A 5335
P&S 4905
October 11, 2001
ATTENTION: MANAGING PARTNER/OFFICER, OPERATIONS PARTNER/OFFICER
SUBJECT: RULE CHANGE REGARDING MULTILATERAL CROSS GUARANTY AGREEMENTNational Securities Clearing Corporation ("NSCC") has filed a rule change with the Securities and Exchange Commission for authority to enter into a Multilateral Netting Contract and Limited Cross-Guaranty (the "Multilateral Agreement") with The Depository Trust Company ("DTC"), Emerging Markets Clearing Corporation ("EMCC"), MBS Clearing Corporation ("MBSCC"), Government Securities Clearing Corporation ("GSCC"), and The Options Clearing Corporation ("OCC"). The Multilateral Agreement will replace the bilateral cross-guaranty agreements that NSCC currently has in place with each of EMCC, MBSCC, GSCC and OCC. In addition, the rule change amends the existing Amended and Restated Netting Contract and Limited Cross-Guaranty between NSCC and DTC, so that there will be no conflict or priority issue with the limited cross-guaranty provisions of the Multilateral Agreement.
Generally, cross-guaranty agreements contain a guaranty from one clearing agency to another clearing agency that can be invoked in the event of the default of a common member. The guaranty provides that the excess resources of a defaulting common member remaining after the defaulting common member’s obligations to the guaranteeing clearing agency have been satisfied will be used to satisfy the obligations of the defaulting common member that remain unsatisfied at the other clearing agency. The guaranty is limited to the amount of a defaulting common member’s resources remaining at the guaranteeing clearing agency.
The proposed Multilateral Agreement would replace the bilateral arrangements with a single multilateral arrangement that provides for the allocation of such excess resources among all clearing corporations in a deficit position with respect to a common defaulting member. NSCC believes that entering into a cross-guaranty agreement on a multilateral basis fosters cooperation and coordination among the participating clearing agencies, and will reduce the risk of loss to the participating clearing agencies resulting from the failure or default of a common member.
The full text of the rule change may be obtained by visiting our web site at
www.nscc.com, or by contacting the NSCC Legal Department at (212) 855-3207. Written comments on the proposed rule filing may be addressed to Lisa T. Siebold, Assistant Secretary, National Securities Clearing Corporation, 55 Water Street, New York, New York 10041, and your comments will be forwarded to the SEC. You may also address your written comments to the Secretary of the Commission, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, D.C. 20549. We request that you provide NSCC with a copy of your comments.
Questions regarding the rule filing should be directed to Merrie Faye Witkin, Vice President and Senior Counsel, at (212) 855-3208.
Karen L. Saperstein
Managing Director