regulatory organizations; proposed rule changes: Emerging Markets Clearing Corp.,

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Federal Register: August 31, 1998 (Volume 63, Number 168)NoticesPage 46263-46264From the Federal Register Online via GPO Access [wais.access.gpo.gov]

DOCID:fr31au98-94

SECURITIES AND EXCHANGE COMMISSION

Release No. 34-40363; International Series Release No. 1154; File No. SR-EMCC-98-03Self-Regulatory Organizations; Emerging Markets Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Regarding Expansion of Eligible Instruments

August 25, 1998.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ notice is hereby given that on April 28, 1998, the Emerging Markets Clearing Corporation (``EMCC'') filedwith the Securities and Exchange Commission (``Commission'') and on August 20, 1998, amended the proposed rule change as described in Items I and II below, which items have been prepared primarily by EMCC. The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to grant accelerated approval.

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

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The proposed rule change will amend EMCC's rules to expand EMCC eligible instruments to include sovereign debt.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, EMCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. EMCC has prepared summaries set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.\2\

\2\ The Commission has modified the text of the summaries prepared by EMCC.

  (A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

The proposed rule change expands the list of EMCC eligible instruments to include debt issued by a sovereign issuer where: (1) the debt is rated in one of the four highest rating categories (``investment grade'') by at least two Nationally Recognized Statistical Rating Organizations (``NRSRO'') \3\ or (2) the debt is rated (a) in one of the four highest rating categories by one NRSRO and some satisfactory transaction volume can be demonstrated or (b) in the next highest rating category below investment grade by one NRSRO and both substantial volume and transactions can be demonstrated to indicate liquidity exists.\4\

\3\ NRSRO shall have the same meaning as used in Rule 15c3- 1(c)(2)(vi)(F).

\4\ It is EMCC's understanding that sovereign debt issued by Brazil, Argentina, and Mexico currently meet one of the above requirements.

The proposed rule change also will provide that if sovereign debt fails to continue to meet one of the above requirements for a period of one consecutive year, EMCC will specifically consider and determine whether the sovereign debt should no longer qualify as an EMCC eligible instrument. EMCC's rules are being modified to specifically provide that if an instrument fails to qualify as an eligible instrument transactions that had been accepted by the EMCC prior to such determination will continue to be processed and will be treated as if they were transactions in EMCC eligible instruments.\5\ Upon a determination that an instrument fails to qualify as an eligible instrument, no new transactions in such instrument will be accepted by EMCC for processing.

\5\ Accordingly, the buy-in and sell-out provisions set forth in Sections 7 and 8 in EMCC's Rule 8 will continue to apply to such transactions.

EMCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act and the rules and regulations thereunder because it will facilitate the prompt and accurate clearance and settlement of securities transactions.

B. Self-Regulatory Organization's Statement on Burden on Competition

EMCC does not believe that the proposed rule change will have an impact on or impose a burden on competition.

  (C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others

No written comments relating to the prosed rule change have been solicited or received. EMCC will notify the Commission of any written comments received by EMCC.

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

Section 17A(b)(3)(F) of the Act \6\ requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. The Commission believes that the proposal is consistent with EMCC's obligations under Section 17A(b)(3)(F) because EMCC will apply its existing risk controls, such as its daily margining procedures, to issues of sovereign debt. EMCC's risk controls previously have been approved for use in EMCC's clearance and settlement of Brady Bonds, and EMCC has represented to the Commission that the controls are applicable to sovereign debt.

\6\ 15 U.S.C. 78q-1(b)(3)(F).

The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the publication of notice of the filing. Approving prior to the thirtieth day after publication of notice will allow EMCC to increase in a timely manner the number of securities that can be processed through EMCC, a registered clearing agency, instead of through riskier and less efficient means.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments, concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street N.W., Washington, D.C. 20549. Copies of the submission, all subsequent amendments, all written statements with respect to the rule filing that are filedwith the Commission, and all written communications relating to the rule filing between the Commission and any person, other than those that may be withheld from the public in accordance with provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room in Washington, D.C. Copies of such filing will also be available for inspection and copying at the principal office of EMCC. All submissions should refer to the File No. SR-EMCC-98-03 and should be submitted by September 21, 1998.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-

[Page 46264]EMCC-98-03) be and hereby is approved on an accelerated basis.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.\7\

\7\ 17 CFR 200.30-3(a)(12).

Jonathan G. Katz, Secretary.

FR Doc. 98-23311Filed8-28-98; 8:45 amBILLING CODE 8010-01-M

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