Self-Regulatory Organizations; Government Securities Clearing Corporation; Notice of Filing of Proposed Rule Change Modifying the Trade Reporting Requirements for Category 2 Inter-Dealer Broker Netting Members

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34511; File No. SR-GSCC-94-06]

Self-Regulatory Organizations; Government Securities Clearing

Corporation; Notice of Filing of Proposed Rule Change Modifying the

Trade Reporting Requirements for Category 2 Inter-Dealer Broker Netting

Members

August 10, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on July 5, 1994, the

Government Securities Clearing Corporation (``GSCC'') filed with the

Securities and exchange Commission (``Commission'') the proposed rule

change (File No. SR-GSCC-94-06) as described in Items I, II, and III

below, which Items have been prepared primarily by the self-regulatory

organization. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

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

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

The proposed rule change will modify GSCC's rules concerning the

trade reporting requirements for category 2 inter-dealer broker netting

members (``IDBs'').

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

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. The self-regulatory organization

has prepared summaries, set forth in sections A, B, and C below, of the

most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule Change

The classification of category 2 IDBs was established by GSCC in

1993 in order to permit qualifying IDBs to engage in up to ten percent

of their trading activity in eligible securities with non-netting

members.\2\ Each category 2 IDB must act exclusively as a broker and at

least ninety percent of its business, measured based on the overall

dollar volume of next day and forward settlement activity in eligible

netting securities over the most recent twenty day period, must be with

netting members.\3\ In addition, Category 2 IDBs have clearing fund and

margin requirements essentially the same as those of a category 1

dealer netting members.

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\2\The Commission approved category 2 IDBs in Securities

Exchange Act Release No. 32722 (August 12, 1993), 58 FR 42993.

\3\For a temporary period established by GSCC's Board of

Directors, the term netting members is defined to include certain

specifically designated grandfathered non-netting members firms that

currently have IDB screen access. This will temporarily allow

category 2 IDBs to trade with nonmember dealers that historically

have had access to the IDBs' screens. An IDB's trading activity with

grandfathered dealers will not be included for purposes of

determining when an IDB meets the ten percent scope of business

limitation.

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In order to monitor compliance with their scope of business

requirements, each category 2 IDB is obligated to provide GSCC in

writing with a list of all of the legal entities that it acts on behalf

of and must promptly inform GSCC of any change to such list. Each IDB

also is required to submit daily to GSCC all of its next day and

forward settling trades in eligible netting securities, including

trades with non-grandfathered non-members and must indicate the buy and

sell side of each transaction.

GSCC's rule do not, however, expressly require that a category 2

IDB provide to GSCC for every trade done involving an eligible netting

security the identity of each buy side and sell side counterparty. This

information is significant to GSCC for risk monitoring and surveillance

purposes. In particular, it is important for GSCC to understand and to

be able to assess the volume of and degree of concentration of trading

done by a category 2 IDB with one or more specific non-members.

The proposed rule change, therefore, will expressly require each

category 2 IDB to disclose to GSCC for every trade done involving an

eligible netting security, including trades done with non-members, the

identity of each buy side and sell side counterparty.

GSCC believes that because the proposed rule change allows GSCC to

ensure that it can appropriately monitory its existing netting members,

it is consistent with Section 17A of the Act\4\ and the rules and

regulations thereunder applicable to GSCC.

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\4\15 U.S.C. 78q-1 (1988).

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B. Self-Regulatory Organization's Statement on Burden on Competition

GSCC does not believe that the proposed rule change will impose any

burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received from Members, Participants, or Others

Comments on the proposed rule change have not yet been solicited or

received. GSCC members will be notified of the rule filing and comments

will be solicited by a GSCC Important Notice. GSCC will then notify the

Commission of any written comments received by GSCC regarding the

proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within thirty-five days of the date of publication of this notice

in the Federal Register or within such longer period (i) as the

Commission may designate up to ninety days of such date if it finds

such longer period to be appropriate and publishes its reasons for so

finding or (ii) as to which the self-regulatory organization consents,

the Commission will:

(A) by order approve such proposed rule change or

(B) institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

Copies of the submission, all subsequent amendments, all written

statements with respect to the proposed rule change that are filed with

the Commission, and all written communications relating to the proposed

rule change between the Commission and any person, other than those

that may be withheld from the public in accordance with the provisions

of 5 U.S.C. Sec. 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 GSCC. All submissions

should refer to file number SR-GSCC-94-06 and should be submitted by

September 7, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-20120 Filed 8-16-94; 8:45 am]

BILLING CODE 8010-01-M