[Federal Register Volume 62, Number 28 (Tuesday, February 11, 1997)]
[Notices]
[Page 6289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3325]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38242; File No. SR-MBSCC-96-06]


Self-Regulatory Organizations; MBS Clearing Corporation; Order 
Approving a Proposed Rule Change Relating to the Satisfaction of 
Participants Fund Deposit Requirements

February 5, 1997.
    On October 7, 1996, MBS Clearing Corporation (``MBSCC'') filed with 
the Securities and Exchange Commission (``Commission'') a proposed rule 
change (File No. SR-MBSCC-96-06) pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') to eliminate the depository 
receipt as an acceptable form of collateral to satisfy its participants 
fund deposit requirements.\1\ Notice of the proposal was published in 
the Federal Register on December 12, 1996.\2\ No comment letters were 
received. For the reasons discussed below, the Commission is approving 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 38021 (December 5, 
1996), 61 FR 65424.
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I. Description

    MBSCC presently requires each of its participants to pledge or to 
provide collateral to MBSCC to satisfy MBSCC's participants fund 
deposit requirements.\3\ These deposits form a nonmutualized pool of 
collateral that is designed to reflect each participant's aggregate 
projected obligations to its counterparties and to MBSCC. MBSCC 
currently accepts cash, certain securities, and letters of credit 
issued by an approved issuer as collateral in satisfaction of its 
participants' deposit obligations. Previously, MBSCC's participants 
that used securities to satisfy their deposit requirements were 
required only to provide evidence of the pledge of securities to MBSCC 
by using a depository receipt; however, participants were not required 
to effect a book-entry transfer of such securities to an MBSCC 
account.\4\ The rule change eliminates the use of the depository 
receipt and instead requires participants that choose to use securities 
to satisfy their participants deposit requirements to deliver the 
securities by book-entry to an MBSCC account at an entity approved by 
MBSCC. In connection with this rule change, MBSCC also will be 
responsible for the payment of any fees associated with the 
establishment of a pledge account at a trust company approved by 
MBSCC's board of directors for use in connection with the book-entry 
method.
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    \3\ For a complete description of the participants fund, refer 
to Securities Exchange Act Release Nos. 37294 (June 10, 1996), 61 FR 
30268 [File No. SR-MBSCC-96-01] (notice of filing of proposed rule 
change] and 37512 (August 1, 1996), 61 FR 41437 [File No. SR-MBSCC-
96-01] (order approving proposing rule change).
    \4\ A depository receipt evidences the pledge of specified 
securities held by a custodian for the account of a pledgee. MBSCC 
advised the Commission that as of October 1996, the year to date 
average daily dollar value of the securities pledged to MBSCC 
through the use of depository receipts was $1.05 billion.
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II. Discussion

    Section 17A(b)(3)(F)\5\ 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 MBSCC's 
proposed rule change is consistent with MBSCC's obligations under 
Section 17A of the Act. The replacement of depository receipts with the 
book-entry method should reduce the risks associated with the use of 
depository receipts.\6\ The exclusive use of book-entry method as a 
means for participants to pledge securities to MBSCC as participants 
fund collateral should enhance MBSCC's ability to access the collateral 
in the event of a participant default. This should enable MBSCC to 
better fulfill its obligation under the Act to assure the safeguarding 
of securities and funds which are in its custody or control. 
Furthermore, because MBSCC will be responsible for all fees associated 
with the establishment of the pledge account, the rule change should 
help reduce any burdens on MBSCC's participants that result from the 
elimination of depository receipts as an acceptable form of 
participants fund deposit.
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    \5\ 15 U.S.C. 78q-1(b)(3)(F).
    \6\ MBSCC has stated that the use of the depository receipt 
presents certain risks to MBSCC, including: (1) Forgery, (2) 
unauthorized individuals executing on behalf of the participant or 
the custodian, (3) improper segregation of the pledged securities 
from other securities, (4) unauthorized releases of the pledged 
securities, and (5) the possibility that the custodian will not 
release the securities to MBSCC upon MBSCC's proper demand for such 
a release.
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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-MBSCC-96-06) be, and hereby 
is, approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3325 Filed 2-10-97; 8:45 am]
BILLING CODE 8010-01-M