# Self-Regulatory Organizations; Midwest Clearing Corporation and Midwest Securities Trust Company; Notice of Filing of Proposed Rule Changes Relating To Establishment of a Risk Assessment Committee and Various Other Changes to MCC's and MSTC's Rules and By-Laws > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-4865 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** March 3, 1994 ## Text SECURITIES AND EXCHANGE COMMISSION [Release No. 34-33667; File Nos. SR-MCC-93-7 and SR-MSTC-92-14] Self-Regulatory Organizations; Midwest Clearing Corporation and Midwest Securities Trust Company; Notice of Filing of Proposed Rule Changes Relating To Establishment of a Risk Assessment Committee and Various Other Changes to MCC's and MSTC's Rules and By-Laws February 23, 1994. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on November 17, 1993, and on December 23, 1993, the Midwest Clearing Corporation (``MCC'') and the Midwest Securities Trust Company (``MSTC'') respectively filed with the Securities and Exchange Commission (``Commission'') the proposed rule changes as described in Items I, II, and III below, which Items have been prepared primarily by MCC and MSTC. MCC amended its proposal on December 23, 1993, thereby making it virtually identical to that of MSTC. MCC made a clarifying amendment on January 3, 1994.\2\ The Commission is publishing this notice to solicit comments from interested persons. --------------------------------------------------------------------------- \1\15 U.S.C. 78s(b)(1) (1988). \2\Letter from David T. Rusoff, Foley & Lardner, to Richard Strasser, (Attorney), Division of Market Regulation, Commission (December 30, 1993). --------------------------------------------------------------------------- I. Self-Regulatory Organizations' Statement of the Terms of Substance of the Proposed Rule Changes MCC and MSTC propose to change their Rules and By-Laws to: (1) Allow for the establishment of additional communities; (2) require MCC and MSTC to consult with at least one member of the Risk Assessment Committee before ceasing to act for a participant; (3) establish a Risk Assessment Committee; (4) modify their procedures relating to appeals; (5) add provisions relating to suits against MCC and MSTC and their employees; and (6) add a provision that requires MCC or MSTC participants, in certain circumstances, to pay MCC or MSTC all reasonable expenses they incur in defending a legal proceeding instigated by the participants. II. Self-Regulatory Organizations' Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes In their filings with the Commission, MCC and MSTC included statements concerning the purpose of and statutory basis for the proposed rule changes and discussed any comments received on the proposals. The test of these statements may be examined at the places specified in Item IV below. MCC and MSTC have prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements. (A) Self-Regulatory Organizations' Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Changes The purpose of the proposed rule changes is to amend various by- laws and rules of MCC and MSTC to define participants' rights and obligations more precisely and to give MCC and MSTC more flexibility and protection in dealing with violations of their respective rules. By-laws will be added to allow MCC and MSTC to establish committees either through their respective by-laws or rules or by the board of directors. Rules will be added to: (1) Establish a Risk Assessment Committee for MCC and MSTC; (2) require MCC and MSTC to consult with at least one member of the Risk Assessment Committee prior to ceasing to act for a participant; and (3) expand the types of events that permit MCC and MSTC to cease to act for a participant to any instance where a participant poses a financial risk to MCC or MSTC. These changes will provide independent input to management in its decision-making process while still providing MCC and MSTC the flexibility to act quickly if necessary. To clarify that MCC and MSTC have the authority to establish the new Risk Assessment Committee, the proposed rules will amend their by- laws to add a provision that expressly permits MCC and MSTC to establish committees by their rules or by-laws or through their boards of directors. The Risk Assessment Committee will hear all appeals under the applicable rules. The proposed rules specifically provide that prior participation by a member of the Risk Assessment Committee in any inquiry, consultation, examination, or investigation of the matter under appeal will not disqualify the Committee member from hearing the appeal. The proposed rules replace current rules which require the board of directors to appoint a panel to hear an appeal. MCC and MSTC also will add provisions to their rules that will give them greater flexibility in the decision to cease to act for a participant. Specifically, these provisions will allow MCC and MSTC to cease to act for a participant if there are reasonable grounds to believe that the participant poses a financial risk to MCC or to MSTC even if the firm itself is not in financial difficulty. These provisions will provide MCC and MSTC more flexibility in reducing risk to themselves and to other participants. The proposed rules also will mandate a formal standard of review to be applied in appeals beyond the Risk Assessment Committee review. Currently, either MCC's or MSTC's board may in its discretion reverse, modify, or remand for further consideration any decision adverse to an appellant. Under the proposed standard, neither board shall reverse, modify, or remand for further consideration any decision adverse to an appellant if the factual conclusions in the Risk Assessment Committee's decision are supported by substantial evidence and if the decision itself is not arbitrary, capricious, or an abuse of discretion. Finally, the proposed rules add provisions relating to MCC's and MSTC's liability and suits filed against MCC and MSTC and their employees. The possibility of suit against individual staff members of MCC or MSTC acting on company business makes it impossible for such persons to perform properly their duties. The proposed rules will prohibit an MCC or MSTC participant from suing any officer, director, employee, or agent of MCC or MSTC, of the Chicago Stock Exchange, or of any of their affiliates, if such person is acting on the business of MCC, MSTC, the Exchange, or of any of their affiliates. These proposed rules will not prohibit a participant from suing MCC or MSTC as a result of the actions of these individuals; they merely will prohibit suits against individuals acting in their official capacities. The proposed rules also will limit MCC's and MSTC's liability to participants to situations where MCC or MSTC acted willfully or with gross negligence. Finally, the proposals will add new provisions that require an MCC or MSTC participant that fails to prevail in a legal proceeding instigated by that participant against MCC, MSTC, or any of its officers, directors, committee members, employees, or agents to pay MCC or MSTC all reasonable expenses, including attorneys' fees, incurred by MCC or MSTC in defending the proceeding if those expenses exceed $20,000. The proposed rule changes are consistent with Section 17A of the Act in that they will facilitate the safeguarding of securities and funds which are in MCC's and MSTC's custody or control or for which they are responsible. (B) Self-Regulatory Organizations' Statement on Burden on Competition MCC and MSTC believe that no burden will be placed on competition as a result of the proposed rule changes. (C) Self-Regulatory Organizations' Statement on Comments on the Proposed Rule Changes Received From Members, Participants, or Others No comments were received. 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 the self-regulatory organizations 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 NW., Washington, DC 20549. Copies of the submissions, 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 at the principal offices of MCC and MSTC. All submissions should refer to File Nos. SR-MCC-93-7 and SR-MSTC-93-14 and should be submitted by March 24, 1994. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\3\ --------------------------------------------------------------------------- \3\17 CFR 200.30-3(a)(12) (1993). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-4865 Filed 3-2-94; 8:45 am] BILLING CODE 8010-01-M --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-4865. Public record. Not legal advice.