Self-Regulatory Organizations; Government Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Suspension of the Discount in Fee Structure

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), notice is hereby given that on June 5, 2000, the Government Securities Clearing Corporation (“GSCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which items have been prepared primarily by GSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties.

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

The proposed rule filing suspends GSCC's discount for comparison and netting fees for buy-sell transactions.

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

In its filing with the Commission, GSCC 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. GSCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements.

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

Recently, GSCC's Board and Management reviewed the results of a study of GSCC's fee structure, the fundamental part of which has remained unchanged since the inception of netting in 1989. In response to this review, GSCC has determined it appropriate to temporarily suspend its discount for comparison and netting fees for buy-sell transactions, effective as of July 3, 2000.

The current discount was implemented in 1995 and resulted in a 10 percent reduction in the fees charged to members for comparison and netting of their buy-sell transactions. At that time, GSCC was focusing its management and technological resources on the imminent introduction of comparison and netting services for repo transactions. Because those services are income-earning and self-funding, GSCC was in a position to effectively return to its members the surplus generated by its core services for buy-sell transactions. The Board of Directors had approved the discount in 1995 based on GSCC's financial strength and continued projections for profitability with the intent that the discount appropriateness be monitored and reassessed periodically.

Since 1995, GSCC has continued to steadily expand both the variety and scope of the services it provides to members. This trend will accelerate in 2000 and beyond as GSCC gradually moves to a real-time messaging, risk management, and settlement environment and achieves other important initiatives such as establishing cross-margining arrangements with multiple clearing organizations.

The determination to temporarily suspend the discount allows GSCC to position itself to ensure continued service enhancements and the achievement of various business initiatives without deterioration of its capital base. GSCC's costs to develop, implement, and support these new services will be considerable. For example, real-time messaging will involve extensive systems development as well as the costs associated with maintaining multiple imput environments. Moreover, many of these services, such as the shift to real-time comparison and risk management, will, in and of themselves, not generate any additional revenues for GSCC.

Assuming that current net income levels are sustained, it is GSCC's intention to reinstate a discount methodology as a business incentive for members to move to real-time messaging. The reinstated discount would be applied to both buy-sell and repo transactions; currently, the discount lowers fees only for buy-sell transactions, which creates inequities in the manner in which it applies to members.

GSCC believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to GSCC and in particular with Section 17A(b)(3)(F) of the Act because it will permit GSCC to cover the high costs involved in providing its members with new and important services.

(B) Self-Regulatory Organization's Statement on Burden on Competition

GSCC does not believe that the proposed rule change will have an impact 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

Written comments relating to the proposed rule change have not yet been solicited or received. Members will be notified of the rule change filing, and comments will be solicited, by an Important Notice. GSCC will notify the Commission of any written comments received by GSCC.

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

The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act and Rule 19b-4(f)(2) promulgated thereunder because the proposal establishes or changes a due, fee, or other charge imposed by GSCC. At any time within sixty days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

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, NW, Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW, Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of GSCC. All submission should refer to File No. SR-GSCC-00-06 and should be submitted by July 6, 2000.