Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices 38445

7The staff of the Board of Governors of the

Federal Reserve System has concurred with the

Commission’s granting of accelerated approval.

Telephone conversation between Kristen Wells,

Senior Analyst, Division of Reserve Bank

Operations, Board of Governors of the Federal

Reserve System, and Jeffrey Mooney, Special

Counsel, Division of Market Regulation,

Commission (July 9, 1998).

8 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

2Currently, the Cedel Bank, Societe anonyme and

the Euroclear system, which is operated by the

Brussels Office of Morgan Guaranty Trust Company

of New York, are the only qualified securities

depositories.

3This approach is similar to that taken with

respect to fail obligations relating to warrants, as set

forth in Rule 8, Sections 7(f) and 8(f).

accelerated approval will permit DTC to

immediately make shared control

accounts available to its participants

and to make its procedures reflect

revised Article 8 as recently enacted by

the State of New York.7

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 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, NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of DTC. All submissions should

refer to File No. SR–DTC–98–5 and

should be submitted by August 6, 1998.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

DTC–98–5) be and hereby is approved

on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18963 Filed 7–15–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40190; International Series

Release No. 1145; File No. SR–EMCC–98–

5]

Self-Regulatory Organizations;

Emerging Markets Clearing

Corporation; Notice of Filing and Order

Granting Accelerated Approval of

Proposed Rule Changing Relating to

Warrant Processing

July 10, 1998.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby give that on

May 28, 1998, the Emerging Markets

Clearing Corporation (‘‘EMCC’’) filed

with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I and II below, which items have

been prepared primarily by EMCC. The

Commission is publishing this notice

and order to solicit comments from

interested persons and to grant

accelerated approval of the proposed

rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposal Rule Change

The purpose of the proposed rule

change is to provide a mechanism

whereby EMCC may process cash

payments made with respect to warrants

for which there are outstanding fail

receive and deliver obligations and to

permit EMCC to pair-off outstanding

warrant fail receive obligations with fail

deliver obligations.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

EMCC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the proposal

rule change. The text of these statements

may be examined at the places specified

in Item IV below. EMCC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

From time to time, issuers of warrants

may declare a money distribution on

their warrants (‘‘warrant payment’’). If

EMCC is notified that a warrant

payment has been declared by a warrant

issuer, those members with a fail deliver

or fail receive obligation relating to such

warrant will receive a report from

EMCC. The report will specify the

amount each member is obligated to

pay/receive. EMCC will also instruct the

qualified securities depository 2 of each

such member to appropriately debit

and/or credit each member’s account on

payable date with the amount(s)

specified on the report. (Fail deliver

obligations will result in debits, and fail

receive obligations will result in

credits.)

EMCC will not guarantee warrant

payments. EMCC’s willingness to pay

members with fail receive obligations is

contingent on its ability to collect these

amounts from members with fail deliver

obligations. If a member with a fail

deliver obligation does not pay EMCC

the cash owed with respect to a warrant

payment, the proposed rule change (i)

permits EMCC to reverse the payment

made to the member with the fail

receive obligations that was the original

counterparty to the transaction

underlying such fail deliver obligation

and (ii) obligates the member with the

fail deliver obligation that did not pay

EMCC such monies owed, to

compensate EMCC for such nonpayment.

The proposed rule change also

provides that the member with the fail

receive obligation will be entitled to

compensation for its late receipt of the

warrant payment if EMCC collects from

the member with the fail deliver

obligation that failed to make timely

payment. The proposed rule change

provides that if a member with a fail

receive obligation does not receive a

warrant payment or if such a warrant

payment is reverse and, EMCC has

ceased to act for the member with the

fail deliver obligation, the member with

the fail receive obligation may request

that EMCC file a claim for the payment

with the estate of the member with the

fail deliver obligation. Any such action

shall be taken at the sole cost and

expense of the member with the fail

receive obligation.3

EMCC states that, historically, fail

rates with respect to warrant

transactions are high. Firms would

periodically employ a process by which

they bilaterally paired-off outstanding

warrant receive and deliver obligations
38446 Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices

4 15 U.S.C. 78s(b)(2).

5 17 CFR 200.30–3(a)(12).

in order to eliminate warrant fail

obligations. Since warrants have been

eligible at EMCC, EMCC’s records also

indicate that there is high fail rate with

respect to warrant obligations. In order

to eliminate there fails, members have

requested that EMCC implement a

similar process. The proposed rule

change would allow EMCC to perform a

bilateral pair-off process for warrant

obligations.

In order to be eligible to be paired-off,

the obligations must be within the same

ISIN, and the fail deliver obligations and

fail receive obligations must have a

contract value of $0. In addition, fail

deliver and fail receive obligations will

be paired-off only if the quantity of

warrants with respect to one or more fail

receive obligations (either singly or in

the aggregate) is equal to the quantity of

warrants with respect to one or more fail

deliver obligations (either singly or in

the aggregate).

Using the process described above,

EMCC will determine which fail deliver

and fail receive obligations are to be

paired-off and will issue a report to each

member identifying such paired-off

obligations. EMCC will also instruct the

member’s qualified securities depository

to cancel the previously issued debit

and credit instructions relating to such

paired-off obligations. At the time the

report is distributed to members, their

rights or obligations with respect to the

paired-off fail deliver and fail receive

obligations, under the Rules are

extinguished.

Although EMCC becomes the

counterparty to all transactions

submitted to it, upon receipt of

securities by EMCC they are redelivered

from EMCC to the original counterparty

to the underlying transaction. It is

possible that the pair-off process will

result in the canceling of the fail

obligation of only one of the original

counterparties, leaving the

corresponding fail obligation open at

EMCC. Under these circumstances,

EMCC will allocate any warrants

received by giving priority first to the

oldest fail receive obligation and next to

the fail receive obligation relating to the

largest number of warrants. EMCC will

not allocate any warrants which would

not fully satisfy a fail receive obligation.

For example, if EMCC receives 10

warrants from a member with a fail

deliver obligation (where the

corresponding fail receive obligation

had been canceled) and there are 3 fail

receive obligations of the same age, one

of which is for 7 warrants, one of which

is for 6 warrants, and one of which is

for 5 warrants, EMCC will deliver 7 of

the 10 warrants received to satisfy the

fail receive obligation for 7 warrants and

will not deliver the remaining 3

warrants until it has received a

sufficient quantity of warrants which

will allow it to fully satisfy at least one

fail receive obligation.

EMCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because it will facilitate the

prompt and accurate clearance and

settlement of securities transactions.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

EMCC does not believe that the

proposed rule change will have an

impact on 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

No written comments relating to the

proposed rule change have been

solicited or received. EMCC will notify

the Commission of any written

comments received by EMCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) of the Act

requires that the rules of a clearing

agency be designed to facilitate the

prompt and accurate clearance and

settlement of securities transactions for

which it is responsible. The

Commission believes that the rule

change should provide EMCC with a

process that should reduce the number

of outstanding fail receive obligations

and fail deliver obligations relating to

warrants. The failure of one party to

satisfy their settlement obligations

threatens the entire clearance and

settlement system because that party’s

failure may in turn cause other parties

to fail to meet their obligations.

Therefore, by reducing the number of

outstanding fails at EMCC, the proposed

rule change should facilitate the prompt

and accurate clearance and settlement of

securities transactions.

EMCC 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

publication of notice because

accelerated approval will enable EMCC

to begin reducing the number of fail

obligations relating to warrants

immediately.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 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, NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of EMCC. All submissions should

refer to File No. SR–EMCC–98–5 and

should be submitted by August 6, 1998.

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,4 that the

proposed rule change (File No. SR–

EMCC–98–5) be and hereby is approved

on an accelerated basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18964 Filed 7–15–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40185; File No. SR–NSCC–

97–13]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to

Changes in Membership Standards

July 9, 1998.

On October 30, 1997, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

and on December 31, 1998, amended a

proposed rule change (File No. SR–

NSCC–97–13) pursuant to Section

19(b)(1) of the Securities Exchange Act