30650 Federal Register / Vol. 61, No. 117 / Monday, June 17, 1996 / Notices

1 15 U.S.C. § 78s(b)(1) (1988).

2A copy of the executed Third Restated

Agreement is attached as Exhibit A to OCC’s and

to NSCC’s filings. A copy of each of the filings and

all exhibits is available for copying and inspection

in the Commission’s Public Reference Room or

through OCC or NSCC, respectively.

3OCC has provided Stock Clearing Corporation of

Philadelphia (‘‘SCCP’’) with a Third Restated

Agreement which has terms substantially parallel to

the terms of the Third Restated Agreement between

OCC and NSCC. OCC has advised SCCP that it is

prepared to execute a Third Restated Agreement

with SCCP if and when SCCP wishes to do so.

Because Midwest Clearing Corporation (‘‘MCC’’)

has withdrawn from the clearance and settlement

business, OCC plans to propose entering into a

termination agreement with MCC to formally

terminate the Second Restated Agreement between

OCC and MCC.

4The Commission has modified the text of the

summaries prepared by OCC and NSCC.

5The three Second Restated Agreements were

filed by OCC with the Commission in Amendment

No. 2 to File No. SR–OCC–92–5, and also were filed

by NSCC, SCCP, and MCC in amendments to File

No. SR–NSCC–91–7, File No. SR–SCCP–92–01, and

File No. SR–MCC–92–02, respectively.

6Securities Exchange Act Release No. 33543

(January 28, 1994), 59 FR 5639 [File Nos. SR–OCC–

92–05, SR–NSCC–91–07, SR–SCCP–92–01, and SR–

MCC–92–02].

7 In the Third Restated Agreement, the term

common member refers to an OCC clearing member

that also is an NSCC member and that has

designated NSCC as its designated clearing

corporation for purposes of effecting settlement of

its E&A activity. Under the Third Restated

Agreement, like the Second Restated Agreement,

three alternatives are available to a clearing member

that does not want to become a member of NSCC

or SCCP but wants to settle its E&A activity through

another entity which is a member of NSCC or SCCP.

A clearing member may appoint (1) another OCC

clearing member (an ‘‘appointed clearing member’’),

(2) a member of NSCC (a ‘‘nominated

correspondent’’), or (3) if the OCC clearing member

is a Canadian clearing member, the Canadian

Depository for Securities. These three alternative

settlement arrangements are described in detail in

Amendment No. 2 to File No. SR–OCC–92–5. This

notice of filing describes the provisions of the Third

Restated Agreement with respect to an OCC clearing

member that is a common member, but the

provisions of the Third Restated Agreement are

designed to apply to each of the alternative

settlement arrangements.

For the Commission, by the Division of

Investment Management, by delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–15275 Filed 6–14–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37298; File Nos. SR–OCC–

96–04 and SR–NSCC–96–11]

Self-Regulatory Organizations; The

Options Clearing Corporation; National

Securities Clearing Corporation;

Notice of Filing of Proposed Rule

Changes Relating to an Amended and

Restated Options Exercise Settlement

Agreement Between the Options

Clearing Corporation and the National

Securities Clearing Corporation

June 10, 1996.

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

Securities Exchange Act of 1934

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

February 6, 1996, and April 6, 1996, The

Options Clearing Corporation (‘‘OCC’’)

and the National Securities Clearing

Corporation (‘‘NSCC’’), respectively,

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule changes (File Nos. SR–

OCC–96–04 and SR–NSCC–96–11) as

described in Items I, II, and III below,

which items have been prepared

primarily by OCC and NSCC,

respectively. The Commission is

publishing this notice to solicit

comments on the proposed rule changes

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Changes

The purpose of the proposed rule

changes is to put into effect the Third

Amended and Restated Options

Exercise Settlement Agreement (‘‘Third

Restated Agreement’’) 2 between OCC

and NSCC providing for the settlement

of exercises and assignments of equity

options.3 The proposal also seeks to

make related changes to OCC’s Rules,

primarily to Rule 601, which sets forth

the calculation of margin requirements

for equity options, and to make related

changes in NSCC’s clearing fund

formula in order to exclude from the

clearing fund calculation trades for

which NSCC has protection under the

terms of the Third Restated Agreement.

II. Self-Regulatory Organizations’

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

In their filings with the Commission,

OCC and NSCC included statements

concerning the purpose of and basis for

the proposed rule changes and

discussed any comments they received

on the proposed rule changes. The text

of these statements may be examined at

the places specified in Item IV below.

OCC and NSCC have prepared

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

and (C) below, of the most significant

aspects of such statements.4

(A) Self-Regulatory Organizations’

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

In 1977, OCC signed an Options

Exercise Settlement Agreement with

Stock Clearing Corporation (NSCC’s

predecessor), with MCC, and with

SCCP. In 1991, OCC and NSCC, MCC,

and SCCP each signed a Restated

Options Exercise Agreement (‘‘Restated

Agreements’’). The Restated Agreements

never became effective because in 1993,

prior to Commission approval of

proposed rule changes pertaining to

these Restated Agreements, OCC and

NSCC, MCC, and SCCP each signed a

Second Restated Options Exercise

Agreement (‘‘Second Restated

Agreements’’).5 The Commission

approved the proposed rule changes

pertaining to the Second Restated

Agreements.6 However, after the

proposals were approved the parties to

the Second Restated Agreements agreed

to suspend the effectiveness of those

agreements because OCC’s proposed

implementation of a two product group

margin system would have caused

increases in the margin requirements far

in excess of the increases which had

been anticipated when the Second

Restated Agreements were originally

proposed. The Second Restated

Agreements never became effective.

OCC and NSCC now propose to make

effective the Third Restated Agreement

executed by them. The Third Restated

Agreement will become effective upon

approval by the Commission of the

proposed rule changes herein.

Changes Made by the Third Restated

Agreements

The Third Restated Agreement alters

the provisions of the Second Restated

Agreement between OCC and NSCC

principally to establish a two-way

guarantee between OCC and NSCC and

to change the guarantee formulas. In the

Second Restated Agreement, OCC

guaranteed compensation to NSCC for

losses incurred by NSCC in closing out

the exercise and assignment activity

(‘‘E&A activity’’) of a defaulting OCC

clearing member, and NSCC agreed to

guarantee settlement of pending stock

trades arising from E&A activity

commencing at the same time that it

guarantees regular-way settlements of

ordinary stock transactions (i.e., at

midnight of T+1). However, the Second

Restated Agreement did not require

NSCC to return to OCC any net value

remaining from the liquidation of the

E&A activity of a defaulting clearing

member. As a result, OCC provided for

a two product group margin system for

equity options to ensure that OCC gave

no margin credit for net positive values

of a clearing member’s E&A activity that

would be unavailable to OCC if NSCC

were to liquidate the clearing member’s

positions at NSCC arising from its E&A

activity.

The Third Restated Agreement

provides for a two-way guarantee

between OCC and NSCC. Thus, if NSCC

suspends a common member 7 and
Federal Register / Vol. 61, No. 117 / Monday, June 17, 1996 / Notices 30651

8 11 U.S.C. §§ 555 and 559.

9As defined in the Second Restated Agreement,

the term participating member generally refers to an

entity that is an OCC clearing member and also is

a participant in a correspondent clearing

corporation (‘‘CCC’’) (i.e., NSCC, MCC, or SCCP) or

an entity that is a party to any of the three

alternative arrangements for effecting settlement

through a CCC as provided under the Second

Restated Agreement.

10The net options loss was essentially the actual

net loss incurred by NSCC in closing out the E&A

activity with respect to which NSCC was

unconditionally obligated at the time of the default.

The net overall loss was essentially the actual net

loss incurred by NSCC in closing out all

transactions of the defaulting participating member

with respect to which NSCC was unconditionally

obligated at the time of the default. The maximum

guarantee amount was essentially the sum of the

mark-to-market amounts, positive and negative, for

all E&A activity with respect to which NSCC was

unconditionally obligated at the time of the default.

The term mark-to-market amount was defined in

the Second Restated Agreement to mean the

difference between the exercise price of an option

and the closing price of the underlying stock on the

trading day immediately preceding the then most

recently completed regular morning settlement with

OCC of the participating member. As set forth in

footnote 13 below, the term is defined somewhat

differently in the Third Restated Agreement.

11 Generally, if either NSCC or OCC suspended a

common member, the other would also suspend the

common member. OCC’s Rule 1102(a) entitles OCC

to suspend a clearing member which had been

suspended by its designated clearing corporation

(Securities Exchange Act Release No. 33543

(January 28, 1994) 59 FR 5639 [File No. SR–OCC–

92–05]). However, the two formulas under the

Third Restated Agreement would require at most a

payment by one of the two clearing corporations to

the other and not to a payment by each clearing

corporation to the other. This is true because the

suspended common member’s E&A activity in

settlement at NSCC would generate either a

calculated margin requirement or a calculated

margin credit but not both. Thus, the application of

at least one of the two formulas would result in a

guaranteed amount equal to zero.

12The net member Debit to NSCC concept is

similar to the net overall loss concept under the

Second Restated Agreement. However, the concepts

differ in that the net overall loss was the net loss

resulting from the close-out of all of a suspended

member’s settlement activity at NSCC whereas the

net member debit to NSCC is the net debit

remaining after application of all of a suspended

member’s assets that are available to NSCC. The

difference in these concepts reflects a judgment on

the part of the two clearing corporations that the

guarantee of each of the other should not obligate

either to make any payment to the other if the other

in fact has sufficient assets of the suspended

member to make itself whole without recourse to

the clearing fund deposits of its other members.

13Under the Third Restated Agreement, the term

mark-to-market amount is defined to mean: (i) with

respect to any option exercise or assignment

position, the difference between the value of the

position calculated using its exercise price and its

closing price on the preceding trading day and (ii)

with respect to any other position at NSCC, the

difference between the value of the position

calculated using its trade price and its closing price

on the preceding trading day.

14The calculated margin requirement concept is

similar to the maximum guarantee amount concept

under the Second Restated Agreement. The

concepts differ in that the maximum guarantee

amount did not take into account offsetting activity

in NSCC’s system in the same underlying stocks.

OCC and NSCC have concluded that the calculated

margin requirement and calculated margin credit

concepts render the net options loss concept under

the Second Restated Agreement superfluous. Thus,

there is no counterpart in the guarantee formula in

the Third Restated Agreement to the net options

loss concept in the Second Restated Agreement.

incurs a loss, OCC would owe NSCC an

amount determined in accordance with

the formula described below, and if

OCC suspends a common member and

incurs a loss, NSCC would owe OCC an

amount determined in accordance with

the formula described below. The

guarantee from NSCC to OCC entitles

OCC to reimbursement from NSCC if

OCC were to incur a loss in liquidating

the positions of a suspended clearing

member to whom OCC had been giving

margin credit for its E&A activity which

had been reported to NSCC for

settlement. This entitlement permits

OCC to give margin credit for long

option positions in firm accounts and

market-maker’s and specialist’s

accounts that have been reported to

NSCC for settlement and therefore

allows OCC to calculate margin for

equity options in one product group.

The guarantee of each clearing

corporation to the other in the Third

Restated Agreement is unconditional in

that each clearing corporation’s

guarantee is not dependent on the

ability of the clearing corporation to use

assets of its suspended member to make

a guarantee payment. Therefore, OCC

and NSCC believe that the trustee for a

bankrupt OCC clearing member or for a

bankrupt NSCC member should not be

able to successfully attack OCC’s or

NSCC’s right to receive guarantee

payments from each other or to make

guarantee payments to each other in

accordance with the provisions of the

Third Restated Agreement. OCC or

NSCC would seek recovery of the

amount of any guarantee payment

which either made to the other from the

assets of the suspended clearing

member whose failure necessitated the

payment. OCC and NSCC believe that its

authority to do so would be within the

special provisions of the Bankruptcy

Code that protect the close-out activities

of securities clearing agencies.8

Guarantee Formulas

The Second Restated Agreement

between NSCC and OCC provided that

OCC would compensate NSCC for losses

incurred by NSCC in closing out the

E&A activity of a defaulting

participating member 9 reported by OCC

to NSCC. The amount that OCC

guaranteed to NSCC would be the

smallest of three quantities referred to in

the Second Restated Agreement as the

net options loss, the net overall loss,

and the maximum guarantee.10 The

Third Restated Agreement between OCC

and NSCC sets forth a revised formula

for the calculation of the amount which

OCC would owe NSCC if NSCC were to

suspend a common member. It also

provides an analogous formula for the

calculation of the amount which NSCC

would owe OCC if OCC were to suspend

a common member.

Pursuant to the Third Restated

Agreement, the formula for payment by

OCC under its guarantee to NSCC

provides that if NSCC were to suspend

a common member, OCC would owe

NSCC the lesser of the common

member’s (i) net member debit to NSCC

or (ii) calculated margin requirement.

The formula for payment by NSCC

under its guarantee to OCC provides

that if OCC were to suspend a common

member, NSCC would owe OCC the

lesser of the common member’s (i) net

member debit to OCC or (ii) calculated

margin Credit.11 The term net member

debit to NSCC is defined to mean the

actual net overall debit or loss, if any,

realized by NSCC from its close-out of

the common member (i.e., the debit or

loss after application of all assets

available to NSCC including the

common member’s contribution to

NSCC’s clearing fund).12 The term net

member debit to OCC is defined to mean

the actual net overall debit or loss, if

any, realized by OCC from its close-out

of the common member (i.e., the debit

or loss after application of all assets

available to OCC including the common

member’s margin deposits and

contribution to OCC’s clearing fund).

The term calculated margin credit is

defined to mean the algebraic sum of the

mark-to-market amounts 13 calculated

by OCC’s margin system relating to

settlements arising from E&A activity

with respect to which NSCC has become

unconditionally obligated to settle and

the mark-to-market amounts calculated

by NSCC’s system for offsetting activity

in NSCC’s system in the same

underlying stocks if the algebraic sum is

positive (i.e., if the sum represents a net

positive value of the settlements). The

term calculated margin requirement is

defined to mean the same algebraic sum

if the algebraic sum is negative (i.e., if

the sum represents a net negative value

of the settlements).14

The calculation of the calculated

margin requirement or calculated

margin credit will take into account the

value of offsetting deliver and receive

obligations at NSCC including fails but

including free deliver and receive

obligations in the underlying stocks in

which each common member has E&A

activity. NSCC will give OCC a report of
30652 Federal Register / Vol. 61, No. 117 / Monday, June 17, 1996 / Notices

15OCC currently collects from clearing members

who owe OCC a net dollar amount in regular daily

settlement at 9:00 A.M. and pays clearing members

who are entitled to receive a net dollar amount in

regular daily settlement at 10:00 A.M. In the

example in the text, OCC would be obligated to take

the in-the-money value of ABC’s non-E&A activity

into account in calculating ABC’s calculated margin

requirement if NSCC suspended ABC after 10:00

A.M. (at the latest) even if ABC in fact failed to

make money settlement with OCC on E+2. OCC

staff has concluded after discussing with NSCC staff

the question of when offsetting non-E&A activity

should be taken into account that the time of

regular daily money settlement is an appropriate

time to incorporate the information in the preceding

evening’s report from NSCC into calculations of the

calculated margin requirement or calculated margin

credit.

16Unlike NSCC, OCC employs three types of

accounts for its members: customer accounts,

market-maker accounts, and firm accounts. Separate

margin calculations are made with respect to each

type of member account. Therefore, in order to use

the information in NSCC’s reports in OCC’s margin

calculations, OCC would have to disaggregate the

information received from NSCC on an account-byaccount basis. This disaggregation, even if possible,

could not be done without major changes in both

OCC’s and NSCC’s systems.

17Under the Third Restated Agreement the term

participating member specifically refers to (1) a

common member, (2) an NSCC clearing member

that (i) has been appointed as an appointed clearing

member by an OCC clearing member that is an

appointing clearing member and (ii) has designated

NSCC as its designated clearing corporation for the

settlement of its E&A activity. (3) an OCC clearing

member that (i) is a nominating clearing member,

(ii) has appointed a nominated correspondent that

is an NSCC member, and (iii) has designated NSCC

as its designated clearing corporation for the

settlement of its E&A activity, and (4) an OCC

clearing member that is a Canadian clearing

member. The terms appointing clearing member,

appointed clearing member, nominating clearing

member, and nominated correspondent are defined

in Article I of OCC’s By-Laws.

18Supra note 6.

19The complete text of the amendments to

NSCC’s clearing fund formula is set forth in Exhibit

A to NSCC’s filing. A copy of the filing and all

exhibits is available for copying and inspection in

the Commission’s Public Reference Room or

through NSCC.

offsetting deliver and receive obligations

in its system on a daily basis prior to

8:00 P.M. Central Time.

The calculation of the calculated

margin requirement or calculated

margin credit is perhaps best illustrated

with an example. Suppose that ABC is

a common member of NSCC and OCC,

that ABC is assigned the exercise of 100

XYZ June 85 call options, that the

closing price of XYZ on the day after the

exercise (‘‘E+1’’) is 90, and that ABC has

no other E&A activity at all. If ABC also

has no non-E&A settlements in XYZ in

settlement at NSCC, the calculated

margin requirement for ABC would be

$50,000 (90 minus 85 equals $5.00 per

share for each of 10,000 shares). If

ABC’s non-E&A activity at NSCC in

XYZ netted to a right to receive 5000

shares at a weighted average price of 87,

and if NSCC gave OCC notice to that

effect prior to 8:00 P.M. on E+1, then the

$15,000 in-the-money value of those

shares would be taken into account as

an offsetting obligation, and the

calculated margin requirement for ABC

would be $35,000 commencing at the

time on E+2 when OCC is scheduled to

make regular daily money settlement

with ABC.15 If ABC’s non-E&A activity

at NSCC in XYZ instead netted to a right

to receive 15,000 shares at a weighted

average price of 87 and if NSCC gave

OCC notice to that effect prior to 8:00

P.M. on E+1, the value of only 10,000

of those shares (i.e., the amount on the

opposite side of the market from the

obligation to deliver created by the

assigned call) would be taken into

account in calculating the calculated

margin requirement. Those 10,000

shares would have an in-the-money

value of $30,000, and the calculated

margin requirement for ABC would be

$20,000 commencing at the time on E+2

when OCC is scheduled to make regular

daily money settlement with ABC.

OCC reports E&A activity to NSCC

each night. Offsetting positions

information reported back to OCC by

NSCC on the evening of E+1 would be

taken into account in the calculation of

the calculated margin requirement or

calculated margin credit and would be

reflected in OCC’s regular morning

settlement on the morning of E+2.

Information reported back to OCC by

NSCC on the evening of E+2 would be

taken into account in any calculation of

the calculated margin requirement or

calculated margin credit and would be

reflected in OCC’s regular morning

settlement on the morning of E+3.

Although NSCC will provide OCC

with reports of offsetting deliver and

receive obligations in its system on a

daily basis and although OCC will

monitor these reports for unusual

position concentrations, OCC will not

actually use the information in the

reports in its margin calculations for its

members.16

OCC’s guarantee in the Third Restated

Agreement is similar to its guarantee in

the Second Restated Agreement in that

the guarantee does not cover the

exposure of NSCC to loss from exercise

settlements that would result if a

participating member 17 transfers

settlements from its account at NSCC to

the account of any other member of

NSCC (even another participating

member or another member that is an

affiliate of the participating member)

and that second member defaults on its

obligations to NSCC with respect to

those settlements.

Delivery of Stock Held in Escrow

The Second Restated Agreement

between NSCC and OCC contemplated

that OCC would, if necessary, deliver to

NSCC stock held in lieu of margin to

cover a suspended clearing member’s

short call positions against payment by

NSCC of the exercise price for the

positions and that the value of any such

covered short position would not be

taken into account in determining the

amount guaranteed by OCC to NSCC. In

contrast, the Third Restated Agreement

does not contemplate that OCC will

deliver stock held to cover short call

positions because, as described above,

the Third Restated Agreement provides

for taking the value of offsetting deliver

and receive obligations at NSCC into

account in the calculation of the

calculated margin requirement or

calculated margin credit.

Amendments to OCC Rule 601

Because of the guarantee extended by

NSCC to OCC, OCC proposes to amend

Rule 601 to enable OCC to give margin

credit for long option positions in firm,

market-makers’, and specialists’

accounts that have been reported to

NSCC for settlement. As a result, OCC

will be able to calculate margin for

equity options in one product group.

The amendments to Rule 601 essentially

reverse changes which were proposed in

File No. SR–OCC–92–5.18

Amendment to OCC Rule 1107

OCC proposes to amend Rule 1107 to

provide that OCC will liquidate

securities deposited to cover assigned

short call positions and use the

proceeds to reimburse itself for the

incremental amount, if any, which OCC

is obligated to pay to the designated

clearing corporation by reason of the

covered short positions as well as for

the exercise price of the covered options

and for any costs associated with the

liquidation.

Amendment to NSCC’s Clearing Fund

Formula

NSCC proposes to amend its clearing

fund formula in order to exclude from

the calculation trades for which NSCC

has protection under the terms of the

Third Restated Agreement.19

OCC and NSCC believe the proposed

rule changes are consistent with the

purposes and requirements of Section

17A of the Act because the proposals (i)

will enhance the system used by OCC to

effect settlement of exercises and

assignments of equity options by

providing for a two-way guarantee

between OCC and NSCC thereby

permitting OCC to return to a one

product group margin system and (ii)
Federal Register / Vol. 61, No. 117 / Monday, June 17, 1996 / Notices 30653

20 17 CFR 200.30–3(a)(12) (1995).

will enhance NSCC’s ability to protect

itself and its members against loss.

(B) Self-Regulatory Organizations’

Statement on Burden on Competition

OCC and NSCC do not believe the

proposed rule changes will impose any

material burden on competition.

(C) Self-Regulatory Organizations’

Statement on Comments on the

Proposed Rule Changes Received From

Members, Participants or Others

Written comments were not and are

not intended to be solicited by OCC or

NSCC with respect to the proposed rule

changes, and none have been received

by OCC or NSCC.

III. Date of Effectiveness of the

Proposed Rule Changes 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 OCC and NSCC consent,

the Commission will:

(A) By order approve the proposed

rule changes or

(B) Institute proceedings to determine

whether the proposed rule changes

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, N.W.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

changes that are filed with the

Commission, and all written

communications relating to the

proposed rule changes 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, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of OCC and NSCC. All submission

should refer to the File Nos. SR–OCC–

96–04 and SR–NSCC–96–11 and should

be submitted by July 8, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–15274 Filed 6–14–96; 8:45 am]

BILLING CODE 8010–01–M

SOCIAL SECURITY ADMINISTRATION

Privacy Act of 1974; Report of New

Routine Use

AGENCY: Social Security Administration.

ACTION: New routine use.

SUMMARY: In accordance with the

Privacy Act (5 U.S.C. 552a(e) (4) and

(11)), we are issuing public notice of our

intent to establish a new routine use of

information maintained in the Privacy

Act system of records entitled Master

Files of Social Security Number (SSN)

Holders and SSN Applications, SSA/

OSR, 09–60–0058. (For convenience, we

will refer to the system as the

Enumeration System.) The proposed

routine use provides for disclosure of

SSN and citizenship information to

employers in connection with a pilot

program to verify the employment

authorization of newly-hired employees.

We invite public comments on this

publication.

DATES: We filed a report of an altered

systems of records—new routine use

with the Chairman, Committee on

Government Reform and Oversight of

the House of Representatives, the

Chairman, Committee on Governmental

Affairs of the Senate, and the

Administrator, Office of Information

and Regulatory Affairs, Office of

Management and Budget on June 4,

1996. The routine use will become

effective as proposed, without further

notice on July 29, 1996, unless we

receive comments on or before that date

that would result in a contrary

determination.

ADDRESSES: Interested individuals may

comment on this publication by writing

to the SSA Privacy Officer, Social

Security Administration, Room 3–A–6

Operations Building, 6401 Security

Boulevard, Baltimore, Maryland 21235.

Comments may be faxed to (410) 966–

0869 or sent to internet address

willie.j.polk@ssa.gov. All comments

received will be available for public

inspection at that address.

FOR FURTHER INFORMATION CONTACT: Mr.

Willie J. Polk, Chief, Confidentiality and

Disclosure Branch, Office of Disclosure

Policy, Social Security Administration,

3–D–1 Operations Building, 6401

Security Boulevard, Baltimore,

Maryland 21235, telephone 410–965–

1753.

SUPPLEMENTARY INFORMATION:

A. Discussion of Proposed Routine Use

On February 7, 1995, President

Clinton announced that SSA, in

partnership with the Immigration and

Naturalization Service (INS), will

conduct a pilot project to verify SSNs

and employment authorization for

newly-hired employees.

To work in the United States (U.S.),

a person must be a U.S. citizen or an

alien lawfully admitted to the country

and authorized to work. Employers are

currently required to view documents

from all newly-hired employees to

verify their identities and their

authorization to work in the U.S. That

process has been cumbersome for

employers and is generally viewed as

ineffective at identifying unauthorized

workers. It has also been found to

provide an opportunity for

discrimination against people who look

or sound foreign.

The Commission on Immigration

Reform (also known as the Jordan

Commission) released an interim report

to the Congress in September 1994 that

proposed a computer registry based on

SSA and INS data that employers could

check to determine if a newly-hired

employee is authorized to work. The

Commission recommended that the

President immediately pilot the registry

in the five States with the highest levels

of illegal immigration and several less

affected States. SSA and INS estimate it

would take at least 5 years after the

enactment of legislation to set up the

joint computer registry proposed by the

Jordan Commission. The President has

authorized SSA and INS to develop

pilot projects to test the effectiveness of

some of the concepts embodied in the

computer registry proposal, and to test

the technical feasibility of matching

data from the two agencies’ databases.

The focus of the current pilot project

would involve a two-step process using

existing SSA and INS data bases.

Current plans call for selected volunteer

employers to provide SSA with a newlyhired employee’s SSN, name and date of

birth. SSA would match that

information against the Enumeration

System data base. If the identifying

information furnished by the employer

does not match the data in the

Enumeration System, SSA would so

inform the employer. If there is a match,

SSA would also check for citizenship/

alien status coding. If the Enumeration

System indicates that the employee is a

U.S. citizen, SSA’s response would