NSCC RULE FILING

 

A 4501 December 6, 1996
P&S 4092

TO: ALL PARTICIPANTS

ATTENTION: MANAGING PARTNER/OFFICER; OPERATIONS PARTNER/OFFICER

SUBJECT: THIRD RESTATED OPTIONS EXERCISE SETTLEMENT AGREEMENT/CLEARING FUND FORMULA

On September 26, 1996, National Securities Clearing Corporation ("NSCC") received approval from the Securities and Exchange Commission of its rule filing relating to its Agreement (the "NSCC/OCC Accord") with The Options Clearing Corporation ("OCC"), thereby allowing NSCC to implement the NSCC/OCC Accord.

Under the NSCC/OCC Accord, in the event of the insolvency of a joint member:

However, if the exercised option obligations net with offsetting security obligations in the same CUSIP in NSCC's system, and NSCC notifies OCC so that OCC can adjust its margining system, NSCC and OCC's responsibilities to each other are limited with respect to such offsetting options and securities obligations to the difference between the exercise prices of the options obligations and the contract/current market price for the offsetting securities obligations.

Given the reliance by OCC on the NSCC guarantee, OCC can give its members credit for in the money exercised options and NSCC, relying on the OCC guarantee, can eliminate the exercised and assigned options from the NSCC Clearing Fund. The net result for NSCC members is an approximate $20 million reduction in their overall collateral requirements at NSCC. The reduction in NSCC members' collateral requirements is possible without an increase in risk to NSCC and its members.

The NSCC/OCC Accord became effective on December 2, 1996 and will become part of the month end clearing fund calculation. The text of the rule filing appears as Exhibit A.

Questions regarding this rule should be directed to Karen L. Saperstein, Managing Director and Deputy General Counsel, at (212) 412-8638.

Robert J. Woldow
Managing Director and General Counsel

Exhibit A
Text of rule:

* * *

XV. CLEARING FUND FORMULA AND OTHER MATTERS

A.I.(a) Clearing Fund Formula for Members

Each Member of the Corporation, except as otherwise provided below, is required to contribute to the Clearing Fund maintained by the Corporation an amount approximately equal to:

(I)(a) 2% of the Member's projected total long CNS positions, plus;

(b) the net of each day's difference between the contract price of pending compared CNS trades which have not as yet reached settlement and the current market price for such trades, provided that there shall be excluded from this calculation any trades for which the Corporation has, under a Clearing Agency Cross-Guaranty Agreement, either obtained coverage for such difference (if the sum of the differences for the trades subject to the agreement is a positive number) or undertaken an obligation to provide coverage for such difference (if the sum of the differences for trades subject to the agreement is a negative number), plus

(c) 1/4 of 1% of the net of all compared pending CNS trades and open CNS positions, plus

(ii)(a) 2-1/2% of the Member's average daily settlement debits and credits, excluding CNS and Mutual Fund Services debits and credits, or

(b) 5% of the Member's average daily settlement debits, excluding CNS and Mutual Fund Services debits, whichever greater, adjusted by a factor (as defined below), plus

(iii) for Members using the Mutual Fund Services:

(a) $5,000 if the Member has daily Mutual Fund Services settlement debits of no more than $100,000 with respect to any one Fund Member, or

(b) $10,000 if the Member has daily Mutual Fund Services settlement debits of no more than $500,000 with respect to any one Fund Member, or

(c) $20,000 if the Member has daily Mutual Fund Services settlement debits of more than $500,000 with respect to any one Fund Member.

A.II. Alternative Clearing Fund Formula

(a) Each Member of the Corporation who is a Municipal Securities Brokers' Broker that has a Sponsored Account (as defined in Procedure IX.B.) and elects to utilize the following Formula is required to contribute to the Clearing Fund maintained by the Corporation an amount equal to:

(I)(a) 2% of the Member's projected total long CNS positions, plus,

(b) the net of each day's difference between the contract price of pending compared CNS trades which have not as yet reached settlement and the current market price for such trades, provided that there shall be excluded from this calculation any trades for which the Corporation has, under a Clearing Agency Cross-Guaranty Agreement, either obtained coverage for such difference (if the sum of the differences for the trades subject to the agreement is a positive number) or undertaken an obligation to provide coverage for such difference (if the sum of the differences for trades subject to the agreement is a negative number), plus

(c) 1/4 of 1% of the net of all compared pending CNS trades and open CNS positions, plus

(ii)(a) 2-1/2% of the Member's average daily settlement debits and credits, excluding CNS, Mutual Fund Services and Qualified Securities Depository debits and credits, or

(b) 5% of the Member's average daily settlement debits, excluding CNS, Mutual Fund Services and Qualified Securities Depository debits, whichever greater, plus

(iii) such amount as calculated by the Qualified Securities Depository, plus

(iv) for Members using the Mutual Fund Services Service:

(a) $5,000 if the Member has daily Mutual Fund Services settlement debits of no more than $100,000 with respect to any one Fund Member, or

(b) $10,000 if the Member has daily Mutual Fund Services settlement debits of no more than $500,000 with respect to any one Fund Member, or

(c) $20,000 if the Member has daily Mutual Fund Services settlement debits of more than $500,000 with respect to any one Fund Member.

(b) Each Member of the Corporation that has a Sponsored Account and is not eligible to use the Formula set forth above in section A.II.(a), and whose average daily Envelope Settlement System debits is greater than its excess net capital is, in lieu of the requirement set forth in section A.I.(a) above, required to contribute to the Clearing Fund maintained by the Corporation an amount approximately equal to:

(I)(a) 2% of the Member's projected total long CNS positions, plus;

(b) the net of each day's difference between the contract price of pending compared CNS trades which have not as yet reached settlement and the current market price for such trades, provided that there shall be excluded from this calculation any trades for which the Corporation has, under a Clearing Agency Cross-Guaranty Agreement, either obtained coverage for such difference (if the sum of the differences for the trades subject to the agreement is a positive number) or undertaken an obligation to provide coverage for such difference (if the sum of the differences for trades subject to the agreement is a negative number), plus

(c) 1/4 of 1% of the net of all compared pending CNS trades and open CNS positions, plus

(ii)(a) 2-1/2% of the Member's average daily settlement debits and credits, excluding CNS, Qualified Securities Depository and Mutual Fund Services debits and credits, or

(b) 5% of the Member's average daily settlement debits, excluding CNS, Qualified Securities Depository and Mutual Fund Services debits, whichever greater, adjusted by a factor (as defined below), plus

(iii)(a) $5,000 if the Member has daily Mutual Fund Services settlement debits of no more than $100,000 with respect to any one Fund Member, or

(b) $10,000 if the Member has daily Mutual Fund Services settlement debits of no more than $500,000 with respect to any one Fund Member, or

(c) $20,000 if the Member has daily Mutual Fund Services settlement debits of more than $500,000 with respect to any one Fund Member, plus

(iv) such amount as calculated by the Qualified Securities Depository.