[Federal Register Volume 62, Number 183 (Monday, September 22, 1997)]
[Notices]
[Pages 49547-49548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25027]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39065; File No. SR-DCC-97-03]
Self-Regulatory Organizations; Delta Clearing Corp.; Order
Approving Proposed Rule Change Regarding the Clearing of the Off-Date
Portion of Repurchase Agreements
September 12, 1997.
On March 11, 1997, Delta Clearing Corp. (``Delta'') filed with the
Securities and Exchange Commission (``Commission'') and on May 7, 1997,
and May 29, 1997, amended a proposed rule change (File No. SR-DCC-97-
03) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'').\1\ Notice of the proposal was published in the Federal
Register on June 18, 1997.\2\ No comment letters were received. For the
reasons discussed below, the Commission is approving the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 38736 (June 11, 1997),
62 FR 33145.
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I. Description
The proposed rule change amends Delta's procedures for repurchase
agreements and reverse repurchase agreements (``Repo Procedures'') to
permit Delta to clear the off-date portion of a repurchase agreement
(``repo'') transaction whose on-date portion has been cleared outside
of Delta. Delta's Repo Procedures now provide that Delta may assume the
obligation to clear solely the off-date portion of a repo transaction
(``novated repo'') subject to: (1) The receipt by Delta of matching
trade reports from the parties to the trade or from authorized
broker,\3\ as applicable and (2) Delta's confirmation of the prior
execution and clearance of the on-date portion of such repo
transaction.
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\3\ Pursuant to Delta's rules, Delta will clear and settle repo
transactions that have been entered into directly between two
participants or entered into by two participants through the
facilities of a broker that has been specifically authorized by
Delta for such purpose.
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Section 2401 of the Repo Procedures sets forth time periods for
participants to report on-date transactions to enable Delta to clear
such transactions by settlement time. Section 2401 is amended to
provide that the time periods for reporting transactions set
[[Page 49548]]
forth in the first paragraph of Section 2401 do not apply to novated
repos. Instead, as a condition for Delta to assume on such business day
the obligation to clear the off-date portion, novated repos must be
reported to Delta by 5:00 p.m. on any business day prior to the
settlement day of the off-date portion. However, if the settlement day
of the off-date portion is the next business day following the business
day on which a novated repo is reported to Delta, such novated repo
must be reported to Delta prior to 2:15 p.m. so that Delta will be able
to collect margin related to the transaction in a timely manner.\4\
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\4\ Section 2401 also is amended to require that overnight repo
transactions be reported to Delta prior to 2:15 p.m. Overnight repos
and novated repos reported one day prior to settlement will be
margined in the same manner. See infra note 5.
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Section 2507 is added to the Repo Procedures to clarify that
provisions relating to on-date settlement do not apply to novated
repos. Similarly, Sections 2801 and 2802 are amended to clarify that no
delivery of collateral or payment of net money through Delta is
required on the on-date of a novated repo.
Finally, Section 2904 is added to the Repo Procedures to provide
that Delta may accept novated repos for clearance. Section 2904
provides that a participant's net exposure resulting from the
assumption by Delta of a novated repo on any business day will be
included for purposes of calculating the margin required to be
deposited by the participant by 11:00 a.m. of the following business
day pursuant to Article XXVI of the Repo Procedures relating to margin.
If Delta assumes by 5:00 p.m. the obligation to clear the off-date
portion of a novated repo, any margin required from a participant as a
result of the participant's net exposure resulting from Delta's
assumption of such novated repo will have to be deposited by the
participant on or before 11:00 a.m. on the next day. However, if a
novated repo has an off-date which is the next business day following
the business day on which the novated repo is reported to Delta, such
novated repo is treated as an overnight repo for margin collection
purposes.\5\
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\5\ Delta sends a supplemental daily margin report to members at
2:30 p.m. each day that indicates the amount of margin a member must
deposit prior to 3:00 p.m. that day. The margin is based on an
intraday mark-to-market calculation based on overnight repos.
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II. Discussion
Section 17A(b)(3)(F) \6\ of the Act requires that a clearing agency
be organized and its rules be designed to promote the prompt and
accurate clearance and settlement of securities transactions. The
Commission believes that the proposed rule change is consistent with
section 17A(b)(3)(F). The proposal will allow more trades to be cleared
through Delta's clearance and settlement system. Such trades will
receive the benefit of Delta's guarantee and automated settlement
capabilities. Because of Deltas netting of transactions, the proposal
also may reduce the number of securities movements needed to settle
transactions. By reducing the number of trades settled ex-clearing, the
proposal should assist in the prompt and accurate clearance and
settlement of repo transactions consistent with section 17A(b)(3)(F).
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\6\ 15 U.S.C. 78q-1(b)(3)(F).
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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-DCC-97-03) be and hereby is
approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25027 Filed 9-19-97; 8:45 am]
BILLING CODE 8010-01-M