2552 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices

complete description of the CMS, refer to Securities

Exchange Act Release No. 36091 (August 5, 1995),

60 FR 30912 [File No. SR–NSCC–95–06] (order

approving the CMS).

8 15 U.S.C. 78q–1(b)(3)(F) (1988).

9NSCC’s CMS will be especially beneficial to

those participating clearing entities that have

executed cross-guaranty agreements or have other

cross-guarantee arrangements. Currently, SCCP and

Philadep have a cross-guarantee arrangement

between themselves but not between themselves

and other clearing entities. The Commission

supports the use of cross-guaranty agreements and

other similar arrangements among clearing agencies

as a method of reducing clearing agencies’ risk of

loss due to a common participant’s default and

encourages SCCP and Philadep to explore such

agreements or arrangements with other clearing

entities.

Generally, a cross-guaranty agreement, as the one

between The Depository Trust Company (‘‘DTC’’)

and NSCC, provides that in the event of a default

of a common member, any resources remaining

after the failed common member’s obligations to the

guaranteeing clearing agency have been satisfied

will be made available to the other clearing agency.

The guaranty is not absolute but rather is limited

to the extent of the resources relative to the failed

member remaining at the guaranteeing clearing

agency. The principal resources will be the failed

member’s settlement net credit balances and

deposits to the clearing agencies’ clearing funds.

For a complete description of DTC’s and NSCC’s

agreement, refer to Securities Exchange Act Release

No. 33548 (January 31, 1994), 59 FR 5638 [File Nos.

SR–DTC–93–08 and SR–NSCC–93–07].

10 17 CFR 200.30–3(a)(12) (1994).

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

2Letter from David T. Rusoff, Foley & Lardner, to

Peter Geraghty, Division of Market Regulation,

Commission (January 11, 1996).

3MCC’s filing refers to January 15, 1996, as the

date by which MCC participants must have made

arrangements with alternate service providers. This

date was postponed to January 19, 1996. Telephone

conversation between J. Craig Long, Foley &

Lardner, [counsel to MCC], and Jerry Carpenter,

Assistant Director, Peter Geraghty, Senior Counsel,

and Cheryl Tumlin, Staff Attorney, Division of

Market Regulation, Commission (January 18, 1996).

4The Commission has modified the text of the

summaries prepared by MCC.

5For a description of the agreement, refer to

Securities Exchange Act Release No. 36684 (January

5, 1996), [File No. SR–MCC–95–04] (order

approving proposed rule change).

proposals will enable SCCP and

Philadep to provide information

regarding their respective participants

funds, including excess or deficit

amounts, and to provide comprehensive

data on underlying collateral to NSCC

for inclusion in the CMS. Participants of

SCCP or Philadep that desire access to

the CMS data will be required to

execute a CMS participation

application.

II. Discussion

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

requires that the rules of a clearing

agency be designed 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.8 The Commission believes

the proposed rule changes are consistent

with SCCP’s and Philadep’s obligations

under Section 17A(b)(3)(F) because the

proposals set forth SCCP’s and

Philadep’s responsibilities and

obligations with regard to the release of

participants’ clearing data and facilitate

SCCP’s, Philadep’s, and their

participants’ participation in NSCC’s

CMS by enabling SCCP and Philadep to

provide information regarding their

participants to NSCC for the CMS. The

participation of SCCP, Philadep, and

their participants in NSCC’s CMS

should help SCCP, Philadep and other

clearing agencies to better monitor

clearing fund, margin,and other similar

required deposits that protect clearing

agencies against loss should a member

default on its obligations to the clearing

agency.9

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposals are

consistent with the requirements of

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

rules and regulations thereunder.

It is therefore ordered, pursuant to

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

proposed rule changes (File Nos. SR–

SCCP–95–04 and SR–Philadep–95–06)

be, and hereby are, approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–1274 Filed 1–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36740; File No. SR–MCC–

95–05]

Self-Regulatory Organizations;

Midwest Clearing Corporation; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change Relating to a

Contingency Plan for Participants in

Connection With Midwest Clearing

Corporation’s Decision to Withdraw

From the Securities Clearing Business

January 19, 1996.

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

Securities Exchange Act of 1934

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

December 26, 1995, the Midwest

Clearing Corporation (‘‘MCC’’) 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 MCC. On

January 11, 1996, MCC filed an

amendment to the proposed rule change

to clarify certain provisions in the

proposal.2 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 Proposed Rule Change

MCC proposes to add an Article XI,

Sponsored Accounts, to its rules to limit

the types of persons and entities that are

eligible to be participants at MCC and to

provide for a contingency, to be

implemented solely at MCC’s discretion,

in the event that certain MCC

participants have not made

arrangements with alternate service

providers by January 19, 1996.3

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

MCC 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. MCC has prepared

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

and (C) below, of the most significant

aspects of such statements.4

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

On January 5, 1996, the Commission

approved a proposed rule change filed

by MCC relating to its withdrawal from

the securities clearance and settlement

business in conjunction with an

agreement with the National Securities

Clearing Corporation (‘‘NSCC’’).5 Under

the agreement with NSCC, MCC and its

parent, the Chicago Stock Exchange

(‘‘CHX’’), will provide certain floor

members and member organizations of

the CHX with access to the services

offered by NSCC through sponsored

accounts with NSCC. This filing

implements that portion of the

transaction and provides a contingency

plan, to be implemented solely at MCC’s

discretion, for current participants of

MCC that are unable to find alternative

clearance and settlement services by

January 19, 1996.

Pursuant to its agreement with NSCC,

MCC will become a member of NSCC

and may sponsor Temporary Sponsored

Participants (‘‘TSP’’) and Sponsored

Participants (‘‘SP’’) at NSCC. MCC will

maintain subaccounts at NSCC for each

TSP and SP. The purpose of the TSP

membership category is to provide

existing participants of MCC temporary
Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices 2553

6By an Important Notice dated November 17,

1996, MCC informed its participants that it

intended to cease providing clearing services on

January 15, 1996, and that participants should make

arrangements for alternate clearing services by that

date. The date was postponed to January 19, 1996.

Note 3, supra.

7As set forth in proposed Article XI, Rule 5, the

term Qualified Clearing Agency refers to a

registered clearing agency which has entered into

an agreement with CHX and MCC pursuant to

which it will, among other things, act as a securities

clearing agency for SPs and TSPs and provide such

services to CHX, CHX members, and MCC as CHX,

MCC, and the QCA shall from time to time agree.

8Proposed Article XI, Rule 2(a) sets forth the

requirements for eligibility as a sponsored

participant.

9Proposed Article XI, Rule 7 governs the

settlement of sponsored accounts and temporary

sponsored accounts.

10Proposed Article XI, Rule 2(a).

11Proposed Article XI, Rule 2(b).

12MCC also may buy-in a position of an SP if the

SP has voluntarily ceased to be a participant in

MCC but has not closed out all of its positions or

if MCC determines that such action is necessary and

proper in order to protect MCC or its participants

or to satisfy its obligations to safeguard securities

and funds and to assure the prompt and accurate

clearance and settlement of securities transactions.

Proposed Article XI, Rule 10. 13 15 U.S.C. 78q–1(b)(3)(F) (1988).

clearing arrangements if they are unable

to find appropriate alternative clearing

arrangements by the January 19, 1996

deadline.6 The purpose of the SP

category is to provide a mechanism for

specialists, market makers, and floor

brokers of the CHX who are not

members of any registered clearing

agency other than MCC to have access

to the services of a registered clearing

agency. The only services that MCC will

provide to TSPs and SPs is access to the

facilities of a Qualified Clearing Agency

(‘‘QCA’’).7

MCC and CHX will guarantee the

obligations of TSPs and SPs to NSCC to

the extent provided in an agreement

between CHX and NSCC. Only entities

that are participants of MCC as of

January 19, 1996 will be eligible to be

TSPs. Only entities that are members or

member organizations of CHX, that are

registered as specialists, market makers,

or floor brokers, and that meet the other

eligibility standards of financial

responsibility, operational capacity,

experience, and competence will be

eligible to be SPs.8 If implemented, the

TSP category will terminate on or before

March 31, 1996, at which time MCC will

definitively cease to act for all TSPs.

Under the proposed arrangement for

SPs, CHX will transmit compared trade

information to NSCC so that NSCC can

determine each SP’s net settlement

obligation. NSCC than will transmit SPs’

settlement obligations to MCC. Based on

NSCC’s final settlement figures, MCC

will use funds received from an SP or

will initiate payments against an SP’s

bank account to satisfy an SP’s payment

obligation. In this regard, each SP is

required to maintain funds that are

sufficient for purposes of settlement and

that are accessible to MCC. If an SP has

a credit balance, NSCC will forward the

credit to MCC, and MCC will make

available to such SP the amount of the

credit balance.9

Each SP that maintains a sponsored

account will be permitted to utilize the

sponsored account only for the

clearance of transactions in issues

traded on the CHX trading floor which

are effected by the SP in its capacity as

a specialist, market maker, or floor

broker, as the case may be. SPs will be

required to contribute to a sponsored

account fund as provided in proposed

Article XI, Rule 11. Each SP’s required

contribution will consist of the greater

of its minimum contribution or its

alternative contribution. The minimum

contribution for an SP will be $15,000.

The alternative contribution will be

110% of the SP’s required contribution

to the participant’s fund of any

registered clearing agency that has

entered into appropriate agreements

with MCC as a QCA. As of the date of

this filing, only NSCC has entered into

such an agreement. MCC also may

require an SP to deposit a supplemental

contribution not based on an SP’s usage

of MCC’s services. All contributions to

the sponsored account fund must be in

cash. All sponsored account fund

contributions not forwarded to a QCA

by MCC may be invested by MCC. The

sponsored account fund may be used to

cover losses in a manner similar to that

provided for in the current MCC

participants fund rules.

While SPs will not be obligated to

comply with all of MCC’s rules, SP’s

will be obligated to comply with the

MCC rules designated in Article XI as

being applicable to SPs. Among other

things, Article XI provides that SPs

must comply with MCC’s rules relating

to losses, indemnification, and ceasing

to act.10 SPs also must comply with the

rules of any QCA.11

In the event that MCC ceases to act for

an SP, proposed Article XI, Rule 10

provides that MCC may buy-in a

security position of the SP.12 This will

be the case even if the QCA does not

issue a buy-in notice to MCC for the

SP’s account.

Under the proposed arrangement for

TSPs, NSCC will determine each TSP’s

net settlement obligation. Upon notice

to and with authorization from MCC, a

TSP may elect to have NSCC transmit its

settlement obligations directly to it

instead of to MCC. If the TSP so elects,

NSCC will transmit the settlement

figures directly to the TSP, and the TSP

will effect money settlement directly

with NSCC. The TSP must comply with

NSCC’s rules regarding cutoff times and

the use of settlement banks. If the TSP

has a credit balance, NSCC will forward

the credit directly to the TSP’s bank

account. If the TSP elects to have NSCC

transmit its final settlement figures to

MCC, MCC will use the funds it receives

from the TSP or will initiate payments

against the TSP’s bank account to satisfy

the TSP’s payment obligation. If a TSP

has a credit balance under this

arrangement, NSCC will forward the

credit to MCC, and MCC will make

available to the TSP the amount of the

credit balance.

Each TSP will be permitted to utilize

the temporary sponsored account only

for the clearance of issues eligible for

clearance and settlement at NSCC. In

addition, each TSP will be required to

contribute to the sponsored account

fund in a manner and amount that is

similar to SPs.

Because TSPs are existing

participants, they will be required to

comply with all existing MCC rules for

activity occurring prior to becoming a

TSP, and they will be required to

comply with the MCC rules designated

in Article XI as being applicable to

TSPs. Under proposed Rule 10, in the

event that MCC ceases to act for a TSP,

MCC may buy-in a security position of

the TSP. Such a buy-in may occur even

if NSCC does not issue a buy-in notice

to MCC for the TSP’s account.

MCC believes the proposed rule

change is consistent with Section 17A of

the Act in that it is designed to promote

the accurate clearance and settlement of

securities transactions and to assure the

safeguarding of securities and funds

which are in MCC’s control or for which

MCC is responsible.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

MCC does not believe that the

proposed rule change will impose a

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments on the proposal

have not been solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) 13 of the Act

requires the rules of a clearing agency be
2554 Federal Register / Vol. 61, No. 18 / Friday, January 26, 1996 / Notices

14Letter from Leland W. Hutchinson, Jr.,

Freeborn & Peters, [counsel for Scattered

Corporation and Laura Bryant, members of CHX] to

Richard R. Lindsey, Director, Division of Market

Regulation, Commission (December 15, 1995).

15See, Securities Exchange Act Release No. 36684

(January 5, 1996), [File No. SR–MCC–95–04] (order

approving MCC’s proposal to withdraw from the

securities clearing business).

16 17 CFR 200.30–3(a)(12) (1994).

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

2MSTC’s filing refers to January 15, 1996, as the

date by which MSTC participants must have made

arrangements with alternate service providers. This

date was postponed to January 19, 1996. Telephone

conversation between J. Craig Long, Foley &

Lardner, [counsel to MSTC], and Jerry Carpenter,

Assistant Director, Peter Geraghty, Senior Counsel,

and Cheryl Tumlin, Staff Attorney, Division of

Market Regulation, Commission (January 18, 1996).

3The Commission has modified the text of the

summaries prepared by MSTC.

4For a description of the agreement, refer to

Securities Exchange Act Release No. 36684 (January

5, 1996), [File No. SR–MSTC–95–10] (order

approving proposed rule change).

5By an Important Notice dated November 17,

1996, MSTC informed its participants that it

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 Commission believes

the proposal is consistent with MCC’s

obligations under Section 17A of the

Act because it should help ensure that

MCC participants will have access to

safe and efficient securities clearing

services and should protect against

disruption in their businesses upon

MCC’s withdrawal from the securities

clearing business. Furthermore, MCC’s

coordination with NSCC in establishing

clearing services for TSPs and SPs

through sponsored accounts and

temporary sponsored accounts and the

requirement of a sponsored account

fund to cover possible losses by MCC

incident to the operation of the

sponsored and temporary sponsored

accounts should help MCC safeguard

the securities and funds which are in its

custody or control or for which it is

responsible.

MCC 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 so

approving the proposed rule change

because the proposal is critical to MCC’s

orderly withdrawal from the securities

clearing business by its announced

deadline of January 19, 1996.

Furthermore, the Commission received

only one comment letter 14 during the

comment period of MCC’s proposal to

withdraw from the clearing business.15

Thus the Commission does not believe

it will receive negative comment letters

on this proposal.

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, NW.,

Washington, DC 20549. Copies of the

submissions, 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, NW.,

Washington, DC. Copies of such filing

also will be available for inspection and

copying at the principal office of MCC.

All submissions should refer to the file

number SR–MCC–95–05 and should be

submitted by February 16, 1996.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

MCC–95–05) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

FR Doc. 96–1272 Filed 1–25–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36739; File No. SR–MSTC–

95–11]

Self-Regulatory Organizations;

Midwest Securities Trust Company;

Notice of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change Relating to a

Contingency Plan for Participants in

Connection With Midwest Securities

Trust Company’s Decision to Withdraw

From the Securities Depository

Business

January 19, 1996.

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

Securities Exchange Act of 1934

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

December 26, 1995, the Midwest

Securities Trust Company (‘‘MSTC’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change (File No. SR–

MSTC–95–11) as described in Items I

and II below, which items have been

prepared primarily by MSTC. 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 Proposed Rule Change

MSTC proposes to add Article VIII to

its rules to provide for a contingency

plan, to be implemented in MSTC’s sole

discretion, in the event that certain

MSTC participants have not made

arrangements for alternate service

providers by January 19, 1996.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

MSTC 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. MSTC has prepared

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

and (C) below, of the most significant

aspects of such statements.3

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

On January 5, 1996, the Commission

approved a proposed rule change filed

by MSTC relating to its withdrawal from

the securities depository business in

conjunction with an agreement with

The Depository Trust Company

(‘‘DTC’’).4 This filing provides for a

contingency plan for current

participants of MSTC that are unable to

find alternative securities depository

services by January 19, 1996.

Pursuant to MSTC’s proposed

contingency plan, MSTC in its sole

discretion may become a member of

DTC for the limited purpose of

temporarily enabling Temporary

Sponsored Participants (‘‘TSPs’’) to

utilize the depository services of DTC. If

implemented, only entities that are

depository participants of MSTC as of

January 19, 1996 will be eligible to be

TSPs. The purpose of the TSP

membership category is to provide

existing MSTC depository participants

that are unable to find appropriate

alternative arrangements by the January

19, 1996 deadline, temporary securities

depository arrangements.5 This TSP