[Federal Register Volume 59, Number 95 (Wednesday, May 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12042]


[[Page Unknown]]

[Federal Register: May 18, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34041; File Nos. SR-MCC-94-03 and SR-MSTC-94-03]

 

Self-Regulatory Organizations; Midwest Clearing Corporation and 
Midwest Securities Trust Company; Filing of Proposed Rule Changes 
Establishing More Definitive Standards for Retention of Participants' 
Fund Deposits

May 11, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act 1934 
(``Act''),\1\ notice is hereby given that on February 7, and January 
31, 1994, respectively, the Midwest Clearing Corporation (``MCC'') and 
the Midwest Securities Trust company (``MSTC'') 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, self-regulatory organizations. 
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) (1988).
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I. Self-Regulatory Organizations' Statement of the Terms of Substance 
of the Proposed Rule Changes

    MCC proposes to modify MCC rules, Article IX (Property Held for 
Participants), rule 2 (Participants' Fund), Section 11 (Ceasing To Be a 
Participant) and MSTC proposes to modify MSTC Rules, Article VI 
(Property Held for Participants), Rule 2 (Participants' Fund), Section 
12 (Ceasing to be a Participant). The proposals relate to the retention 
of deposits in the MCC and MSTC Participants' Funds.

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 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. 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 establish more 
definitive standards for the retention of deposits to the MCC and MSTC 
Participants' Funds when a participant ceases to be a participant. For 
example, when the issuer of a security pays dividends, MCC participants 
that have long positions in the security are credited, and MCC 
participants that have short positions are debited. Occasionally, 
however, an issuer will fail to disseminate dividend information in a 
timely manner. When the dividend information is ultimately 
disseminated, participants that had short positions on the date the 
dividend amounts should have been debited are charged the appropriate 
debits. If a participant that had such a short position has ceased to 
be participant, MCC has the right to collect the dividend from the ex-
participant because the dividend represents an amount chargeable 
against the ex-participant's contributions as a result of transactions 
conducted while it was an MCC participant. If MCC has refunded all of 
the ex-participant's Participants' Fund deposit, MCC will be at risk.
    MSTC faces similar risks. For example, if a participant has on 
deposit with MSTC a nontransferable security that becomes transferable 
after the participant ceases to be an MSTC participant, MSTC may be at 
risk if it ends up with a negative position in that security.
    Accordingly, if MCC and MSTC retain Participants' Fund deposits or 
obtain an appropriate guarantee, MCC and MSTC will reduce the risk from 
such occurrences as the late receipt of dividend information or the 
conversion of a security from nontransferable to transferable. At this 
time, however, there is no clear provision in MCC's or MSTC's rules 
relating to the length of time that MCC or MSTC may retain a 
participant's Participant's Fund deposit. Based on their experience, 
MCC and MSTC believe that absent an acceptable guarantee or 
substitution by another participant. it will be appropriate for them to 
retain the greater of (i) 25% of the participant's average 
Participants' Fund requirement over the previous twelve months or (ii) 
$100,000 or the participant's entire deposit if the participant as a 
Participants' Fund deposit of less than $100,000. MCC and MSTC are 
proposing that they be permitted to retain Participant's Fund deposits 
for a period of up to four years.
    MCC and MSTC believe that the proposed rule changes are consistent 
with the Act and in particular with Section 17A of the Act because they 
promote the prompt and accurate clearance and settlement of securities 
transactions and provide MCC and MSTC better control over their 
Participants' Funds.

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

    MCC and MSTC do not believe that the proposed rule changes will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

(C) Self-regulatory Organizations' Statement on Comments on the 
Proposed Rule Changes Received From Members, Participants, or Others

    MCC and MSTC have neither solicited nor received any comments.

III. Date of Effectiveness of the Proposed Rule changes and Timing for 
Commission Act

    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 such 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 forging. Persons making written submission 
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 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 at the 
principal offices of FCC and MSTEC. All submissions should refer to 
File Nos. SR-MCC-94-03 and SR-MSTC-94-03 and should be submitted by 
June 8, 1994.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\17 CFR 200.30-3(a) (12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc.94-12042 Filed 5-17-94; 8:45 am]
BILLING CODE 8010-01-M