[Federal Register Volume 62, Number 194 (Tuesday, October 7, 1997)]
[Notices]
[Pages 52368-52369]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26520]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39174; File No. SR-DCC-97-11]


Self-Regulatory Organizations; Delta Clearing Corp.; Notice of 
Filing and Order Granting Accelerated, Temporary Approval of a Proposed 
Rule Change Relating to Margin Requirements for Repurchase Agreements

September 30, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on September 16, 1997, Delta 
Clearing Corp. (``DCC'') filed with the Securities and Exchange 
Commission (``Commission'') and on September 24, 1997, amended the 
proposed rule change (File No. SR-DCC-97-11) as described in Items I 
and II below, which items have been primarily prepared by DCC. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons and to grant accelerated 
approval of the proposed rule change through March 31, 1998.
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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 purpose of the proposed rule change is to extend the temporary 
approval for DCC's rules regarding the collection of margin for 
overnight repurchase and reverse repurchase agreements (``overnight 
repos'').

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, DCC included statements 
concerning the purpose of and basis for the proposed rule change and 
any comments received by DCC on the proposed rule change.
    The text of these statements may be examined at the places 
specified in Item IV below. DCC 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 DCC.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    DCC seeks an extension of the temporary approval of its rules 
relating to the collection of margin for overnight repos. On April 2, 
1997, the Commission granted approval of DCC's overnight repo margining 
rules through September 30, 1997.\3\
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    \3\ Securities Exchange Act Release No. 38471 (April 2, 1997), 
62 FR 17257.
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    Prior to the proposed rule change, DCC calculated each 
participant's margin requirement for all repos, including overnight 
repos, at the end of each business day and required margin to be 
deposited by 11:00 a.m. the next business day. DCC does not believe 
that this procedure is appropriate for overnight repos because 
overnight repos terminate on the following day. As a result, DCC 
amended its procedures for calculating and collecting margin for 
overnight repos.\4\
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    \4\ See id. for a detailed description of the proposal.
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    These procedures require each participant which engages in 
overnight repos to deposit with DCC as core margin either $1 million or 
a greater amount as determined by DCC at the end of each week based 
upon the participant's daily overnight repo exposures during the eight 
prior weeks.\5\ If DCC determines as a result of any weekly calculation 
that a participant is required to maintain a higher core margin amount 
on deposit with DCC, DCC will notify the participant of such higher 
core margin requirement by 3:00 p.m. on the date of the calculation, 
and the participant is required to deposit by 11:00 a.m. on the 
following business day margin whose value equals or exceeds the 
participant's additional margin requirement. Such deposit must be in 
cash or U.S. Treasury securities.
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    \5\ Overnight repos are defined as repo agreements whose off-
date is the immediately succeeding business day following the on-
date for such transactions. Term repos are defined as repos 
agreements whose off-date is two or more business days following the 
on-date for such transactions.
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    In addition to the weekly calculation described above, DCC 
calculates on each business day each participant's mark-to-market 
exposure from overnight repos. If a participant's exposure from 
overnight repos exceeds 65 percent of the participant's core margin 
requirement, DCC requires the participant to deposit additional margin 
equal to the amount of such excess. Such additional margin must be

[[Page 52369]]

deposited with DCC no later than 5:00 p.m. on the applicable business 
day. If additional margin is required, DCC may apply towards a 
participant's exposures on overnight repos excess margin maintained by 
the participant with DCC which is not then being used to collateralize 
other margin obligations to DCC. However, DCC may not apply a 
participant's core margin amount maintained with DCC towards other 
margin obligations to DCC arising from options transactions or term 
repros.
    In connection with the proposed rule change, DCC agreed that during 
the temporary approval period it will submit to the Commission on a 
monthly basis reports detailing the operation of the new margining 
system for overnight repos. DCC instituted the new margining system on 
July 1, 1997, and has been providing reports to the Commission since 
that time. In response to a request from the Commission, DCC has 
amended the format of the report to provide additional information to 
the Commission. The first report incorporating the revised format was 
filed by DCC with the Commission in September 1997.
    DCC believes the proposed extension of the temporary approval of 
the proposed rule change is consistent with the requirements of Section 
17A of the Act \6\ and the rules and regulations promulgated thereunder 
because the proposed rule change will better enable DCC to safeguard 
the funds and securities under its possession and control by amending 
DCC's procedures to assure that it has adequate collateral to address a 
participant's default or insolvency.
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    \6\ 15 U.S.C. 78q-1.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    DCC does not believe that the proposed rule change will 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

    Comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Section 17A(b)(3)(F) \7\ of the Act requires that the rules of a 
clearing agency be designed to assure the safeguarding of securities 
and funds which are in the custody or control of the clearing agency or 
for which it is responsible. The Commission believes that DCC's 
proposed rule change is consistent with DCC's obligations under the Act 
because the proposal establishes: (1) a minimum core margin requirement 
to reflect DCC's exposure to each participant's overnight repo activity 
and (2) an intraday margin requirement that is triggered if a 
participant's mark-to-market exposure is valued at more than 65 percent 
of the core requirement. Therefore, the Commission believes that the 
proposal should provide to DCC margin in an amount that will assist DCC 
in meeting its obligation to safeguard securities and funds.
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    \7\ 15 U.S.C. 78q-1(b)(3)(F).
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    Currently, DCC has operated its new margining system for only three 
months. Therefore, the Commission believes that it is appropriate to 
extend temporary approval of the proposal in order that the Commission 
and DCC will have opportunity to further monitor the effectiveness of 
the new system in practice. Accordingly, the Commission is temporarily 
approving the proposed rule change through March 31, 1998. During this 
temporary approval period, DCC should continue to submit on a monthly 
basis reports detailing its analysis of its overnight repo margining 
system.
    DCC has requested that the Commission find good cause for approving 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of the filing. The Commission finds good cause 
for approving the proposed rule change prior to the thirtieth day after 
the date of publication of notice of filing because accelerated 
approval will allow DCC to continue to use its overnight repo margining 
procedures without interruption when the current temporary approval 
period expires on September 30, 1997.

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, N.W., Washington, D.C. 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, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of DCC. All 
submissions should refer to the File No. SR-DCC-97-11 and should be 
submitted by October 28, 1997.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-DCC-97-11) be, and hereby 
is, approved through March 31, 1998.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-26520 Filed 10-6-97; 8:45 am]
BILLING CODE 8010-01-M