[Federal Register Volume 62, Number 127 (Wednesday, July 2, 1997)] [Notices] [Pages 35859-35860] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 97-17252] ======================================================================= ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-38769; File No. SR-MBSCC-97-02] Self-Regulatory Organizations; MBS Clearing Corporation; Order Approving a Proposed Rule Change Relating to the Valuation of Securities Deposited as Collateral in the Participants Funds to Satisfy Daily Margin Requirements June 24, 1997. On February 12, 1997, MBS Clearing Corporation (``MBSCC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-MBSCC-97-02) pursuant to Section 19(b) (1) of the Securities Exchange Act of 1934 (``Act'').\1\ On March 26, 1997, MBSCC filed an amendment to the proposed rule change.\2\ Notice of the proposal was published in the Federal Register on April 28, 1997.\3\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b) (1). \2\ Letter form Richard J. Paley, MBSCC (March 25, 1997). \3\ Securities Exchange Act Release No. 38536 (April 22, 1997), 62 FR 22983. --------------------------------------------------------------------------- I. Description MBSCC's rules allow participants to satisfy their margin requirements by depositing approved forms of collateral such as cash, securities,\4\ and letters of credit into the participants fund. Recently, securities have become the dominant form of acceptable collateral used by participants to satisfy their margin requirements. As a result of this increased use of securities, MBSCC reappraised the value given to securities deposited as collateral for participants funds obligations. --------------------------------------------------------------------------- \4\ Securities acceptable as collateral include direct obligations of the United States (i.e., Treasury Bills, Treasury Notes, and Treasury Bonds) (``Treasury securities'') and mortgage- backed securities issued by the Government National Mortgage Association, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation. --------------------------------------------------------------------------- Currently, MBSCC values mortgage-backed securities at the lesser of par or current market value, and it values Treasury securities at current market value. MBSCC revalues both types of securities daily and analyzes them for pending maturity. Under the proposal, MBSCC will value mortgage-backed securities with a remaining maturity of one year or more at the lesser of par or 95 percent of the current market value and Treasury securities with a remaining maturity of one year or more at 95 percent of their [[Page 35860]] current market value.\5\ MBSCC will value mortgage-backed securities with a remaining maturity of less than one year at the lesser of par or the current market value and Treasury securities with a remaining maturity of less than one year at the current market value. MBSCC will continue to revalue securities daily and analyze them for pending maturity before the depositing participant is credited.\6\ --------------------------------------------------------------------------- \5\ The proposal also provides that from time to time MBSCC may use a lower percentage of the current market value in determining the collateral value of mortgage-backed securities or Treasury securities. \6\ Because par value for mortgage-backed securities is $100, the proposed rule change will apply a five percent haircut only to those mortgage-backed securities that have a current market value of $105 or less. For example, a mortgage-backed security with a current market value exceeding $105 is and will continue to be revalued to a par value of $100. However, a mortgage-backed security with a current market value of $105 will now be revalued to $99.75 or 95 percent of current market value. Similarly, a mortgage-backed security with a current market value of $99 will be revalued to $94.05. --------------------------------------------------------------------------- II. Discussion Section 17A(b) (3) (F) of the Act requires that the rules of a clearing agency be designed to ensure the safeguarding of securities and funds in its custody or control or for which it is responsible.\7\ The Commission believes that MBSCC's proposed rule change is consistent with its obligations under Section 17A of the Act. By amending this valuation procedures, MBSCC's valuation should more accurately reflect the actual values of the securities deposited as collateral. Accordingly, MBSCC will have greater certainly that the securities deposited by a participant will be sufficient to satisfy the participant's obligations to MBSCC in the event that the participant becomes insolvent or defaults. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78q-1(b) (3) (F). --------------------------------------------------------------------------- III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act and the rules and regulations thereunder. It is Therefore Ordered, pursuant to Section 19(b) (2) of the Act, that the proposed rule change (File No. SR-MBSCC-97-02) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\8\ --------------------------------------------------------------------------- \8\ 17 CFR 200.30-3(a) (12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 97-17252 Filed 7-1-97; 8:45 am] BILLING CODE 8010-01-M