-18-97; 8:45 am]
BILLING CODE 8010-01-M