[Federal Register Volume 62, Number 99 (Thursday, May 22, 1997)]
[Notices]
[Pages 28085-28086]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13402]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38646; File No. SR-DCC-96-13]
Self-Regulatory Organizations; Delta Clearing Corp.; Order
Granting Approval of a Proposed Rule Change Relating to the Definitions
of Trading Limits and Maximum Potential System Exposure
May 15, 1997.
On November 26, 1996, Delta Clearing Corp. (``DCC'') filed a
proposed rule change (File No. SR-DCC-96-13) with the Securities and
Exchange Commission (``Commission'') pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Act'').\1\ On January 10, 1997, DCC
filed an amendment to the proposed rule change. Notice of the proposal
was published in the Federal Register on January 30, 1997, to solicit
comments from interested persons.\2\ No comments were received. As
discussed below, this order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b).
\2\ Securities Exchange Act Release No. 38197 (January 23,
1997), 62 FR 4557.
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Description
The proposed rule change amends DCC's procedures and provides for
the issuance of Policy Statement 96-02 in order to revise DCC's current
method of limiting its exposure to participants.\3\ The term ``trading
limit'' in DCC's procedures is replaced with the ``exposure limit.''
Section 204 and 2204 and the definitions of ``exposure limit'' in
Section 101 and 2101 are amended to clarify that each participant has
one exposure limit applicable to both repurchase agreement (``repo'')
and option transactions.
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\3\ Policy Statement 96-02 described such items as the processes
for rejecting trades and notification of the affected participants.
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The consequences of a participant exceeding its exposure limit are
clarified so that a participant may continue to effect trades for
clearance and settlement in the repo clearing
[[Page 28086]]
system or the options clearing system if DCC determines that the risk
involved is de minimis (i.e., the additional exposure is less than 5%).
Previously, if a participant exceeded its trading limit, DCC was
required to reject the participant's trades. Now, if a participant
exceeds its exposure limit twice or more in one month, the revised rule
obligates DCC to review with the participant and the insurer, if
necessary, whether to change the participant's exposure limit.
The definition of maximum potential system exposure (``MPSE'') in
the procedures also is revised to clarify and to limit the
circumstances under which margin funds due and owing from participants
may be deducted for purposes of determining MPSE. DCC will continue to
include as a credit in calculating MPSE those margin funds due and
owing from such participants at or before the immediately succeeding
settlement time (1) That were called for by DCC in the ordinary course
of entering trades into the options or repo clearing systems, (2) that
were reflected in the daily margin report, and (3) that were not an
additional margin requirement pursuant to Section 603 or 2603 of DCC's
procedures.
II. Discussion
Section 17A(b)(3)(F) of the Act requires that a clearing agency's
rules be designed to ensure the safeguarding of securities and funds in
its custody or control or for which it is responsible.\4\ The
Commission believes that DCC's proposal is consistent with the Act in
that the proposed rule change should provide DCC with greater
flexibility to manage and to address credit and liquidity difficulties
among its participants.
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\4\ 15 U.S.C. 78q-1(b)(3)(F).
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DCC's procedures will allow participants to effect trades for
clearance and settlement in the repo clearing system or in the options
clearing system above their exposure limits only if DCC determines that
the risk involved is below a defined de minimis amount. While this
provision gives DCC some flexibility in determining whether to reject
or accept a participant's trades, it does so in a limited and prudent
manner. Furthermore, the unification of each participant's exposure
limit for its options and repo transactions should allow DCC to improve
its understanding of the overall risk each participant poses to DCC. In
addition, the limitation on the types of margin that may be used as a
credit for MPSE calculations should reduce the possibility that routine
margin calls designed to reduce DCC's credit exposure inadvertently
compound DCC's exposure. By enhancing DCC's risk management system, the
proposal assists DCC in safeguarding securities and funds in its
possession and control.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and
particularly with Section 17A(b)(3)(F) of the Act and the rules and
regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\5\ that the proposed rule change (File No. SR-DCC-96-13) be and
hereby is approved.
\5\ 15 U.S.C. 78s(b)(2).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13402 Filed 5-21-97; 8:45 am]
BILLING CODE 8010-01-M