17598 Federal Register / Vol. 60, No. 66 / Thursday, April 6, 1995 / Notices

corporation or by a major market participant or enduser could trigger additional failures resulting in

risk to the national clearance and settlement

system.’’ Securities Exchange Act Release No.

33023 (October 6, 1993), 58 FR 52891.

10 15 U.S.C. 78f (1988).

11 15 U.S.C. 78s(b)(2) (1988)

12 17 CFR 200.30(a)(12) (1994).

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

2Securities Exchange Act Release No. 35288

(January 27, 1995), 60 FR 6580.

3 GSCC also intends to include such services as

the tracking of rate changes and open repo interest,

the provision to the funds borrower of coupon

protection, the provision to all parties of a

comprehensive audit trail for their repo activity,

and the monitoring and facilitation of collateral

substitutions.

4 GSCC will file proposed rule changes for the

authority to implement both the next stage of the

first phase of repro services, which is the provision

of netting and risk management services for the

non-same-day settling aspects of next-day and

forward settling repo transactions, and future

phases of repo services.

5The proposed rule change establishes a new

schedule of required data submission items

applicable to all trades. In addition to the items on

the schedule of required match data, a member

must submit the broker reference number, contra

submitting member’s executing firm, executing

firm, external reference number, price (rate), pricing

method, and trade date. These fields are not

matched.

6The following items must match for a trade to

compare: (1) Contra member identifying

information, (2) CUSIP number, (3) member’s

identifying number, (4) par amount (quantity), (5)

settlement amount, (6) settlement date, and (7)

transaction type (i.e., buy, sell, repo, or reverse). In

addition, these required match data items must

match only for repo transactions: (1) start amount

(i.e., the contract value for the start leg of the repo

transaction) and (2) start date (i.e., the settlement

date for the start leg of a repo transaction).

While the Thomson letter supports

the CHX’s efforts to shorten the

settlement cycle for securities

transactions, Thomson believes that the

CHX should amend Article XV, Rule 5,

which requires the use of the facilities

of a securities depository for the

confirmation and acknowledgement of

all depository-eligible transactions

whereby payment for securities

purchased or delivery of securities sold

is to be made to or by an agent of the

customer. The Commission believes that

the issue raised by the Thomson letter

need not be resolved prior to the

approval of the proposed rule change.

Discussions regarding Thomson’s

concerns are underway among the

Commission, Thomson, DTC, and the

Securities Industry Association. The

Commission will continue to work with

the industry to address Thomson’s

concerns. However, if the proposed rule

change is not approved prior to the June

7, 1995, effective date of Rule 15c6–1,

the CHX rules will conflict with the

Commission Rule 15c6–1.

The Thomson letter suggests that

approval of the proposed rule change

without amendments to Article XV,

Rule 5 raises competitive concerns.

Under the Act, the Commission’s

responsibility is to balance the

perceived anticompetitive effects of a

regulatory policy or decision against the

purpose of the Act that would be

advanced by the policy or decisions and

the costs associated therewith. The

Commission notes that the

anticompetitive effects pointed to by

Thomson, if in fact there are any

anticompetitive effects, are not caused

by the proposed rule change approved

by this order but rather by an existing

CHX rule. The Commission is reviewing

Thomson’s claim but does not believe

that approval of this proposal will itself

create any burdens on competition.

Moreover, as discussed above, the rule

advances fundamental purposes under

the Act, namely the efficient clearance

and settlement of securities.

IV. Conclusion

For the reasons stated above, the

Commission finds that CHX’s proposal

is consistent with Section 6 of the Act.10

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (File No. SR–

CHX–94–26) be and hereby is approved,

effective June 7, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–8494 Filed 4–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35557; File No. SR–GSCC–

94–10]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Order Approving

Proposed Rule Change Relating to

Implementing a Comparison Service

for Repurchase and Reverse

Repurchase Transactions Involving

Government Securities as the

Underlying Instrument

March 31, 1995.

On December 30, 1994, the

Government Securities Clearing

Corporation (‘‘GSCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–GSCC–94–10) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on February 2, 1995.2

No comment letters were received

regarding the proposed rule change. For

the reasons discussed below, the

Commission is approving the proposed

rule change.

I. Description

GSCC is amending its rules to provide

comparison services for repurchase and

reverse repurchase transactions

involving government securities as the

underlying instrument (‘‘repos’’). GSCC

ultimately intends to provide

comparison, netting, and risk

management services for the opening

(‘‘on’’) and closing (‘‘off’’) legs of all

overnight repos (also referred to as nextday repos), term repos (also referred to

as forward settling repos), and open

repos, including the same-day settling

aspects of those repos.3

GSCC will offer its repo services in

three phases. The first phase will

involve the provision of comparison and

netting services. The pending proposal

would authorize GSCC to implement the

initial stage of the first phase, which is

the provision of comparison services for

overnight and term repos whether or not

the on leg occurs before, on, or after the

submission date.4 GSCC will accept and

compare data on all of the components

of a repo transaction, including

information on the on and off legs of a

repo, with members providing such data

via a single input. The second

implementation phase of GSCC’s

planned repo services will focus on the

provision of comparison, netting, and

risk management services for open

repos. The last phase of GSCC’s planned

implementation of repo services will

focus on providing intraday netting and

risk management services for the sameday settling aspects of repo transactions,

including settlement of same-day

settling start legs and close-outs of open

repos.

The Phase 1 comparison process for

repos is substantially similar to the

comparison process offered by GSCC

today. Each party to a repo will submit

its transaction data to GSCC.5 As is the

case now for non-repo transactions,

comparison of a repo trade will occur

immediately upon the receipt by GSCC

from two members of matching data. If

all mandatory data fields that are

required to match do in fact match,

GSCC will generate a comparison.6

If the data on a repo remains

uncompared at end-of-day, the

submitter of the repo data will receive

a report of an uncompared trade, and

the participant being submitted against

will receive an advisory. If a repo

transaction has not yet been compared,

it may be unilaterally canceled, and the

submitter will receive notification of the

cancellation. To cancel a repo that has
Federal Register / Vol. 60, No. 66 / Thursday, April 6, 1995 / Notices 17599

7Phased comparison of trade date does not apply

to repos because trade date is not a mandatory input

field for repo comparison.

8However, as noted above, a $1 per $1 million

tolerance will be applied to settlement amounts

during real-time comparison.

9 15 U.S.C. 78q–1(b)(3)(F) (1988).

10See, Joint Report on the Government Securities

Market (January 1992) (‘‘Joint Report’’), prepared by

the Department of the Treasury, the Securities and

Exchange Commission and the Board of Governors

of the Federal Reserve System.

11 Id. at 31. Activity in the government securities

repo market is sizable. Centralized repo processing

may give regulators a truer picture not only of the

government securities market but also of each

market participant’s total risk profile, enabling

GSCC, other clearing agencies, and regulators to

refine their risk reduction policies.

been compared, bilateral agreement is

required. GSCC will delete trade data on

repo transactions that remain

uncompared from GSCC’s comparison

system the later of (1) the processing

cycle after the second business day after

the repo start date or (2) the processing

cycle after the second business day after

the date of submission of such data.

GSCC comparison output will

continue to be available on an on-line

basis. To be eligible for comparison,

both submitting members must be

deemed eligible for repo comparison

processing by GSCC. GSCC will make

such a determination based on the

demonstration by a member of its ability

to submit designated input to and

receive designated output from GSCC.

The implementation of Phase 1

comparison services for repos requires

certain modifications to GSCC’s

comparison processes. The ‘‘transaction

type’’ data field will be expanded to

include two additional transaction

types: ‘‘repo’’ (designating the side of

the repo transaction that is borrowing

funds and lending securities) and ‘‘revr’’

(designating the side of the repo

transaction that is lending funds and

borrowing securities). Repos and reverse

repos will compare only with each other

and not with buy and sell activity. Two

optional data fields have been added to

bolster the comparison process for

repos, the give-up broker field and the

secondary reference number field.

Dealer members may use the give-up

broker field to identify the broker, if

any, used to conduct the repo. GSCC

will provide members with a

standardized list of brokers for this

purpose. The secondary reference

number field may be used by dealers to

provide additional identification

information on the repos.

Two new mandatory match items for

repo transactions will be introduced:

start date and start amount. The repo

start date will indicate the settlement

date for the start leg of the repo. The

repo start amount will contain the

contract value for the start leg of the

repo. Initially, a $1 per repo transaction

tolerance for start amount will be

established.

The repo rate will be a required

submission field but will not be

matched. If a participating member does

not submit the settlement amount,

GSCC will calculate it using the start

amount, repo rate, and the number of

days from start date to settlement date.

Initially, a $1 per $1 million tolerance

will be established for settlement

amount. When the settlement amounts

differ, but the difference falls within the

tolerance, GSCC will generate the

comparison based upon the amount

submitted by the broker (for brokered

trades) or upon the amount submitted

by the deliverer of the repo close leg.

GSCC currently permits transactions

that do not match in a few selected

fields to compare in a process referred

to as ‘‘phased comparison.’’ This

program allows those transactions that

do not match during real-time

comparison to be compared at the end

of the day based upon assumptions

regarding which party submitted the

correct data. Phased comparison of par

summarization, settlement amount, and

trade date will not apply to repo

transactions.7 Par summarization is the

comparison of a trade based on a match

of either the total of the par amounts on

two or more buy sides equaling the par

amounts on one or more sell sides or the

total of the par amounts on two or more

sell sides equaling the par amounts on

one or more buy sides. The phased

comparison tolerance of $40 per $1

million for unmatched settlement

amounts on buy/sell trades will not

apply to repo transactions. This

tolerance is used by GSCC in its phased

comparison process to account for

commission differences.8

Phased comparison of the executing

firm field and the contra party field will

apply to repo transactions. Under

phased comparison of the executing

firm field, GSCC will compare trades

having unmatched executing firm data

based upon a match between the

participant numbers of the two

submitting members. Under phased

comparison of the contra party field,

GSCC may compare a trade if all details

match except the contra party field, and

the contra party affiliate submits the

matching detail.

II. Discussion

The Commission believes that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder and

particularly with the requirements of

Section 17A(b)(3)(F).9 Section

17A(b)(3)(F) requires that the rules of a

clearing agency be designed to promote

the prompt and accurate clearance and

settlement of securities transactions and

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 initiation of

comparison services for overnight and

term repos will begin the process

whereby GSCC will provide the benefits

of centralized, automated comparison to

a broader segment of government

securities transactions.

Encompassing repos in CSCC’s

automated comparison process will

provide industry participants with

many benefits, including: (1)

Elimination of the need for physical

confirmations, (2) timely comparison of

repo trade data, (3) enhanced ability for

identification and correction of errors,

(4) easier recordkeeping, (5) easier

access to audit trail information, and (6)

on-line inquiry capabilities. The

proposal thus enhances the prompt and

accurate clearance of repo transactions.

The proposed rule change also will

implement a recommendation of the

Joint Report on the Government

Securities Market.10 The Joint Report

indicated that the market for repurchase

and reverse repurchase agreements

could benefit from automated

comparison. Moreover, the Joint Report

noted that automated comparison could

enable regulators to obtain data on repos

as necessary for surveillance purposes at

little or no cost to market participants.11

GSCC noted in its filing that it has

two physically-remote data processing

sites with redundant hardware

configuration. Further GSCC has run a

pilot program whereby it collected live

data to assess the impact of repo

processing on its existing systems. The

Commission believes that GSCC’s

automated facilities are sufficient to

implement the comparison services for

repos that are approved in this order,

and the addition of these services will

not diminish GSCC’s ability to provide

its current services for non-repo

transactions in a safe, efficient, and

timely manner.

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 Section

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

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

GSCC–94–10) be, and hereby is

approved.
17600 Federal Register / Vol. 60, No. 66 / Thursday, April 6, 1995 / Notices

12 17 CFR 200.30–3(a)(12) (1994).

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

2Securities Exchange Act Release No. 35265

(January 23, 1995), 60 FR 6583.

3Securities Exchange Act Release Nos. 33023

(October 6, 1993), 58 FR 52891 (adoption of Rule

15c6–1) and 34952 (November 9, 1994), 59 FR

59137 (changing effective date from June 1, 1995,

to June 7, 1995).

4The transition from T+5 settlement to T+3

settlement will occur over a four day period. Friday,

June 2, will be the last trading day with five

business day settlement. Monday, June 5, and

Tuesday, June 6, will be trading days with four

business day settlement. Wednesday, June 7, will be

the first trading day with three business day

settlement. As a result, trades from June 2 and June

5 will settle on Friday, June 9. Trades from June 6

and June 7 will settle on Monday, June 12.

5 15 U.S.C. 79q–1 (1988).

6 15 U.S.C. 78q–1(b)(3)(F) (1988).

7 15 U.S.C. 78f (1988).

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

9 17 CFR 200.30(a)(12) (1994).

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–8493 Filed 4–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35552; File No. SR–OCC–

94–11]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Approving Proposed Rule Change

Relating to Implementation of a ThreeDay Settlement Standard

March 30, 1995.

On December 30, 1994, the Options

Clearing Corporation (‘‘OCC’’) filed a

proposed rule change (File No. SR–

OCC–94–11) with the Securities and

Exchange Commission (‘‘Commission’’)

pursuant to Section 19(b) of the

Securities Exchange Act of 1934

(‘‘Act’’).1 Notice of the proposal was

published in the Federal Register on

February 2, 1995, to solicit comments

from interested persons.2 As discussed

below, this order approves the proposed

rule change.

I. Description

The proposed rule change will

conform OCC’s rules effective June 7,

1995, to Rule 15c6–1 under the Act.

That rule establishes three business

days after the trade date (‘‘T+3’’),

instead of five business days (‘‘T+5’’), as

the standard settlement cycle for most

transactions in securities that underlie

many OCC issued options. Rule 15c6–1

will become effective June 7, 1995.3 As

described below, OCC is revising several

of OCC’s rules that include references to

underlying securities settlement time

frames.

Under Rule 902, the assigned clearing

member of an exercised call option

contract or the exercising clearing

member of an exercised put option

contract will be required to deliver the

underlying securities on the third

business day following the day on

which the exercise notice was given to

OCC. Rule 2207 will provide that the

settlement date for a stock loan will be

three business days after the date on

which the lending clearing member

initiates the termination by notifying

OCC. Rule 2208(b) will provide that if

the lending clearing member initiates

the termination of a stock loan and does

not receive the loaned stock in its

securities depository account within

three business days, the stock loan shall

be completed when (1) OCC has

transferred the stock to the lending

clearing member’s account after OCC

has received the securities from the

borrowing member or (2) the lending

clearing member has executed a buy-in.

Rule 2208(b) also will provide that the

lending clearing member may execute a

buy-in three business days after

initiating the termination or at any time

thereafter if the lending clearing

member has not received the loaned

stock by such date.

OCC has requested that the proposed

rule change become effective on the

same date as Rule 15c6–1. Rule 15c6–

1 is scheduled to become effective on

June 7, 1995.4

II. Discussion

The Commission believes the

proposal is consistent with the

requirements of Section 17A of the Act.5

Specifically, Section 17A(b)(3)(F) 6

states that the rules of a clearing agency

must be designed to promote the prompt

and accurate clearance and settlement of

securities transactions, to assure the

safeguarding of securities and funds

which are in OCC’s custody and control

or for which OCC is responsible, and to

foster cooperation and coordination

with persons engaged in clearance and

settlement of securities transactions.

Several of OCC rules are based on a five

day time frame for settlement of

securities transactions. On June 7, 1995,

the new settlement cycle or T+3 will be

established, as mandated by the

Commission’s Rule 15c6–1. As a result,

the OCC’s current rule establishing a

T+5 settlement cycle will be

inconsistent with Commission rules.

This proposal will amend the OCC’s

rules to harmonize them with a T+3

settlement cycle. Further, as discussed

in the release adopting Rule 15c6–1, a

shorter settlement time frame could

encourage greater efficiency in clearing

agencies and broker-dealer operations.

Thus, the proposed rule change should

enhance the prompt and accurate

clearance and settlement of securities

transactions.

III. Conclusion

For the reasons stated above, the

Commission finds that OCC’s proposal

is consistent with Section 17A of the

Act.7

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

OCC–94–11) be and hereby is approved

and will become effective June 7, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–8421 Filed 4–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. IC–20979; 812–9444]

Van Kampen Merritt Equity

Opportunity Trust, Series, 7, et al.;

Notice of Application

March, 30, 1995.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for

Exemption under the Investment

Company Act of 1940 (the ‘‘Act’’).

APPLICANTS: Van Kampen Merritt Equity

Opportunity Trust, Series 7 and Van

Kampen American Capital Distributors,

Inc. (‘‘Van Kampen American’’).

RELEVANT ACT SECTIONS: Order requested

under sections 6(c) and 17(b) from

section 17(a).

SUMMARY OF APPLICATION: Applicants

request an order to permit a terminating

series of a unit investment trust to sell

portfolio securities to a new series of the

trust.

FILING DATES: The application was filed

on January 25, 1995 and amended on

March 22, 1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicants with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

April 24, 1995 and should be

accompanied by proof of service on

applicants, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature