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###### Securities and Exchange Commission

          - [Release No. 34-43592; International Series Release No. 1235; File No. 601-01]

## I. Introduction

                    On September 21, 2000, Morgan Guaranty Trust Company of New York, Brussels office (“MGT-Brussels”), as operator of the Euroclear System,[1]                                          and Euroclear Bank, S.A., (“Euroclear Bank”) filed pursuant to Section 17A of the Securities Exchange Act of 1934 (“Exchange Act”) [2]                                          and Rule 17Ab2-1 thereunder [3]                                          with the Securities and Exchange Commission (“Commission”) an application on Form CA-1 [4]                                          to modify MGT-Brussels' existing exemption from clearing agency registration (“Modification Application”). MGT-Brussels' current exemption allows it to perform, with certain limits, the functions of a clearing agency with respect to U.S. government and agency securities for its U.S. participants without registering as a clearing agency. The purpose of the Modification Application is to have Euroclear Bank substituted for MGT-Brussels as operator of the Euroclear System with respect to the Commission's exemption. The Commission is publishing this notice to solicit comment from interested persons.                

## II. Background

### A. 1998 Exemption Order

                    On February 11, 1998, the Commission granted MGT-Brussels an exemption from registration as a clearing agency, subject to certain conditions, to the extent MGT-Brussels performs the functions of a clearing agency with respect to transactions involving U.S. government and agency securities for its U.S. participants (“1998 Exemption Order”).[5]                                          Specifically, the 1998 Exemption Order                           ( print page 75325)                        permitted MGT-Brussels to provide clearance, settlement, and collateral management services for its U.S. participants' transactions in “eligible U.S. government securities” which was defined as: (1) Fedwire-eligible U.S. government securities,[6]                                          (2) mortgage-backed pass through securities that are guaranteed by the Government National Mortgage Association (“GNMAs”), and (3) any collateralized mortgage obligation whose securities are Fedwire-eligible U.S. government securities or GNMA guaranteed mortgage-backed pass through securities and which are depository eligible securities.                

                    The 1998 Exemption Order imposed two conditions on MGT-Brussels' ability to provide clearance and settlement services.[7]                                          First, the average daily volume of eligible U.S. government securities that can be settled through MGT-Brussels for U.S. participants is limited to five percent of the total average daily dollar volume of the aggregate volume in eligible U.S. government securities.[8]                                          Second, the 1998 Exemption Order allows the Commission access to a variety of information related to MGT-Brussels' role as operator of the Euroclear System.[9] 

### B. Changeover From MGT-Brussels to Euroclear Bank

On January 1, 2000, owners and operators decided that MGT-Brussels should be replaced by Euroclear Bank as operator of the Euroclear System. In May 2000, Euroclear Bank was created. On July 27, 2000 the Belgian Banking and Finance Commission (“CBF”) granted Euroclear Bank a Belgian banking license. MGT-Brussels will continue to operate the Euroclear System until the changeover, which is scheduled to occur on December 31, 2000. At the changeover, the business and related assets and liabilities of the Euroclear System will vest in and virtually all of the MGT-Brussels staff will be transferred to Euroclear Bank.

As a result of the changeover, Euroclear Clearance System Public Limited Company (“Euroclear PLC” ), a limited liability company organized under the laws of the United Kingdom, will own 59.5% of Euroclear Bank. Calar Investments, a wholly-owned subsidiary of Euroclear PLC, will own 35.5% of Euroclear Bank. The remaining five percent of Euroclear Bank will be owned by the former members of Euroclear Clearance System Societe Cooperative, the predecessor of Euroclear Bank.

## III. Proposed Modification of the 1998 Exemption Order

                    Euroclear Bank has requested modification of the 1998 Exemption Order by replacing MGT-Brussels with Euroclear Bank as operator of the Euroclear System. The 1998 Exemption Order provides that “the Commission may modify by order the terms, scope, or conditions of MGT-Brussels' exemption from registration as a clearing agency if the Commission determines that such modification is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Exchange Act” [10] 

Euroclear Bank will operate the Euroclear System in the manner that MGT-Brussels currently operates the Euroclear System. Euroclear Bank will use the same personnel, operating systems, procedures, and risk management as MGT-Brussels currently uses. Euroclear Bank represents that it will substantially satisfy, just as MGT-Brussels currently does, each of the conditions for registration set forth in Section 17A(b)(3) of the Exchange Act, that relate to “safe and sound clearance and settlement” in the U.S., which the Commission has identified in the 1998 Exemption Order as the fundamental goal of Section 17A. Accordingly, Euroclear Bank requests the identical exemption granted to MGT-Brussels. Therefore, the Modification Application does not seek to have any changes made to the “Scope of the Exemption,” as described in Section IV.C. of 1998 Exemption Order with respect to the conditions and limitations of the 1998 Exemption Order.

                    As described in the 1998 Exemption Order, MGT-Brussels is a division of the foreign branch of a U.S. bank and accordingly is subject to the comprehensive supervision and regulation of the Federal Reserve Bank of New York.[11]                                          The Federal Reserve Bank of New York conducts annual on-site examinations in Brussels and otherwise regulates MGT-Brussels' operations, including its operation of the Euroclear System. Because there will be no similar U.S. regulation of Euroclear Bank, the Commission will require the execution of a satisfactory Memorandum of Understanding (“MOU”) with the CBF [12]                                          to facilitate the provision of information by Euroclear Bank to the Commission and to continue to facilitate the Commission's monitoring of the impact of Euroclear Bank's operation under this exemption.[13] 

                    Section 17A(b)(1) of the Exchange Act authorizes the Commission to exempt applicants from some or all of the requirements of Section 17A if it finds such exemptions are consistent with the public interest, the protection of investors, and the purposes of Section 17A, including the prompt and accurate clearance and settlement of securities transactions and the safeguarding of securities and funds.[14]                                          Therefore, the Commission invites commenters to address whether modifying the 1998 Exemption Order as requested by Euroclear Bank and as described above, subject to the continuation of the conditions and limitations set forth in that order, would further the goals of Section 17A.                

## IV. Solicitation of Comment

                    Interested persons are invited to submit written data, views, and arguments concerning the foregoing application by December 22, 2000, including whether the exemption is consistent with the Exchange Act. Such written data, views, and arguments will be considered by the Commission in deciding whether to grant the Modification Application. Persons desiring to make written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Reference should be made to File No. [601-01]. Copies of the application and all written comments will be available for inspection and copying at the Commission's Public  Reference Room,                           ( print page 75326)                        450 Fifth Street, NW., Washington, DC 20549.                

                        For the Commission by the Division of Market Regulation, pursuant to delegated authority. [15] 

Margaret H. McFarland,

Deputy Secretary.

# Footnotes

1.                             MGT-Brussels presently operates the Euroclear System pursuant to an operating agreement with Euroclear Bank.                    
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2.                             15 U.S.C. 78q-1.                    
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3.                             17 CFR 240.17Ab2-1.                    
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4.                             Copies of the application for exemption are available for inspection and copying at the Commission's Public Reference Room.                    
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5.                             Securities Exchange Act Release No. 39643 (February 11, 1998), 63 FR 8232.                    
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6.                             As described in footnote 64 of the 1998 Exemption Order, U.S. government securities means “U.S. government securities” as defined in Section 3(a)(42) of the Exchange Act, 15 U.S.C. 78c(a)(42), except that it shall not include any (i) foreign-targeted U.S. government or agency securities or (ii) securities issued or guaranteed by the International Bank for Reconstruction and Development (                        *i.e.*, the “World Bank”) or any other similar international organization.                    
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7.                             The conditions in the 1998 Exemption Order reflected the Commission's determination to take a gradual approach toward permitting an international, unregistered clearing organization to perform clearing agency functions for transactions involving U.S. government and agency securities for U.S. participants. 1998 Exemption Order at 63 FR 8239.                    
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8.                             The scope of the 1998 Exemption Order is limited to U.S. eligible government securities and does not apply to other U.S. debt or equity securities. For a more complete description of the volume limit, refer to Section IV.C.2. of the 1998 Exemption Order at 63 FR 8239.                    
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9.                             For a more complete description of the Commission's access to information refer to Section IV.C.3. of the 1998 Exemption Order at 63 FR 8240.                    
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10.                             1998 Exemption Order at 63 FR 8240.                    
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11.                             1998 Exemption Order at 63 FR 8237.                    
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12.                             Euroclear Bank is subject to regulation by the CBF.                    
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13.                             Euroclear Bank also continues to agree to provide information to the Commission as described in the 1998 Exemption Order.                    
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14.                             15 U.S.C. 78q-1(b)(1).                    
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15.                                 17 CFR 200.30-3(a)(16).                        
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[FR Doc. 00-30666  Filed 11-30-00; 8:45 am]

BILLING CODE 8010-01-M