Self-Regulatory Organizations; Midwest Clearing Corporation; Midwest Securities Trust Company; Notice of Filing of Proposed Rule Changes Relating to Nominations for Board Membership, the Risk Assessment Committee, the Appeals Process, Audits and Financial Reports, and Temporary Sponsored Participants and Accounts

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37555; File Nos. SR-MCC-96-04; SR-MSTC-96-04]

Self-Regulatory Organizations; Midwest Clearing Corporation;

Midwest Securities Trust Company; Notice of Filing of Proposed Rule

Changes Relating to Nominations for Board Membership, the Risk

Assessment Committee, the Appeals Process, Audits and Financial

Reports, and Temporary Sponsored Participants and Accounts

August 9, 1996.

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

(``Act''),\1\ notice is hereby given that the Midwest Clearing

Corporation (``MCC'') and Midwest Securities Trust Company (``MSTC'')

filed with the Securities and Exchange Commission (``Commission'') on

June 26, 1996, the proposed rule changes as described in Items I and II

below, which items have been prepared primarily by MCC and MSTC,

respectively. The Commission is publishing this notice to solicit

comments on the proposed rule changes from interested persons.

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\1\ 15 U.S.C. 78s(b)(1) (1995).

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I. Self-Regulatory Organizations' Statement of the Terms of Substance

of the Proposed Rule Changes

MCC and MSTC respectively propose to (i) eliminate the sections of

their by-laws that require the corporate secretary to mail copies of

the list of nominees for the respective boards of directors to each

participant of MSTC and MCC; \2\ (ii) amend their respective rules to

remove any reference to their risk assessment committees; \3\ (iii)

adjust some of the appeal time periods, the composition of the appeal

panels, and eliminate a second level of internal appeals; \4\ (iv)

eliminate their respective

[[Page 43106]]

Risk Assessment Committees; \5\ (v) delete their respective rules

relating to audits and financial reports; \6\ and (vi) delete their

respective rules relating to Temporary Sponsored Accounts.\7\

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\2\ MSTC proposes to amend Article III, Section 2 of its By-Laws

and MCC proposes to amend Article 3, Section 3.2 of its By-Laws. The

specific proposed amendments to MSTC's and MCC's respective rules

are attached as exhibit A to MSTC's and MCC's respective proposed

rule changes, which are available for inspection at the places

specified in Item IV below.

\3\ MSTC proposes to delete Article I, Rule 4 and to amend

Article V, Rule 2. MCC proposes to delete Article I, Rule 4 and to

amend Article VIII, Rule 2.

\4\ MSTC proposes to amend Article VII, Rule 8, Section 3 and to

delete Section 5, and MCC proposes to amend Article X, Rule 8,

Section 3 and to delete Section 5.

\5\ MSTC proposes to delete Article I, Rule 4, and MCC proposes

to delete Article I, Rule 4.

\6\ MSTC proposes to delete Article VII, Rule 5, and MCC

proposes to delete Article X, Rule 5.

\7\ MSTC proposes to delete Article VIII, Rules 1 through 5, and

MCC proposes to amend Article XI, Rules 1, 2(a), 2(b), 2(c), 3(a),

3(b), 3(c), 5(d), 7(a) through 7(e), 7(g), 7(i), 10(a), 11(a),

11(d)(3) through 11(d)(6), 11(e) through 11(i), and delete Rules

5(c), 7(f), and 7(h).

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

Statutory Basis for, the Proposed Rule Changes

In their filings with the Commission, MSTC and MCC 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. MSTC and MCC have prepared summaries, set

forth in sections (A), (B), and (C) below, of the most significant

aspects of such statements.\8\

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\8\ The Commission has modified the language in these sections.

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(A) Self-Regulatory Organizations' Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Changes

On December 26, 1995, MSTC and MCC filed proposed rule changes

relating to MSTC's withdrawal from the securities depository business

and MCC's withdrawal from the securities clearance and settlement

business.\9\ Subsequent to the Commission's approval of the filings,

MSTC commenced an orderly wind-down of its operations and a transition

of all of its participants, including Temporary Sponsored Participants,

to other service providers, and MCC ceased operations for all of its

participants except its Sponsored Participants.

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\9\ For a complete discussion of MCC's and MSTC's withdrawal

from the clearing and depository businesses, refer to Securities

Exchange Act Release No. 36684 (January 5, 1996), 61 FR 1195 (File

Nos. SR-CHX-95-27, SR-DTC-95-22, SR-MCC-95-4, and SR-MSTC-95-10)

(order approving MCC's and MSTC's withdrawal from the clearance and

settlement and securities depository businesses).

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Because MSTC no longer has any active participants, it is no longer

appropriate to require MSTC to provide participants with information

relating to the nomination and election of board members. Membership in

the Chicago Stock Exchange (``CHX'') is a prerequisite to being

accepted by MCC as a Sponsored Participant, and thus all of MCC's

Sponsored Participants are CHX members. As CHX members, MCC's Sponsored

Participants receive information relating to the nomination and

election of the CHX board of governors pursuant to CHX rules. As a

result, one purpose of the proposed rule changes is to amend MSTC's and

MCC's By-Laws to eliminate the requirement that participants receive

the list of nominations and to eliminate the provisions that give

participants an opportunity to nominate additional persons.

Another purpose of the proposed rule changes is to delete the

provisions relating to MSTC's and MCC's respective Risk Assessment

Committees from their rules. Again, because of MSTC's withdrawal from

the securities depository business and MCC's withdrawal from the

securities clearance and settlement business, MSTC and MCC believe that

it is no longer necessary to maintain a Risk Assessment Committee that

serves as an appellate review board and independent consultant to

management. Because of the elimination of the Risk Assessment

Committees, the rule changes also propose to (i) eliminate the

requirement that MSTC and MCC consult with the Risk Assessment

Committee before ceasing to act for a participant, (ii) amend MSTC's

rules and MCC's rules to allow their respective boards to appoint a

panel of board members to hear appeals, and (iii) replace subsequent

references to the Risk Assessment Committee with references to a panel

of board members.

The proposed rule changes also amend MSTC's and MCC's appeal

processes. These changes will conform MSTC's and MCC's appeal

procedures to similar procedures currently used by the CHX for

emergency suspensions. Because all MCC participants are also required

to be CHX floor members, MCC desires to coordinate the CHX emergency

suspension provision and the MCC ceasing to act provision.

Specifically, the proposed rule changes will eliminate a second level

of internal appeals and will adjust some of the time periods set forth

in the rules.

An additional purpose of the proposed rule changes is to delete

MSTC's rules and MCC's rules relating to audits and financial reports

of MSTC and MCC. Because MSTC and MCC have withdrawn from the

securities depository business, and the securities clearance and

settlement business, MSTC and MCC believe that it is no longer

necessary to produce independent financial statements or maintain

internal accounting controls. Currently, there are no internal

operations at MSTC, and MCC no longer maintains independent positions

of securities. MCC merely acts as a conduit for Sponsored Participants

to enable them to hold their positions at NSCC. As a result, MCC

believes that it is no longer necessary to produce independent

financial statements or maintain internal accounting controls. However,

MSTC's and MCC's financial statements will be reflected as part of the

consolidated annual audited financials of their parent, the CHX.

Finally, the proposed rule changes will delete in their entirety

MSTC's and MCC's rules relating to Temporary Sponsored Participants and

Accounts. As a result of MCC's withdrawal from the Securities clearance

and settlement business and MSTC's winding-down of business activities

and transition of participants, including Temporary Sponsored

Participants, to other service providers, it is no longer necessary to

sponsor Temporary Sponsored Participants or maintain Temporary

Sponsored Accounts.

MSTC and MCC believe that the proposed rule changes are consistent

with Section 17A\10\ of the Act because the proposed changes will

facilitate the prompt and accurate clearance and settlement of

securities transactions and are designed to assure the safeguarding of

securities and funds which are in their control or for which they are

responsible.

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\10\ 15 U.S.C. Sec. 78q-1 (1988).

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(B) Self-Regulatory Organizations' Statement on Burden on Competition

MSTC and MCC believe that the proposed rule changes will not impose

a burden on competition.

(C) Self-Regulatory Organizations' Statement on Comments on the

Proposed Rule Changes Received From Members, Participants or Others

MSTC and MCC have neither solicited nor receive any comments on the

proposed rule changes.

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 MSTC and MCC consent, the Commission will:

(A) By order approve such proposed rule changes or

[[Page 43107]]

(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 submission

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 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 in the Commission's Public Reference Room, 450 Fifth Street,

N.W., Washington, D.C. 20549. Copies of such filings will also be

available for inspection and copying at the principal offices of MSTC

and MCC. All submissions should refer to file numbers SR-MSTC-96-04 and

SR-MCC-96-04 and should be submitted by September 10, 1996.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.\11\

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\11\ 17 CFR 200.30-3(a)(12) (1995).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-21158 Filed 8-19-96; 8:45 am]

BILLING CODE 8010-01-M