[Federal Register Volume 62, Number 37 (Tuesday, February 25, 1997)]
[Notices]
[Pages 8475-8477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4607]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38302; File No. SR-GSCC-96-14]


Self-Regulatory Organizations; Government Securities Clearing 
Corporation; Notice of Filing of Proposed Rule Change To Eliminate 
Grandfather Privileges

February 18, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 8476]]

(``Act''),\1\ notice is hereby given that on December 19, 1996, the 
Government Securities Clearing Corporation (``GSCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No SR-GSCC-96-14) 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.
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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 eliminate the ability 
of GSCC's interdealer broker netting members (``IDB'') to trade with 
certain nonmembers identified on GSCC's grandfather list.

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 prepare 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 Organizations's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In May 1993, GSCC established limitations on the trading activity 
of IDBs with firms that are not a members of GSCC's netting system.\3\ 
GSCC restricted category 1 IDBs to trading only with GSCC netting 
members and limited the trading activity of category 2 IDBs with 
nonmember firms to ten percent. At that time, GSCC decided to allow 
IDBS to continue to trade with certain nonmember firms (``grandfather 
nonmembers'') that historically have had access to the IDB's screens 
and that GSCC has identified on its grandfather list.\4\ GSCC believed 
that it was unfair to penalize IDBs for continuing to trade with firms 
that GSCC was not yet successful in bringing into its netting system 
membership. Accordingly, category 1 IDBs can continue to trade with the 
grandfathered nonmember dealers and trading between category 2 IDBs and 
grandfathered firms does not count toward category 2 IDBs' ten percent 
limit.
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    \3\ Securities Exchange Act Release No. 32722 (August 5, 1993), 
58 FR 42993 (order approving establishment of new membership 
categories).
    \4\ The grandfather list includes the following firms:
    Aubrey G. Lanston & Co., Inc.
    The Nikko Securities Co., Ltd. (Tokyo)
    Nikko Europe PLC (London)
    Nomura International Inc. (Tokyo)
    Nomura Securities Co., Ltd. (Tokyo)
    Nomura International PLC (London)
    Daiwa Europe Ltd. (London)
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    Since 1993, GSCC has made numerous attempts to encourage each of 
the grandfathered firms either to join GSCC's netting system or to have 
their eligible trades submitted to the net by an affiliated netting 
member.\5\ GSCC also has established a category of netting system 
membership for foreign entities. Thus, all entities on the grandfather 
list are now eligible for direct netting membership in GSCC.
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    \5\ The number of grandfathered firms has decreased from twelve 
to seven.
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    GSCC believes that trades between an IDB and a grandfathered firm 
expose GSCC to greater risks than trades between an IDB and a netting 
member because trades with a grandfathered firm are not eligible for 
netting by GSCC. As a result, when an IDB has offsetting trades with a 
netting member and a grandfathered firm, only the trade with the 
netting member will be netted thereby leaving the IDB instead of a 
grandfathered firm with a position.\6\
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    \6\ While the number of trades between IDBs and grandfathered 
firms is a relatively small percentage of the IDB's trades, they are 
significant in absolute terms.
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    Therefore, GSCC is proposing to eliminate the grandfather list, 
effective June 30, 1997. GSCC believes that the effective date provides 
grandfathered firms with sufficient time to join GSCC's netting system 
or to adjust to nongrandfathered status. Once the grandfather list has 
been eliminated, category 2 IDBs, which do virtually all of the 
brokered transactions with the current grandfathered firms, will have 
to trade with the formerly grandfathered firms that do not join GSCC's 
netting system under the category 2 IDB's authority to engage in ten 
percent of its trading activity with nonmember firms. Category 1 IDBs 
will be prohibited from doing any netting eligible activity with a 
formerly grandfathered firm that does not join GSCC's netting system.
    GSCC believes that the proposed rule change is consistent with the 
requirements of Section 17A of the Act \7\ and the rules and 
regulations thereunder because it would end the exposure to GSCC that 
the trading by the IDBs with grandfathered firms creates.
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    \7\ 15 U.S.C. 78q-1.
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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 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

    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 submission 
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 Room, 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 GSCC. All submissions should

[[Page 8477]]

refer to the file number SR-GSCC-96-14 and should be submitted by March 
18, 1997.

    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. 97-4607 Filed 2-24-97; 8:45 am]
BILLING CODE 8010-01-M