Self-Regulatory Organizations; Emerging Markets Clearing Corporation; Order Approving a Proposed Rule Change Creating an Inactive Member Category

On August 7, 2003, the Emerging Markets Clearing Corporation (“EMCC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) (File No. SR-EMCC-2003-04). Notice of the proposal was published in the Federal Register on September 18, 2003. No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

I. Description

The proposed rule change will create a new membership category for inactive members. From time to time, participants find that their activity level in EMCC-cleared instruments does not warrant active membership status and the costs and risks associated with such status. At the same time, however, they are reluctant to terminate their membership because of the amount of time, effort, and cost that would be required to provide EMCC with the membership documents required to regain their membership status should they later choose to take advantage of EMCC's services. To accommodate this need, EMCC proposes to add to its rules a new section for “inactive status” and a new definition for the term “inactive member.”

In order to be eligible to be an inactive member, the participant must have no pending or fail positions and no unpaid money obligations. After a participant requests that it be placed in inactive status, management will act upon its request. Management's decision to grant a participant's request for inactive status will not require approval by EMCC's Membership and Risk Management Committee, but this committee will be notified.

A participant that requests to be placed on inactive status will be entitled to a refund of its clearing fund deposit 30 calendar days after it is placed on inactive status. A participant that requests that it be placed on inactive status will no longer be assessable pursuant to Rule 4 for losses due to other members.

While in inactive status, the participant must continue to provide the same financial reports that are required of active members and also must comply with all other reporting obligations. A participant that fails to do so will be subject to the same terms and conditions as active members (e.g. fines, disciplinary action, termination, etc.). An inactive member will also be responsible for a reduced monthly account maintenance fee of $200.

If the participant determines to reactivate its membership status, an initial clearing fund deposit will be determined in the same manner as for a new applicant, and active membership status must be approved by the Membership and Risk Management Committee. Inactive members will not be required to reexecute membership agreements or provide other documentation to the extent EMCC determines that it already has the required documentation or information (e.g. financials) necessary to make a determination on the reactivation request. If the participant is inactive for longer than 18 months, EMCC will require an opinion of the participant's counsel in a form satisfactory to EMCC that affirms that there is no substantive change in the opinion(s) previously given as part of the member's original application for membership.

II. Discussion

Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency assure the safeguarding of securities and funds that are in the custody or control of the clearing agency for which it is responsible. The Commission finds that the proposed rule change is consistent with EMCC's obligations under section 17A(b)(3)(F) because creating a new inactive membership category should provide efficiencies and cost reductions to certain low-volume EMCC members without compromising EMCC's risk management safeguards.

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-EMCC-2003-04) be, and hereby is, approved.