36096 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Notices

2The Commission has modified parts of these

statements.

3For a complete description of the DCC’s repo

clearance system, see Securities Exchange Act

Release No. 36367 (October 13, 1995), 60 FR 54095.

4Securities Exchange Act Release Nos. 36367

(October 13, 1994), 60 FR 54059; 36901 (February

28, 1996), 61 FR 8991; 37212 (May 14, 1996), 61

FR 25722; and 37235 (May 20, 1996), 61 FR 26942.

5 15 U.S.C. 78q–1 (1988).

6 15 U.S.C. 78s(b)(3)(A)(iii) (1988).

7 17 CFR 240.19b–4(e)(4) (1995).

8 17 CFR 200.30–3(a)(12) (1995).

1 15 U.S.C. § 78s(b)(1) (1988).

2The Commission temporarily approved two

previous ISCC proposed rule changes amending

ISCC’s clearing fund formula. Securities Exchange

Act Release No. 35970 (July 13, 1995), 60 FR 37698

[File No. SR–ISCC–95–03] (notice of filing and

order granting accelerated approval on a temporary

basis of ISCC’s clearing fund formula) and

Securities Exchange Act Release No. 34392 (July 15,

1994), 59 FR 37798 [File No. SR–ISCC–94–1] (order

temporarily approving on an accelerated basis

ISCC’s clearing fund formula).

3The Commission has modified these summaries.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DCC 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. DCC has prepared

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

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

Through its repo clearing system, DCC

clears repo transactions that have been

agreed to by DCC participants through

the facilities of interdealer brokers that

have been specially authorized by DCC

(‘‘authorized brokers’’) to offer their

services to DCC participants.3 Currently,

Liberty Brokerage, Inc., RMJ Special

Brokerage Inc., Euro Brokers Maxcor

Inc., Tullet and Tokyo Securities Inc.,

and Tradition (Government Securities),

Inc., are authorized brokers.4 The

purpose of the proposed rule change is

to give notice that DCC has authorized

Patriot to act as a broker in DCC’s

clearance and settlement system for

repo trades.

The proposed rule change will

facilitate the prompt and accurate

clearance and settlement of securities

transactions, and therefore, the

proposed rule change is consistent with

the requirements of the Act, specifically

Section 17A of the Act, and the rules

and regulations thereunder.5

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DCC does not believe that the

proposed rule change will impose any

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

Comments were neither solicited nor

received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Section

19(b)(3)(A)(iii) of the Act 6 and Rule

19b–4(e)(4) thereunder 7 in that the

proposal effects a change in an existing

service of a registered clearing agency

that does not adversely affect the

safeguarding of securities or funds in

the custody or control of the clearing

agency or for which it is responsible and

does not significantly affect the

respective rights or obligations of the

clearing agency or persons using the

service. At any time within sixty days

of the filing of the proposed rule change,

the Commission may summarily

abrogate such rule change if it appears

to the Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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

change that are filed with the

Commission, and all written

communication relating to the proposed

rule change between the Commission

and any person, other than those that

may be withheld from the public in

accordance with the provisions of 5

U.S.C. 552, will be available for

inspection and copying in the

Commission’s Public Reference Section,

450 Fifth Street, N.W., Washington, D.C.

20549. Copies of such filing also will be

available for inspection and copying at

DCC. All submissions should refer to

File No. SR–DCC–96–08 and should be

submitted by July 30, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Jonathan G. Katz,

Secretary.

[FR Doc. 96–17352 Filed 7–8–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37390; International Series

Release No. 999; File No. SR–ISCC–96–03]

Self-Regulatory Organizations;

International Securities Clearing

Corporation; Notice of Filing of a

Proposed Rule Change Relating to the

Clearing Fund Formula

July 1, 1996.

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

Securities Exchange Act of 1934

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

May 16, 1996, the International

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

the proposed rule change (File No. SR–

ISCC–96–03) as described in Items I, II,

and III below, which items have been

prepared primarily by ISCC. 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 Changes

ISCC is filing the proposed rule

change to extend approval of its clearing

fund formula.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

In its filing with the Commission,

ISCC 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. ISCC has prepared

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

and (C) below, of the most significant

aspects of such statements.3
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Notices 36097

4 In 1986, ISCC and the London Stock Exchange

(‘‘LSE’’) entered into a linkage agreement which

allows ISCC to obtain comparison and settlement

services in the United Kingdom from the LSE on

behalf of ISCC members. At that time, the LSE

settled trades on a fornightly basis with all trades

that occurred during a two week period settling on

the same day. On July 18, 1994, the LSE moved to

a ten day rolling settlement cycle with trades

settling ten days after trade date. On June 26, 1995,

the LSE moved to a five day rolling settlement

period. In response to the change to a rolling

settlement cycle, ISCC adjusted its method of

calculating its clearing fund requirements.

5For example, ISCC calculates a member’s

clearing fund requirement on Tuesday, August 2,

based on trades due to settle on Tuesday, August

2, through Monday, August 8 (i.e., trades conducted

on Tuesday, July 26, through Monday, August 1).

Because an ISCC member has three business days

after the calculation to make additional deposits,

under the five day rolling settlement cycle, ISCC

generally is calculating and collecting clearing fund

contributions based on trades which already have

settled. Under the prior ten day rolling settlement

system, the clearing fund formula was based on the

actual largest daily obligation of a member during

the relevant time period, and the clearing fund

deposit could be calculated and collected prior to

the settlement day.

6Members will continue to be required to

contribute a minimum of $50,000 to the clearing

fund.

7Under the INS system, redeliveries of securities

from ISCC members to institutional participants can

occur automatically through the LSE. Therefore,

ISCC generally is not required to pay the LSE for

these securities. The debits arising from these

redeliveries may be offset only partially because

these securities may be reclaimed (i.e., returned) by

the receiver, and in such circumstance, ISCC is

liable to the LSE for the full value of the

reclamation.

8 ISCC bases its clearing fund calculations on the

assumption that it will take one day to sell all of

a defaulting participant’s positions. Under a five

day settlement period, this results in a six day

exposure for market risk with five days between

trade date and settlement date and one day between

settlement date and close out of positions. There

also is a one day exposure for foreign exchange risk

because ISCC converts U.S. dollars to British

pounds on the settlement date and converts the

proceeds from the sale of the positions to U.S.

dollars the following day.

9The Foreign Exchange Factor is the product of

the Gross Debit Value and the Estimated Foreign

Exchange Volatility less the produce of the Gross

Debit Value times the Market Risk Factor times the

Estimated Foreign Exchange Volatility.

10 During the period from 1989 to 1992, the

maximum fluctuation in the U.S. dollar-British

pound exchange rate was 4.445%. ISCC will

continue to review annually the foreign exchange

risk factor.

11 15 U.S.C. § 78q–1 (1988). 12 17 CFR 200.30–3(a)(12) (1995).

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule is

to extend approval of ISCC’s clearing

fund formula.4 ISCC is obligated to the

London Stock Exchange (‘‘LSE’’) to pay

for all securities delivered to ISCC

through the ISCC–LSE link. ISCC has no

responsibility to complete open pending

trades (i.e., once a member fails, ISCC

no longer accepts delivery of securities

for such member through the link). To

adequately cover ISCC’s exposure, each

member’s clearing fund deposit

requirement is calculated and collected

on a weekly basis. Each member is

required to deposit the greater of (a) the

largest deposit requirement imposed

over the last 365 day period or (b) the

deposit that would be required based on

the clearing fund calculation using

trades due to settle over the next week.

Calculations are made each Tuesday,

and members are required to deposit

additional clearing fund amounts within

three days.5

ISCC’s clearing fund formula is:

(Gross Debit Value) x (Market Risk

Factor) + (Foreign Exchange Factor).6

The Gross Debit Value is a member’s

largest single daily gross debit value

based on debit values for five

consecutive business days including the

day on which the calculation is

performed less 15% of the Institutional

Net Settlement (‘‘INS’’) receive value for

that same day.7 The Market Risk Factor

is based on the largest calculated

percentage change in the Financial

Times Index over a six day period over

a minimum of 365 days.8 The Market

Risk Factor will continue to be set at

7%. The Foreign Exchange Factor is

based in part on the Estimated Foreign

Exchange Volatility, which is an amount

that is equal to the largest one day

percentage change in the U.S. dollar/

British pound foreign exchange rate

over a minimum of 365 days.9 The

Estimated Foreign Exchange Volatility

will continue to be set at 4%.10 The

Market Risk Factor and Foreign

Exchange Risk Factor for members on

surveillance can be increased in the

discretion of ISCC by 3%, 5%, and 7%

for members on Advisory, Class A, and

Class B surveillance, respectively.

The proposed rule change will permit

ISCC to safeguard securities and funds

in its custody or control and is therefore

consistent with Section 17A of the

Act 11 and the rules and regulations

thereunder.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

ISCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

ISCC will notify the Commission of

any written comments received by ISCC.

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 ISCC 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. § 552, will be

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of ISCC. All submissions should

refer to the file number (ISCC–96–03)

and should be submitted by: July 30,

1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Jonathan G. Katz,

Secretary.

[FR Doc. 96–17356 Filed 7–8–96; 8:45 am]

BILLING CODE 8010–01–M