Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14987

5This type of member may execute on the Floor

transactions in options and other derivative

products initiated by him for his own account and

may give orders for such securities for his own

account to regular members for execution provided,

however, that this type of member may not trade

in individual stock options listed on the Exchange.

See Amex Constitution, Article IV § 1(j)(3).

6 15 U.S.C. 78f(b)(5) & (c)(3)(B) (1988).

7 15 U.S.C. 78o(b)(7) (1988).

8 15 U.S.C. 78s(b)(2) (1988).

9 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2Letters from Barry E. Silverman, President,

DGOC, to Jerry Carpenter, Assistant Director,

Securities Processing Regulation, Division of

Market Regulation (‘‘Division’’), Commission,

(December 16, 1994); Barry E. Silverman, President,

DGOC, to Jerry W. Carpenter, Assistant Director,

Office of Securities Regulation (‘‘OSPR’’), Division,

Commission (January 9, 1995); Kathryn V. Natale,

Morgan, Lewis & Bockius, to Jerry W. Carpenter,

Assistant Director, Division, Commission, (January

20, 1995); Kathryn V. Natale, Morgan, Lewis &

Bockius, to Jerry W. Carpenter, Assistant Director,

Division, Commission (February 10, 1995); and

Barry Silverman, President, DGOC, to Christine

Sibille, Senior Counsel, OSPR, Division,

Commission (March 2, 1995).

principal membership must pass a

qualifying examination prior to

undertaking any active duties on the

Floor. As a result, regular members, who

may trade stocks and options, take both

the Qualifying Examination for Regular

Floor Members and the Put and Call

Stock Option Examination. OPMs, who

are prohibited from trading equities,

take the Qualifying Examination for

OPMs and the Put and Call Stock

Option Examination. Limited Trading

Permit Holders 5 take the Qualifying

Examination for OPMs and the Put and

Call Stock Option Examination.

Commentary .01 to Exchange Rule

50(a) requires that a regular member

who applies to register as a specialist

and a regular or OPM member who

applies to register as a registered floor

trader must also pass an examination.

Specialists take the Specialist

Examination. Registered floor traders

take the Registered Equity Trader and

Registered Equity Market Maker

Examination.

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Sections 6(b)(5) and

6(c)(3)(B).6 Section 6(b)(5) requires,

among other things, that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

remove impediments to and perfect the

mechanism of a free and open market

and national market system, and, in

general, to protect investors and the

public interest. Section 6(c)(3)(B)

provides that a national securities

exchange may examine and verify the

qualifications of an applicant to become

a person associated with a member in

accordance with procedures established

by the rules of the exchange, and may

require any person associated with a

member, or any class of such persons,

to be registered with the exchange in

accordance with procedures so

established.

The Commission also believes that the

proposed rule change is consistent with

Section 15(b)(7) of the Act 7 which

stipulates that prior to effecting any

transaction in, or inducing the purchase

or sale of any security, a registered

broker or dealer must meet certain

standards of operational capability, and

that such broker or dealer must meet

certain standards of training,

experience, competence, and such other

qualifications as the Commission finds

necessary or appropriate in the public

interest or for the protection of

investors.

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, 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 at

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the Amex. All submissions

should refer to File No. SR–Amex–94–

46 and should be submitted by April 11,

1995.

Finally, the Commission finds good

cause for approving Amendment No. 1

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register. The

Commission believes that accelerated

approval of the proposal is appropriate

in order to allow the Amex to begin

utilizing the exams, as corrected.

Further, the use of the six qualification

exams has been noticed previously in

the Federal Register for the full

statutory period and the Commission

did not receive any comments on it.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR-Amex–94–46)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 95–6843 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35491; File No. SR–DGOC–

94–06]

Self-Regulatory Organizations; Delta

Government Options Corp.; Notice of

Proposed Rule Change Relating to

Implementing New Procedures

Allowing for the Clearance and

Settlement of Repurchase

Transactions and Reverse Repurchase

Transactions

March 15, 1995.

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

Securities Exchange Act of 1934

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

October 31, 1994, Delta Government

Options Corp. (‘‘DGOC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which items have been

prepared primarily by DGOC. On

December 9, 1994, January 10, 1995,

January 24, 1995, February 13, 1995,

and March 3, 1995, DGOC filed

amendments to the proposed rule

change.2 The Commission is publishing

this notice to solicit comments on the

proposed rule change from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

DGOC is proposing amendments to its

Procedures that will insert new

procedures allowing for the

establishment of a clearance and

settlement system for repurchase

agreements (‘‘repos’’) and reverse

repurchase agreements (‘‘reverse

repos’’). Standards for participation,

financial requirements, financial

reports, audits, admission procedures,

withdrawal of a participant(s), and such

other standards as described in these

new procedures are similar to DGOC’s

existing procedures and have been

modified only insofar as they reflect

repos and reverse repos.
14988 Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices

3 Generally, participants can cancel transactions

at any time until the price of the underlying

collateral has been agreed upon by the parties.

Depending on participant system capabilities,

cancellation will typically take place either on-line

or by voice communication. If the cancellation is

effected through voice communication, a follow-up

notice will be prepared and transmitted to the

participants.

4The close of each trading day will be at 2:30

p.m.

II. Self-Regulatory Organization’s

Statement of the Purpose of and

Statutory Basis for the Proposed Rule

Change

In its filing with the Commission,

DGOC 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. DGOC 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

The purpose of the proposed rule

change is to enable DGOC to clear and

settle repos and reverse repos. Existing

participants and nonparticipants have

expressed an interest in such services.

DGOC believes that by providing a

centralized clearing and settlement

facility for repos and reverse repos, it

will enable users of such a facility for

repos and reverse repos, it will enable

users of such a facility to reduce credit

exposure, decrease capital utilization,

reduce transaction flow, and improve

efficiency.

In the recent past, the U.S. fixed

income securities dealer community has

expressed significant interest in

exploring mechanisms designed to

reduce the risks associated with holding

inventories of securities, trading

derivative securities, and the attendant

costs of maintaining such inventories. In

particular, this exploratory effort has

focused on the U.S. Treasury securities

market as a consequence of the dramatic

growth in the outstanding notional

amounts and the resulting increased

dealer trading inventories of Treasury

Bills, Notes, and Bonds during the last

several years.

In addition to the benefits that DGOC

believes will accrue to the dealer

community, DGOC believes the

following systemic benefits of creating a

clearing and settling mechanism for

repos and reverse repos also are likely.

First, through the imposition of daily

margin requirements, there is an

enhanced probability of performance on

the part of participants even during

times of market stress. Second, through

netting, the exposures giving rise to

margin requirements will result in

optimal use of collateral. Third, as the

common contraparty subject to

Commission oversight, DGOC will

provide transparency and access to an

activity which is fundamental to

efficiently functioning capital markets.

Prior to using the system, a DGOC

participant must apply for membership

in DGOC’s repo clearance system. All

applications for membership will be

reviewed by DGOC’s executive

committee. The standards for

participation are similar to the

standards for participation in DGOC’s

other systems. For example, brokerdealer members must have minimum

net capital of $25 million, and bank or

insurance company members must have

total equity capitalization of $500

million. At the time of admission to the

system, each participant will be

assigned a trading limit and may be

assigned a position limit for a particular

CUSIP.

DGOC’s system will clear repo trades

that result from a direct agreement

between two participants or repo trades

that have been agreed to through the

facilities of brokers that have been

specially authorized by DGOC

(‘‘Authorized Brokers’’) to offer their

services to DGOC participants. The

Authorized Broker will make use of

their own communications networks for

the purpose of accepting bids and offers

and effecting repo trades that will be

cleared through DGOC. Specifically,

bids and offers will be called in to the

Authorized Broker by a participant, and

the Authorized Broker will in turn

display those bids and offers to all of its

customers who are DGOC participants.

Once the bidder and offerer agree on the

repo rate, the underlying collateral

description, the start date, the end date,

and the partisan amount to be delivered,

the trade will be effected.3

Representatives of the buyer and seller

at the Authorized Broker will

intermediate between the buyer and

seller to obtain a price to use for the

collateral. The participants will not

learn the identity of their contraparty.

After the price has been agreed upon,

the Authorized Broker then will prepare

either one trade report, representing

both sides of the trade, or two trade

reports, one for each side of the trade.

The Authorized Broker then will

forward the trade report or reports to

DGOC. If the participants have agreed to

the trade directly between themselves,

each participant will forward a trade

report to DGOC indicating its side of the

trade. If DOGC does not receive a trade

report from the contraparty, DGOC will

contact the contraparty within one half

hour to confirm the trade entered

against them.

The trade report must show for each

transaction (a) the identity of the

reporting party and the contraparty, (b)

the type of transaction, (c) the CUSIP

number for the underlying collateral, (d)

the repo rate for the transaction, (e) the

par amount of securities for the total

transaction, (f) the par amount of

securities for each delivery and the

associated money,(g) the trade date and

time, and (h) the on-date and the offdate of the transaction. DGOC will

review all trade reports to determine if

their contents are valid and that all

required information has been

submitted.

If two separate trade reports are

received for a transaction, DGOC will

match the two trade reports. In order to

be accepted for clearance, the trade

reports must agree as to identity of the

contraparty, type of transaction, the

repo rate, the price, any rights of

substitution, settlement date, maturity

date of the Treasury securities, coupon

rate if the underlying securities are

Treasury notes or bonds, the CUSIP

number, the on-date, and off-date. If the

details do not match, the trade report(s)

will go back to the sending party or

parties until the match is reconciled.

Matching of positions will be done

continuously throughout the day and at

the close of each trading day.4 All trade

reports received through an Authorized

Broker also will be confirmed either

orally or via facsimile with the buying

and selling participants.

It the trade reports have been matched

and confirmed, DGOC will be deemed to

have accepted the transaction for

clearance. However, DGOC will reject

the transaction if it exceeds the

participant’s trading or position limits,

the participant has been suspended

from the system, or the transaction is

not designated as delivery versus

payment. If the transaction is accepted,

DGOC interposes itself as the

contraparty to both sides of the

transaction. Trade data then will be

keyed into DGOC’s computer system for

the purposes of generating clearance

instructions to the clearing bank and for

purposes of margining. The participants

will receive a written daily activity

report indicating DGOC’s acceptance of

the trade. The daily activity report will
Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14989

5 If the on-leg is scheduled to settle that day,

participants will not receive confirmation that

DGOC has accepted the trade until the day after the

trade has settled.

6Central Bank funds is defined as cash balances

available for immediate withdrawal in accounts

maintained at banks that are members of the

Federal Reserve System or any other wire system

operated in a similar characteristics or attributes. 7 15 U.S.C. 78q–1(b)(3)(F) (1988). 8 17 CFR 200.30–3(a)(12) (1994).

report trades DGOC accepted the

previous business day.5

The details of the trade will be sent

to the clearing bank along with the

delivery instructions. Participants must

maintain a bank account in one or more

correspondent banks for purposes of the

payment or return of margin, delivery or

acceptance of the Treasury securities, or

making or receiving payment for such

securities. The selected correspondent

bank must be a member of the Fed Wire

System. The selling participant must

deliver securities to the clearing bank

against payment no later than one

minute prior to the close of the Federal

Bank Wire System. The clearing bank

will redeliver such securities to the

purchasing participant against payment

for such securities.

DGOC will net trades under two

circumstances. If a participant has a

repo and a reverse repo with the same

underlying collateral and off-date, the

off-date settlement positions will be

netted as to par amount, price, and

accrued interest. If a participant renews

a maturing repo for the same underlying

collateral prior to the off-date for such

repo. DGOC will report to the

participant the net money difference

between the two repo transactions.

DGOC’s existing margining

methodology will be adapted to

incorporate repo transaction and reverse

repo transaction exposures. Margin may

be deposited in the form of ‘‘Central

Bank Funds,’’ 6 Treasury bills, Treasury

Notes, or Treasury bonds. Treasury

securities will be valued at 95% of their

market value. All participants will be

required to maintain a minimum margin

deposit of $1 million par amount

Treasury bills with a maturity of less

than 180 days. The amount of margin

will be derived from two calculations:

Mark to market and performance

margin. Mark to market will represent

the net amount of the estimated cost to

liquidate a participant’s under-margined

position offset by the estimated

proceeds from liquidation of its overmargined positions. Performance margin

will represent an estimate of the net

shortfall from the liquidation of a

participant’s repo positions at the close

of the next business day taking into

account the most adverse market

movement in the price of the underlying

Treasury securities which could

reasonably be anticipated.

Price files, which will be updated

several times intraday, as well as daily

mark to market prices on repos will

reference data on the underlying

collateral as well as the participant’s

existing positions which are then used

to calculate margin requirements. The

margining system will be run and

margin reports will be prepared and

distributed to participants for margin

collection. This process also will be the

beginning point for the accounting

system which will track all system

activity. Margin will be set for each

participant and will reflect the netting

of payments and any potential

exposures to the participant. Margin

requirements will go into effect at the

time the trade is accepted for clearance.

Prior to 8:00 a.m. of each business day,

each participant will be issued a daily

margin report which will indicate the

margin surplus or deficit. At or before

settlement time on each business day,

each participant will be obligated to

deposit sufficient margin to satisfy the

margin deficit shown on the daily

report.

In the event of a failure to deliver

securities on either the on-leg or off-leg,

DGOC will still margin the transaction.

DGOC also may elect to collect intraday

margin if DGOC deems such collection

necessary or advisable to reflect a

market price change, the size of the

participant’s positions, the financial or

operational condition of the participant,

or otherwise to protect DGOC.

DGOC believes the proposed rule

change is consistent with Section 17A of

the Act and the rules and regulations

thereunder applicable to DGOC and in

particular with Section 17A(b) (3) (F) of

the Act.7 That section requires that a

clearing agency’s rules be designed,

among other things, to promote the

prompt and accurate clearance and

settlement of securities transactions and

to remove impediments to and perfect

the mechanism of a national system for

the prompt and accurate clearance and

settlement of securities transactions.

DGOC believes the proposed rule

change will permit wider utilization of

its system by providing participants

with the ability to clear and settle repos

and reverse repos.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DGOC does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purpose of the Act.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Comments have neither been solicited

nor received.

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 the self-regulatory

organization 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 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. 522, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of DGOC. All

submissions should refer to the File

Number SR–DGOC–94–06 and should

be submitted by April 11, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Jonathan G. Katz,

Secretary.

[FR Doc. 95–6939 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M