SECURITIES AND EXCHANGE COMMISSION

     (Release No. 34-38810; International Series Release No. 1090; File No. 600-
     30)

     July 1, 1997           

     Self-Regulatory Organizations; Emerging Markets Clearing Corporation;
     Notice of Filing of Application for Registration as a Clearing Agency

     I.   INTRODUCTION

          On May 30, 1997, the Emerging Markets Clearing Corporation ("EMCC")

     filed with the Securities and Exchange Commission ("Commission") an

     application on Form CA-1 for registration as a clearing agency pursuant to

     Section 17A of the Securities Exchange Act of 1934 ("Exchange

     Act")<(1)> and Rule 17Ab2-1 thereunder<(2)> in order to perform

     the functions of a clearing agency with respect to transactions in U.S.

     dollar-denominated Brady bonds.<(3)>  The Commission is publishing

     this notice to solicit comments from interested persons.<(4)> 

     Comments are solicited on all aspects of the EMCC application, and in

     particular the matters discussed in Section IV of this notice.

     II.  STRUCTURE OF THE EMCC SYSTEM

          EMCC is a corporation organized under the laws of the State of New

     York.  EMCC was formed by the Emerging Markets Traders Association ("EMTA")

     and the International Securities Clearing Corporation ("ISCC") in response
                              

          <(1)>     15 U.S.C. 78q-1.

          <(2)>     17 CFR 240.17Ab2-1.

          <(3)>     On  June  2,  1997,  and  June  17,  1997,  EMCC  filed
                    amendments  to  its   application.     Copies  of   the
                    application are available for inspection and copying at
                    the Commission's Public Reference Room.

          <(4)>     The descriptions set forth in this notice regarding the
                    structure  and operations  of  EMCC  have been  largely
                    derived  from information contained in EMCC's Form CA-1
                    application and publicly available sources.  







     to an industry initiative to reduce risk in the clearance and settlement of

     emerging markets debt instruments. 

          Initially, EMCC will be owned by EMTA, the National Securities

     Clearing Corporation ("NSCC"), and the International Securities Markets

     Association ("ISMA").  EMTA will be issued 300 shares (37.5% of the

     outstanding shares), NSCC will be issued 300 shares (37.5% of the

     outstanding shares), and ISMA will be issued 200 shares (25% of the

     outstanding shares).<(5)>  

          EMTA is a trade association organized as a New York not-for-profit

     corporation in 1990 by financial institutions to promote the orderly

     development of trading markets in emerging market instruments.  As of the

     end of 1996, EMTA had 154 members, which were mainly broker-dealers and

     banks.  EMTA owns 100% of the outstanding voting securities of EMTA Black,

     Inc.  EMTA Black, Inc. in turn owns 100% of the outstanding voting

     securities of each of Clear-EM, Inc., Match-EM, Inc., and Net-Em, Inc. 

     Match-EM, Inc. is the owner of Match-EM, which is an electronic post-trade

     confirmation and matching system for Brady bonds and sovereign loans

     operated by GE Information Services, Inc. ("GE").  Match-EM also enables

     EMTA to disseminate daily market volume and price data.  Match-EM began

     services in May 1995.

          ISMA is an industry association composed of member broker-dealer

     firms.  ISMA has approximately 820 members in 48 countries.  ISMA is
                              

          <(5)>     After the initial issuance of shares to EMTA, NSCC, and
                    ISMA, EMCC intends to issue shares to persons that have
                    contributed to the EMCC development fund and to finance
                    EMCC's initial  operations in such amounts  and at such
                    times as  determined by EMCC.   EMCC  intends to  issue
                    shares no later than  June 30, 1998.  EMCC  will file a
                    proposed rule change prior to any such issuances.

                              ======END OF PAGE 2======







     organized under the laws of Switzerland and is registered in the United

     Kingdom ("U.K.") as a designated investment exchange.  ISMA owns TRAX, a

     trade matching and reporting system started in 1989.  U.K. broker-dealers

     can use TRAX to fulfill their U.K. reporting requirements.  ISMA's wholly-

     owned subsidiary, International Securities Market Association Limited

     ("ISMA Ltd."), operates TRAX.  

          NSCC is a clearing agency registered under Section 17A of the Exchange

     Act.<(6)>  NSCC is owned by the New York Stock Exchange, Inc., the

     American Stock Exchange, Inc., and the National Association of Securities

     Dealers, Inc.  NSCC is the parent corporation of ISCC, which is also

     registered as a clearing agency under the Exchange Act.<(7)>  

     III. DESCRIPTION OF EMCC OPERATIONS

          EMCC is being established as a clearing agency initially to facilitate

     the clearance and settlement of transactions in U.S. dollar-denominated

     Brady bonds.<(8)>  Currently, Brady bonds are settled through the
                              

          <(6)>     See   Securities  Exchange   Act   Release  No.   20221
                    (September 23, 1983), 48 FR 45167 (order approving full
                    registration of NSCC as a clearing agency).

          <(7)>     See Securities Exchange Act  Release No. 26812 (May 12,
                    1989),   54   FR  21691   (order   approving  temporary
                    registration  of  ISCC as  a  clearing  agency).   ISCC
                    continues to operate under its  temporary registration.
                    Securities  Exchange  Act Release  No.  38703  (May 30,
                    1997), 62 FR 31183.

          <(8)>     Brady  bonds  were  first  issued pursuant  to  a  plan
                    developed  by  then  U.S. Treasury  Secretary  Nicholas
                    Brady to assist debt-ridden countries restructure their
                    sovereign debt into commercially marketable securities.
                    The plan  provided for the  exchange of bank  loans for
                    collateralized   debt   securities   as   part   of  an
                    internationally supported sovereign debt restructuring.
                    Typically,  the  collateral   would  be  U.S.  Treasury
                    securities.   The first Brady bonds were issued in 1990
                                                             (continued...)

                              ======END OF PAGE 3======







                              ======END OF PAGE 4======

     facilities of Cedel Bank, Soci‚t‚ anonyme ("Cedel") and the Euroclear

     system, which is operated by the Brussels Office of Morgan Guaranty Trust

     Company of New York ("Euroclear").<(9)>  As more fully described

     below, EMCC will facilitate the settlement of Brady bonds at Cedel and

     Euroclear ("depositories"). 

          A. Clearance Services 

          Brady bonds are traded in an over-the-counter market composed of

     dealers and interdealer brokers where trading is either directly between

                              

          <(8)>(...continued)
                    for  Mexico.   Later securities  that did  not strictly
                    adhere to the terms of the plan (e.g.,  such securities
                    may not have been collateralized) were also referred to
                    as Brady bonds.

               The definition of Brady bonds used to denote securities that
               will  be eligible  for processing by  EMCC will  be somewhat
               broader  than the traditional usage of the term.  As defined
               in  EMCC's  rules, Brady  bonds are:  (i)  any bond  or note
               issued in connection with  the restructuring of indebtedness
               by  a sovereign  or an  agency or  entity thereof  under the
               auspices   of  the   Brady   plan  or   under  any   similar
               restructuring   or   financing    plan   whether   or    not
               collateralized  and  including  bonds  or  notes  issued  in
               exchange  thereof  or  (ii)  any warrant  or  similar  right
               originally issued attached  to a Brady  bond. The term  does
               not  include securities  offered  by a  sovereign debtor  to
               investors through normal underwriting syndication channels.

               EMCC intends to offer  clearance and settlement services for
               other emerging markets debt instruments in the future.  EMCC
               will file proposed rule changes with the Commission prior to
               expanding   the  categories   of  securities   eligible  for
               processing at EMCC.

          <(9)>     For a description of Cedel, see Securities Exchange Act
                    Release  No.  38328 (February  24,  1997),  62 FR  9225
                    (order approving application for limited exemption from
                    registration as a clearing  agency).  For a description
                    of Euroclear,  see Securities Exchange  Act Release No.
                    38589 (May 9, 1997), 62 FR 26833 (notice of application
                    for limited exemption  from registration as  a clearing
                    agency).  







                              ======END OF PAGE 5======

     dealers or between dealers through interdealer brokers.  Generally, Brady

     bonds that have warrants associated with them are traded to include the

     warrants.  In order to participate in EMCC, dealers and interdealer brokers

     will need to submit transaction data to a locked-in trade source which will

     match such data using its own criteria.  Initially, the locked-in trade

     sources designated by EMCC will be Match-EM and TRAX.  

          Upon completion of the matching process, each locked-in trade source

     will submit all of its transaction data to EMCC regardless of whether the

     counterparties are EMCC members.  EMCC will then segregate all data on

     trades between two EMCC members to input into the EMCC system.  As a

     result, all EMCC members that decide to use Match-EM or TRAX as a part of

     their normal trading process will be locked into settlement at EMCC and

     will be unable to select an alternative settlement process.  While EMCC

     members will be able to delete their trades from EMCC's clearance system by

     submitting cancellation instructions through the locked-in trade source,

     such action may result in the trade legally being considered cancelled

     (i.e., the members would be required to reconfirm such trades outside of

     TRAX or Match-EM and therefore would not receive the benefit of using

     TRAX's or Match-EM's automated confirmation system).  

          EMCC will receive data from the locked-in trade sources three times

     each business day: (1) at approximately 8:30 a.m. eastern time ("ET")

     ("early morning transmission"), (2) at approximately 11:30 a.m. ET

     ("midmorning transmission"), and (3) at approximately 9:30 p.m. ET

     ("evening transmission").  EMCC will review such data to determine whether

     it meets EMCC's and the depositories' operational parameters and will







                              ======END OF PAGE 6======

     reject trades that do not meet such parameters.<(10)>  At

     approximately 10:30 a.m. ET and 11:30 p.m. ET, EMCC will send out to its

     members and to the locked-in trade sources a report of data that was

     rejected because it did not meet the operational parameters.  Any

     correction or cancellation of data must be done through the locked-in trade

     sources.<(11)>

          EMCC will report to each member on its "accepted trade report" data on

     all trades: (a) that are eligible for processing by EMCC (i.e., U.S. dollar

     denominated Brady bonds), (b) that are matched by the locked-in trade

     sources, (c) that are received by EMCC on trade date ("T"), on T+1, and in

     the early morning transmission on T+2, and (d) that are not rejected by

     EMCC based on the operational parameters.  Matched trades that are eligible

     for processing and that are received on T+2 in the midmorning transmission

     will be listed on a "settlement instructions only report."<(12)> 

     Transaction data received by EMCC in the evening transmission on T+2 and

     thereafter will not be accepted by EMCC because it will be unable to submit

     timely settlement instructions to the depository.  

          EMCC may also receive uncompared transaction data from the locked-in

     trade sources.  If EMCC does not receive by the early morning transmission

                              

          <(10)>    Such  parameters include complete information and valid
                    characters.    In  addition,  EMCC  has  established  a
                    maximum delivery size of $20 million.

          <(11)>    Any cancellation or correction must be received by EMCC
                    no  later  than  the  early  morning  transmission  two
                    business days after trade date ("T+2").

          <(12)>    EMCC provides settlement instructions on behalf of  its
                    members with respect to trades listed on the settlement
                    instructions  only  report   to  the  depositories  for
                    settlement directly between the members.







                              ======END OF PAGE 7======

     on T+2 updated data from a locked-in trade source indicating that an

     uncompared trade has been cancelled or compared, EMCC will include data on

     the uncompared trade on the settlement instructions only report if the

     submitting member has requested EMCC to do so pursuant to the member's

     standing instructions.

          Accepted trade reports will be made available to members at

     approximately 10:30 a.m. ET and 11:30 p.m. ET.  The morning report will

     contain data on matched trades received in the early morning transmission. 

     The evening report will contain data on matched trades received in the

     midmorning and evening transmission.  The settlement instructions only

     report will be issued at approximately noon.  The settlement instructions

     only report will contain data on matched trades received in the midmorning

     transmission on T+2 and data on unmatched trades received by the midmorning

     transmission on T+2.  At approximately 12:30 p.m. on T+2, EMCC will send

     settlement instructions to the depositories based on trade data contained

     in the accepted trade reports and in the settlement instructions only

     report.

          B.   Risk Management Services

          EMCC will interpose itself as the counterparty and guarantor on a

     trade-for-trade basis with respect to the trades it reports on its accepted

     trade report ("novation") unless EMCC notifies or has made information

     available to its members that trades listed on the accepted trade report

     are not assumed and guaranteed because EMCC has ceased to act for the

     original counterparty.<(13)>  EMCC's guarantee will be effective with
                              

          <(13)>    EMCC does not interpose  itself as the counterparty and
                    guarantor for  transactions reported on  the settlement
                    instructions only report. 







                              ======END OF PAGE 8======

     respect to: (a) trades reported on the evening accepted trade report at the

     later of (i) midnight ET or (ii) one half hour after the issuance of the

     preliminary margin report<(14)> and (b) trades reported on the

     morning accepted trade report at the later of (i) 1:00 p.m. ET or (ii) two

     and one half hours after issuance of the final margin report.<(15)> 

     The result is a novation of the original contract between the

     counterparties, creating an obligation on the part of the seller to deliver

     the securities to EMCC and on the part of the purchaser to receive and pay

     for the securities delivered by EMCC. 

          C. Settlement Services

          EMCC will be a member of both Euroclear and Cedel.  EMCC will transmit

     settlement instructions to the appropriate depository on behalf of members

     with EMCC as the counterparty to each side of the trade.  With respect to

     each transaction reported on an accepted trade report which has not been

     deleted, EMCC will send receive and deliver instructions to the depository

     at 12:30 p.m. on T+2.  If the accepted trade report indicates that a member

     has a securities receive obligation, EMCC will notify the depository to

     deliver the bonds from EMCC's account into the member's account against

     payment on the next day ("T+3").  If the member had a securities deliver

     obligation reflected on the accepted trade report, EMCC will instruct the

     depository to deliver the specified quantity of bonds from the member's

     account into EMCC's account against the receipt of the corresponding


                              

          <(14)>    See  infra Section  IV.C.1.a for  a description  of the
                    preliminary margin report.

          <(15)>    See  infra Section  IV.C.1.a for  a description  of the
                    final margin report.







                              ======END OF PAGE 9======

     payment price on T+3.<(16)>  

          Settlement will occur in accordance with the rules of Euroclear or

     Cedel.  Essentially, the receiver must have sufficient cash or line of

     credit to pay for the delivery, and the deliverer must have sufficient

     securities to make full delivery.<(17)>  The depositories will notify
                              

          <(16)>    Consistent with industry conventions, EMCC assumes that
                    the  bonds will  be  delivered  with attached  warrants
                    unless otherwise specified.

          <(17)>    Both Cedel  and Euroclear  employ  mechanisms that  can
                    look  beyond  the initial  counterparties' obligations.
                    Cedel  has   a  "chaining"  program  which  scans  open
                    transactions  until all  cash and  securities resulting
                    from  same day  settlements  are  reemployed to  settle
                    further transactions  for same day  value.   Therefore,
                    for  back-to-back  transfers   for  equivalent   funds,
                    customers  may not  need to  pay because  proceeds from
                    sales are  used to settle purchases.   However, Cedel's
                    chaining program  is limited when transactions are sent
                    through its bridge connection with Euroclear.  EMCC has
                    informed the  Commission that its members  currently do
                    not  intend  to use  Cedel as  a  depository.   If this
                    changes, EMCC intends to  maintain a line of  credit at
                    Cedel of approximately $40 million to allow the receipt
                    and delivery of securities across the bridge.

               Euroclear's chaining program operates  somewhat differently.
               In scanning  open transactions,  the Euroclear  program will
               only look to the next settlement.   For example, if a member
               does  not  have  sufficient  funds  to  receive  securities,
               Euroclear  will  review   to  see  if  that   member  has  a
               corresponding  securities  deliver  obligation   to  another
               member.    In  such   case,  Euroclear  will  complete  both
               transactions  if the counterparty  to the deliver obligation
               has sufficient funds to pay for the  securities.  But if the
               counterparty to  the securities deliver  obligation did  not
               have sufficient funds to  settle the transaction, Euroclear,
               unlike Cedel,  would not look to  subsequent settlements for
               funds and  securities.   Accordingly, if EMCC inserts itself
               as a common counterparty  without sufficient funds to accept
               deliveries, Euroclear's  system  will only  look  to  EMCC's
               member to  determine if sufficient funds  exist.  Therefore,
               EMCC will maintain  a line  of credit between  $60 and  $100
               million  at Euroclear  to reduce  settlement inefficiencies.
               EMCC's line  of credit will  permit Euroclear to  review not
                                                             (continued...)







                              ======END OF PAGE 10======

     EMCC and its members each day at midnight ET of the status of trades

     indicating which have settled and which are still pending.  EMCC will not

     provide settling trade reports or fail reports to its members.  

          If a member cannot accept delivery of securities because of

     insufficient funds, EMCC will generate a fail compensation instruction and

     will transmit it to the appropriate depository.  Pursuant to that

     instruction, the depository will debit the account of the member that had

     insufficient funds and credit its counterparty's account an amount of money

     based on the depository's overnight borrowing interest rate multiplied by

     the amount of funds which were not paid.

          With respect to matched transactions reflected on the settlement

     instructions only report, EMCC will send instructions on the afternoon of

     T+2 to the depository on behalf of the members listed as counterparties. 

     The depository will be advised to deliver on T+3 bonds from the account of

     the member with the deliver obligation to the account of the member with

     the receive obligation against payment.  EMCC will not monitor the

     settlement of these transactions.

          With respect to uncompared transactions reflected on the settlement

     instructions only report, EMCC will send instructions on the afternoon of

     T+2 to the depository on behalf of the member submitting the data naming

     the other member as the counterparty to the instruction.  EMCC will not

     monitor the settlement of these transactions.

          D.   Buy-ins/Sell-outs

          EMCC's rules will permit a buy-in or a sell-out in the event that a
                              

          <(17)>(...continued)
               only  the available  funds of  EMCC's member  but also  such
               member's subsequent counterparty, if any.







                              ======END OF PAGE 11======

     transaction has not been completed by five days after settlement date

     ("SD+5") as described below.  A buy-in or sell-out may be initiated by the

     member with the receive or deliver obligation, respectively, by submitting

     a pre-advice notice to EMCC.  Upon receipt of the pre-advice notice, EMCC

     will transmit the pre-advice notice to the corresponding member with the

     fail obligation.  If the instruments or money covered by the pre-advice

     notice are not received within two business days after the date of the pre-

     advice notice, then the member that requested the buy-in or sell-out will

     need to deliver to EMCC a buy-in or sell-out notice between two to five

     business days after issuance of the pre-advice notice in order to proceed

     with the buy-in or sell-out.  Upon receipt of the buy-in or sell-out

     notice, EMCC will transmit a buy-in or sell-out notice to the member with

     the fail obligation.  Execution of the buy-in or sell-out will take place

     through an agent selected by EMCC on the fifth business day following the

     issuance of the buy-in or sell-out notice.  EMCC also may initiate a buy-in

     or sell-out if it determines that such action is necessary to protect EMCC,

     its members, its creditors, or its investors; to safeguard securities or

     funds in EMCC's custody or control; or to promote the prompt and accurate

     clearance and settlement of securities transactions.  

          EMCC will also use the buy-in and sell-out procedures for deliver and

     receive obligations for warrants.  However, if EMCC has ceased to act for a

     member with fail obligations prior to the execution of the buy-in or sell-

     out, EMCC will undertake the buy-in or sell-out only at the expense of the

     member that submitted the pre-advice notice.  If EMCC ceases to act for the

     defaulting member after the pre-advice notice has been submitted but before

     the execution of the buy-in or sell-out, EMCC will first confirm with the







                              ======END OF PAGE 12======

     requesting firm that it wants to proceed with the buy-in at the requesting

     firm's expense. 

          E.   Release of Clearing Data

          Pursuant to EMCC's rules, EMCC may release transaction data of its

     members to EMTA in accordance with a written agreement between EMCC and

     EMTA.  Such data may be used only for the purpose of promoting market

     transparency on a noncommercial basis.  On June 9, 1997, EMCC and EMTA

     entered into a letter agreement that provides for the release of

     information relating to the aggregate and per trade transaction volumes and

     prices of trades processed by EMCC.

     IV.  EMCC'S REQUEST FOR REGISTRATION

          A. Introduction

          Brady bonds are the most actively traded emerging market debt

     instrument.  In the first quarter of 1997, Brady bonds represented $671

     billion of the $1.6 trillion traded in emerging markets instruments.  Brady

     bonds constitute approximately 12% of the total $1.2 trillion issued of

     emerging market instruments.<(18)> 

          While Brady bonds currently are cleared and settled either through

     Euroclear or Cedel, neither guarantees settlement of these transactions. 

     Furthermore, dealers have exposure to brokers until the assumption of risk

     by clearing firms on the afternoon of T+1.  As a result, parties to a

     transaction retain a high degree of settlement risk.  EMCC was developed in

     response to an industry initiative to reduce risk in the clearance and

     settlement of emerging market debt instruments.  Therefore, in order to

     provide the benefits of guaranteed settlement to the Brady bond market,
                              

          <(18)>    Broward Daily Business Review, May 20, 1997, at A3.







                              ======END OF PAGE 13======

     EMCC seeks registration as a clearing agency pursuant to Section 17A of the

     Exchange Act and Rule 17Ab2-1.   

          B. Goals of Clearing Agency Registration 

          Section 17A of the Exchange Act directs the Commission to promote

     Congressional objectives to facilitate the development of a national

     clearance and settlement system for securities transactions.<(19)> 

     Registration and regulation of clearing agencies is a key element in
                              

          <(19)>    15 U.S.C. 78q-1.  Section 17A(a)(1) provides:

               (1)  The Congress finds that --

                    (A)  The prompt and  accurate clearance and  settlement
                         of securities transactions, including the transfer
                         of  record  ownership  and  the   safeguarding  of
                         securities   and   funds   related  thereto,   are
                         necessary  for  the  protection of  investors  and
                         persons facilitating transactions by and acting on
                         behalf of investors.

                    (B)  Inefficient    procedures   for    clearance   and
                         settlement impose unnecessary  costs on  investors
                         and  persons  facilitating  transactions   by  and
                         acting on behalf of investors.

                    (C)  New data processing and  communications techniques
                         create   the   opportunity  for   more  efficient,
                         effective, and safe  procedures for clearance  and
                         settlement.

                    (D)  The   linking  of  all  clearance  and  settlement
                         facilities   and   the   development  of   uniform
                         standards   and   procedures  for   clearance  and
                         settlement  will  reduce  unnecessary   costs  and
                         increase the  protection of investors  and persons
                         facilitating transactions by and acting  on behalf
                         of investors.

               For legislative history concerning  Section 17A, see,  e.g.,
               Report  of  Senate  Comm.  on  Housing  and  Urban  Affairs,
               Securities Acts  Amendments of 1975: Report  to Accompany S.
               249,  S.  Rep.  No. 75,  94th  Cong.,  1st  Sess. 4  (1975);
               Conference  Comm.   Report  to   Accompany  S.   249,  Joint
               Explanatory Statement of Comm.  of Conference, H.R. Rep. No.
               229, 94th Cong., 1st Sess., 102 (1975).







                              ======END OF PAGE 14======

     promoting these statutory objectives.  Before granting registration to a

     clearing agency, Section 17A(b)(3) of the Exchange Act requires that the

     Commission make a number of determinations with respect to the clearing

     agency's organization, capacity, and rules.<(20)>  The Commission has

     published standards developed by its Division of Market Regulation which

     are used in evaluating applications for clearing agency

     registration.<(21)>  

          C.   Safety and Soundness Protections

          Sections 17A(b)(3)(A) and (F) of the Exchange Act require that a

     clearing agency be organized and its rules be designed to facilitate the

     prompt and accurate clearance and settlement of securities transactions for

     which it is responsible and to safeguard securities and funds in its

     custody or control or for which it is responsible.<(22)>  In the

     Standards Release, the Division enumerated certain requirements that should

     be met to comply with this standard.  

                              

          <(20)>    15  U.S.C. 78q-1(b)(3).   See  also Section  19 of  the
                    Exchange  Act, 15 U.S.C.  78s, and  Rule 19b-4,  17 CFR
                    240.19b-4,  setting  forth procedural  requirements for
                    registration  and  continuing  Commission oversight  of
                    clearing    agencies    and    other    self-regulatory
                    organizations.

          <(21)>    Securities Exchange  Act  Release No.  16900 (June  17,
                    1980), 45  FR 41920  ("Standards Release").   See also,
                    Securities  Exchange Act  Release No.  20221 (September
                    23,  1983),   48  FR  45167  (omnibus   order  granting
                    registration  as  clearing agencies  to  The Depository
                    Trust   Company,   Stock   Clearing    Corporation   of
                    Philadelphia,  Midwest  Securities  Trust Company,  The
                    Options   Clearing    Corporation,   Midwest   Clearing
                    Corporation,  Pacific  Securities Depository,  National
                    Securities   Clearing  Corporation,   and  Philadelphia
                    Depository Trust Company).

          <(22)>    15 U.S.C. 78q-1(b)(3)(A) and (F).







                              ======END OF PAGE 15======

          1.   Clearing Fund

          The Standards Release stated that a clearing agency should have a

     clearing fund which is based on a formula applicable to all users and is

     comprised of cash or highly liquid securities.  The rules of a clearing

     agency should limit the investments that can be made with the cash portion

     of its clearing fund to government securities or other safe and liquid

     investments.  The clearing fund should only be used to protect participants

     and the clearing agency (a) from defaults of participants and (b) from

     clearing agency losses not resulting from day to day expenses and not

     covered by insurance or other resources of the clearing agency.  While the

     Standards Release stated that a clearing agency could use temporary

     applications of the clearing fund in limited amounts to meet unexpected and

     unusual requirements for funds, the regular or substantial use of a

     clearing fund for operational purposes would be inappropriate.<(23)> 

     The clearing agency should provide for the maximum assessment to which any

     participant is subject.  Comment is requested on whether EMCC meets these

     standards as described below.  

               a.   Clearing Fund Formula

          EMCC will maintain and will manage a clearing fund for the purpose of

     limiting or eliminating EMCC's exposure to loss in the event a member would

     fail to perform its obligations to EMCC.  Each member will be obligated to

     make deposits to EMCC's clearing fund. The initial required clearing fund
                              

          <(23)>    The  Standards Release  also stated  that there  may be
                    legitimate purposes  for which  a clearing fund  may be
                    used for a  longer period  of time so  long as  (a) the
                    funds are properly protected, (b) the funds are used to
                    facilitate the process of clearance and settlement, and
                    (c)  the participants  and the Commission  approve such
                    use during the registration proceedings.  







                              ======END OF PAGE 16======

     deposit for each member will be set by EMCC based on the expected nature

     and level of the member's activity.  The minimum required clearing fund

     deposit for each member will be US $1,000,000.  

          Every day, EMCC will calculate margin in the morning and in the

     evening but will only collect margin based on the morning calculation. 

     EMCC will generally calculate the margin amount as follows: (mark to market

     amount + volatility amount) x event risk factor.<(24)>  The mark to

                              

          <(24)>    EMCC has represented that it performed a stress test in
                    which  the  proposed  formula was  applied  using three
                    months  of data on  EMCC eligible transactions obtained
                    from Match-EM.  The  test assumed for each  member that
                    the  market  in  which  such  member  had  its  highest
                    concentration  of  positions  experienced  an  abnormal
                    negative  market  move (i.e.,  the  "stressed market").
                    All  securities  positions  for  that member  in  other
                    countries  were  run  under  the  baseline  assumptions
                    (i.e., no unusual market movements).  The tests assumed
                    first  a  10  standard  deviation market  drop  in  the
                    stressed  market  and  second  a  4  standard deviation
                    market gain in the  stressed market.  The  test assumed
                    that bonds on the opposite sides of the stressed market
                    had correlations of 80% while bonds on the same side of
                    the stressed market had 100% correlation.  

               However, the test did  not attempt to take into  account any
               spillover effect (i.e., where the sudden drop of prices in a
               country's bond market resulted in a similar drop in the bond
               markets  of  other countries  with  similar risk  profiles).
               EMCC states that it  is difficult to quantify  any spillover
               effects.  EMCC believes that spillover effects are addressed
               because the  test assumes  that for each  firm the  stressed
               event occurred in  the country  in which the  firm was  most
               concentrated and  therefore would most  adversely effect the
               value  of the firm's position  and also assumes  a degree of
               deviation from  the mean that was  substantially higher than
               was the case in the Mexican debt crisis.

               Under  this test, EMCC had  no exposure 73.64%  of the time.
               EMCC had exposure  between $1  and $1 million  9.18% of  the
               time.  EMCC had exposure of greater than $10 million 1.7% of
               the time.  The highest exposures were four occurrences of an
               exposure of  approximately $15  million and one  exposure of
               approximately $50 million.  







                              ======END OF PAGE 17======

     market amount will be based on all trades due to settle on or after that

     day and all fails unless EMCC has received notice from the depository that

     such trade or fail has settled.<(25)>  The mark to market amount will

     be based on the difference between the market price and the contract value

     of the trade.  If the net mark-to-market is a credit, the firm will have a

     zero mark-to-market.

          The volatility amount for the evening calculation will be based on all

     trades due to settle on or after that day and all fails unless EMCC has

     received notice from the depository that such trade or fail has settled. 

     The volatility amount for the morning calculation will be based on all

     trades due to settle on or after the current day and all fails calculated

     as of the prior day whether or not EMCC has received notice of the

     settlement of such trades or fails.  Thus, the morning volatility amount

     will include trades that have already settled that day, while the evening

     volatility amount will only include trades that have not

     settled.<(26)>  In order to calculate the volatility amount, each
                              

          <(25)>    EMCC will receive notice at  midnight ET (or 6:00  a.m.
                    in Brussels and Luxembourg) from Euroclear and Cedel of
                    all trades  that have settled.  At that time, Euroclear
                    and  Cedel   have  already   completed   most  of   the
                    settlements  of that  day (i.e.,  the notice  issued at
                    midnight ET on Friday morning will indicate trades that
                    will  settle Friday  at the  depository).   Some trades
                    will settle later, but EMCC will receive notice of them
                    before it begins  its processing day.   Thus, when EMCC
                    calculates the  margin in the morning  and the evening,
                    it  will  have received  notice  of  which trades  have
                    settled or failed for the day.

          <(26)>    The  reason for including  transactions in  the morning
                    volatility calculation whether or not they have settled
                    is  to insure that data on three days of pending trades
                    is  included.    EMCC   believes  that  because  it  is
                    guaranteeing  three days  of trades, it  is appropriate
                                                             (continued...)







                              ======END OF PAGE 18======

     security will be placed into one of four liquidity categories based on the

     average bid/offer spread, which will determine which volatility formula

     will be applied to that security.<(27)>  The sum of the volatility

     amounts for each security will be the clearing member's volatility

     amount.<(28)>  
                              

          <(26)>(...continued)
                    that data on three days of trading activity is included
                    in  the volatility  calculation.   At the  time  of the
                    morning volatility calculation, the trades entered into
                    three days before will have settled, but  EMCC will not
                    have received  data for the trades entered  into on the
                    current  day.    Thus,  by including  data  for  trades
                    settling that  day, EMCC  will be  using three  days of
                    data.   EMCC will calculate  fails as of  the prior day
                    because fails  calculated as  of the current  day would
                    include  trades due  to  settle that  day (i.e.,  these
                    trades would be  double counted as trades due to settle
                    that day and fail trades).  With respect to the evening
                    volatility calculation, EMCC will have received data on
                    trades entered into on that day.  Thus, it is no longer
                    necessary to include trades that have settled that day.


          <(27)>    The four classes and spreads are as  follows:  L1 - 3/8
                    or less; L2 - 3/4 or less; L3 - 2 or less; L4 - greater
                    than 2 or no  trading activity for a certain  period of
                    days.

          <(28)>    For  each L4  security,  the volatility  amount is  the
                    value of  the  position x  30%.   For  L1, L2,  and  L3
                    securities of each issuer, EMCC will take the larger of
                    the  following  formula  with:  (a) the  member's  long
                    positions in lines 1 and 2 and short positions in lines
                    3 and 4 and (b) the member's short positions in lines 1
                    and 2 and long positions in lines 3 and 4.

               1.   (value of long or short L1+L2) x 2 Std         PLUS
               2.   (value of long or short L3) x 4 Std            PLUS
               3.   (value of short or long L1+L2) x 2 Std x CC    PLUS
               4.   (value of short or long L3) x 1 Std x CC

               Std. is  equal to a one standard  deviation move over a five
               day  holding period  based on  the  higher of  a calculation
               using  price data for one year and  three months.  CC is the
               smallest  correlation coefficient  between  any security  of
                                                             (continued...)







                              ======END OF PAGE 19======

          The event risk factor, which is designed to give EMCC an additional

     cushion against events in countries not covered by two standard deviations,

     will initially be set at 1.25.  EMCC may adjust the event risk factor for a

     member or for all members without prior notice to the member(s).  EMCC also

     will increase margin requirements by multiplying a global holiday risk

     factor to the formula to take into account days on which U.S. banks are

     closed but securities markets are open.  

          The preliminary margin amount will be calculated each evening and will

     be reported to members at approximately 11:30 p.m. on a preliminary margin

     report.  The report will show the member's current deposit, preliminary

     margin amount, and preliminary amount due, if any.  However, members will

     not be required to make any payment to EMCC based on the preliminary margin

     report.

          The final margin amount will be calculated each morning and will be

     reported to members at approximately 10:30 a.m. on a final margin report. 

     A member's required margin deposit will be equal to the largest single

     final daily margin amount computed for that member for the month during

     which such margin calculation is being performed and for the previous

     calendar month.  The final margin report will indicate each member's
                              

          <(28)>(...continued)
               that issuer in which the member has a short position and any
               security  of  that issuer  in which  the  member has  a long
               position.  The correlation coefficient will be  based on one
               year's pricing data and will be updated daily.

               EMCC  may   adjust  the  fixed  percentage   applied  to  L4
               securities or  the number of standard  deviations applied to
               L1, L2, and L3  securities without prior notice in  order to
               increase  the  volatility  calculations  when  warranted  by
               circumstances.   These adjustments may  be made on a country
               by country  basis or  a bond  by bond  basis either  for all
               members or for members unduly concentrated. 







                              ======END OF PAGE 20======

     current deposit, final margin amount, and final amount due, if any.  A

     member will be required to pay any obligation with respect to its margin

     obligation reflected on the final margin report no later than the later of

     11:30 a.m. ET or one hour after the final margin report is made available. 

     Margin deficits of less than $100,000 will not be considered to be a margin

     deficit.  Payment must be made through the U.S. Fedwire system.  

          EMCC also will have the authority to collect additional amounts over

     and above the daily margin requirement in order to obtain adequate

     assurances of the financial responsibility or operational capability of a

     member.  EMCC has created a policy statement on procedures to follow in

     determining whether additional clearing fund deposits are

     needed.<(29)>  EMCC also may collect additional margin if a member





                              

          <(29)>    Each day,  EMCC will  calculate a net  country position
                    and  a net geographical position  for each member.  The
                    net country position will be  the sum of the settlement
                    values of  the  member's position  in  L1, L2,  and  L3
                    securities  plus the  sum  of the  absolute  settlement
                    values  of the  member's position  in L4  securities of
                    each country.   The  net geographical position  will be
                    the sum of the net country  positions in Latin America,
                    Eastern   Europe,   Asia,   and  Africa.      An  undue
                    concentration will be  deemed to exist for a  bank when
                    the net country  position exceeds 20%  of net worth  or
                    the net geographical position exceeds 30% of net worth.
                    An  undue concentration will  be deemed to  exist for a
                    broker-dealer when the net country position exceeds 50%
                    of excess regulatory  capital or  the net  geographical
                    position  exceeds  80%  of  excess  regulatory capital.
                    Under such circumstances, EMCC will contact  the member
                    to request  information on the nature  and magnitude of
                    non-Brady bond  exposure and on  any hedging positions.
                    If  EMCC is  not satisfied  with the  answers  to these
                    questions,  EMCC may  request additional  clearing fund
                    deposits.







                              ======END OF PAGE 21======

     has been placed on surveillance status.<(30)>  

               b.   Margin Composition and Investment

          Members will be required to pay margin in cash, U.S. Treasury

     securities, or letters of credit from banks that have been approved by

     EMCC.  If letters of credit are used as margin, no more than 70% of a

     member's requirement may be satisfied with letters of credit and, as a

     minimum, the greater of $100,000 or 10% of the member's margin requirement

     (up to a maximum of $1,000,000) must be in cash.  Furthermore, no more than

     20% of EMCC's total clearing fund may be letters of credit from any one

     issuer.  If letters of credit are not used, the greater of $100,000 or 5%

     of the member's margin requirement (up to a maximum of $1,000,000) must be
                              

          <(30)>    EMCC will put a member on surveillance status if any of
                    the  following factors  are  present:   (a) the  member
                    fails to  meet any financial standard  for admission or
                    continuance  as  a  member, (b)  the  member's  capital
                    position falls  below the standards  for admission, (c)
                    the member  experiences an inability to  meet its money
                    or  securities  settlement  obligations  to  EMCC,  (d)
                    EMCC's    board    determines   that    a   significant
                    reorganization, change in control, or management of the
                    member is likely to impair the member's ability to meet
                    its money or securities settlement obligations to EMCC,
                    or  (e) the  member  has  been  placed  on surveillance
                    status  by  another  self-regulatory   organization  or
                    comparable regulatory  organization.   EMCC  also  will
                    have  the discretion  to put  a member  on surveillance
                    status if any of the following factors are present: (a)
                    it  experiences a significant  operational problem, (b)
                    the     member's     positions    are     significantly
                    disproportionate  to its  usual  activity in  light  of
                    current   industry   conditions,   (c)  EMCC   receives
                    notification  from  the  member's designated  examining
                    authority   or   appropriate   regulatory   agency   or
                    comparable   regulatory   organization  of   a  pending
                    investigation  or administrative action that could call
                    into  question   the  member's  ability  to   meet  its
                    obligations to EMCC, or  (d) the member experiences any
                    condition that could materially affect its financial or
                    operational  capability so  as to  potentially increase
                    EMCC's exposure to loss or liability.







                              ======END OF PAGE 22======

     in cash.  A haircut of 5% will be applied to letters of credit and treasury

     securities.  

          EMCC may invest any cash deposited as margin in securities issued or

     guaranteed as to principal or interest by the U.S. or agencies or

     instrumentalities of the U.S., repurchase agreements related to EMCC, or

     otherwise pursuant to the investment policy adopted by EMCC.  If not

     invested, cash funds will be deposited by EMCC in its name in a depository

     institution selected by EMCC.  EMCC will retain all investment income from

     cash deposits.  Comment is requested as to whether such investments are

     consistent with the standard that investments should be limited to safe and

     liquid investments such as government securities.  

               c.   Loss Allocation

          EMCC will establish an overnight exposure cap for each member.  This

     cap will be set at the lesser of (a) 5% of excess net capital for U.S.

     broker-dealers, 5% of excess financial resources for U.K. broker-dealers,

     and 1% of shareholders' equity for banks or (b) $20 million.  If a member's

     preliminary margin calculation is in excess of its overnight exposure cap,

     the member will be subject to fines.  The loss allocation method applied to

     trades of an insolvent member will be dependent upon whether the insolvent

     member has exceeded its overnight exposure cap. 

          When the failed member is not an interdealer broker, EMCC will

     classify trades as brokered or direct.<(31)>  If there was an
                              

          <(31)>    If the  failed member's counterparty was an interdealer
                    broker,  but the  interdealer broker's  counterparty on
                    the other  side  was  not  an EMCC  member,  EMCC  will
                    consider the  trade to  be a direct  trade between  the
                    insolvent and the interdealer  broker.  In other words,
                    "brokered  trades"  are  trades where  the  interdealer
                                                             (continued...)







                              ======END OF PAGE 23======

     overnight exposure cap violation, EMCC will further classify such trades as

     trades received by EMCC before the violation ("old trades") or trades

     received by EMCC after the violation ("new trades").  Any collateral of the

     defaulting member will be divided between direct trades and brokered trades

     in proportion to the amount of losses attributable to old trades in each

     category.  If there is insufficient collateral to cover all of the losses

     attributable to old trades: (a) losses attributable to brokered

     transactions that are old trades will be allocated pro rata among all

     members based upon each member's average final daily margin amount for the

     prior 30 calendar days<(32)> and (b) losses attributable to direct

     transactions that are old trades will be allocated among all the original

     counterparties in proportion to the amount of losses created by each

     member's transactions.   

          After the losses from old trades have been satisfied, EMCC will

     determine if any clearing fund collateral of the defaulting member remains. 

     EMCC will net new trades to obtain a net loss per issue of securities.  Any

     remaining clearing fund of the defaulting member will be applied to the

     smallest loss, then the next remaining smallest loss until there is no

     remaining clearing fund of the defaulting member.<(33)>  EMCC then
                              

          <(31)>(...continued)
                    broker is an EMCC  member and EMCC members are  on both
                    sides.

          <(32)>    A member  that is  assessed pursuant to  this provision
                    may  limit  its   assessment  to  its  current   margin
                    requirement if it chooses to terminate its membership. 

          <(33)>    For example, after netting new trades in each  issue of
                    securities, EMCC may determine that there are losses of
                    $2 million, $4  million, $3 million, and $10 million in
                    four issues  and EMCC has collateral  of the defaulting
                                                             (continued...)







                              ======END OF PAGE 24======

     will segregate the smallest remaining losses up to an amount that equals

     the amount of the defaulting member's overnight exposure cap ("under the

     cap losses").<(34)>  The under the cap losses will be allocated as

     follows:  (a) losses attributable to direct transactions will be allocated

     back to the original counterparties in an amount equal to the losses

     attributable to the member's trades and (b) losses attributable to brokered

     transactions will be allocated pro rata among all EMCC members based upon

     each member's final daily margin amount calculated with respect to the

     prior thirty calendar days.   Any remaining losses attributable to new

     trades will be allocated as follows:  (a) losses attributable to direct

     transactions will be allocated back to the original counterparties in an

     amount equal to the losses attributable to the member's trades and (b)

     losses attributable to brokered transactions will be allocated first to the

     interdealer broker member that was a contraparty to such trade to the

     extent of the loss attributable to such trade up to a maximum allocation of

     $3 million per interdealer broker and then pro rata among members that were

     contraparties to interdealer brokers that reach their maximum allocation

     and that were on the opposite side of the market in the same issue of

     securities creating a loss with the same settlement date and at

     approximately the same price.  
                              

          <(33)>(...continued)
                    member of $8 million.  EMCC will satisfy the $2 million
                    loss first, then the $3 million loss, then a portion of
                    the $4 million loss. 

          <(34)>    For example, if  after netting there  are losses of  $5
                    million, $7 million, $9 million, and $3 million in four
                    issues  and  the  defaulting  member  had  an overnight
                    exposure cap  of $10  million, EMCC will  segregate out
                    the  $3  million loss,  the  $5  million loss,  and  $2
                    million of the $7 million loss.







                              ======END OF PAGE 25======

          Different loss allocation rules will apply when the defaulting member

     is a broker.  In such cases, any collateral of the defaulting member will

     be applied first to losses resulting from old trades.  If there are

     remaining losses from old trades, such losses will be allocated among all

     the original contraparties in proportion to the amount of loss created by

     each member's transactions.  EMCC then will net new trades to obtain a net

     loss per issue of securities.  Any remaining clearing fund of the

     defaulting member will be applied to the smallest loss, then the next

     remaining smallest loss until there is no remaining clearing fund.  Any

     remaining loss after application of clearing fund will be allocated back to

     the contraparties to the transactions giving rise to such loss to the

     extent of the loss attributable to such transactions.  

               d.   Use of Clearing Fund

          EMCC's rules will provide that the use of clearing fund deposits is

     limited to satisfaction of losses or liabilities of EMCC arising from the

     failure of a member to satisfy an obligation to EMCC or as an incident to

     the clearance and settlement by EMCC and to provide EMCC with a source of

     collateral to meet its temporary financing needs.  If EMCC pledges any part

     of the clearing fund deposits for more than 60 days as a source of

     temporary financing, EMCC will by the 74th day consider such amount to be a

     loss and will allocate such loss in accordance with the loss allocation

     rules.  Comment is requested whether EMCC's proposed uses of its clearing

     fund are consistent with the requirement that temporary applications of the

     clearing fund should be used only in limited amounts to meet unexpected and

     unusual requirements for funds and that the regular or substantial use of a

     clearing fund for operational purposes would be inappropriate. 







                              ======END OF PAGE 26======

          2.   Standard of Care

          The Division stated in the Standards Release that the rules of a

     clearing agency should provide that it is liable to a participant for

     failure to deliver the participant's securities resulting from (i) the

     negligence or misconduct of the clearing agency, the clearing agency's

     subcustodian or agent, or any of their respective employees, (ii) the

     placement on fully-paid participant securities of a lien or charge of any

     kind in favor of the clearing agency, the clearing agency's subcustodian or

     agent, or any person claiming through any one or more of them, (iii)

     larceny, (iv) mysterious disappearance, or (v) any other cause for which

     the clearing agency has assumed responsibility.  Since the date of the

     Standards Release, the Commission has further clarified its position on

     clearing agency liability, stating that clearing agencies should perform

     their functions under a high standard of care and at a minimum custody

     services should be performed under an ordinary negligence

     standard.<(35)>  The Commission also has stated that custody

     functions include all functions related to transaction processing and the

     safekeeping of customer funds and securities.<(36)>   

          As proposed, EMCC's member's agreement, executed between EMCC and each

     member, will provide that EMCC is not subject to any liability under the

                              

          <(35)>    Securities Exchange Act Release  Nos. 26154 (October 3,
                    1988),   53  FR   39556  (registration  order   of  the
                    Intermarket   Clearing   Corporation  ["ICC"]);   26450
                    (January 12,  1989), 54 FR 2010  (registration order of
                    the  Delta  Government Options  Corp.  ["DGOC"]); 26812
                    (May  12, 1989),  54  FR 21691  (registration order  of
                    ISCC); and 27611 (January 12, 1990), 55 FR 1890 (second
                    registration order of DGOC).  

          <(36)>    See, e.g., ICC registration order, supra note 35.







                              ======END OF PAGE 27======

     agreement, including any liability with respect to EMCC's failure to

     provide any services under the agreement or EMCC's rules, except for losses

     resulting from EMCC's gross negligence, criminal act, or willful misconduct

     in connection with its duties.  The agreement further will provide that

     EMCC will not be liable for any consequential or special damages which may

     result from EMCC's failure to perform its obligations under the agreement.

          EMCC's rules will provide that EMCC will have no responsibility for

     errors which may occur in any transmission of data to EMCC except in the

     case of EMCC's gross negligence.  EMCC's rules also will provide that EMCC

     will have no liability for errors made by it in the conversion of data from

     a yield basis to a price basis or vice versa or from the comparison of such

     converted data if EMCC has acted in good faith and takes prompt action to

     correct any error.  

          The Commission preliminarily believes that EMCC's proposed standard of

     care is inconsistent with the Exchange Act and prior Commission positions. 

     Because EMCC's actions bear directly upon the safeguarding of securities

     and funds, the Commission believes that EMCC's activities constitute

     custodial functions for which a negligence standard is appropriate. 

     Furthermore, the Commission has never approved a gross negligence standard

     as a blanket standard of liability for a fully functioning clearing

     agency.<(37)>  The Commission invites comment upon the
                              

          <(37)>    While   the   Commission    approved   the    temporary
                    registration  of  the  Government  Securities  Clearing
                    Corporation ("GSCC") under a gross negligence standard,
                    such  clearing  agency's  functions  at  the time  were
                    limited  to  comparison  of  data.   In  addition,  the
                    Commission urged  GSCC to adopt  a negligence  standard
                    for   all   functions  affecting   member  settlements,
                    including  comparison of data.  Securities Exchange Act
                                                             (continued...)







                              ======END OF PAGE 28======

     appropriateness of EMCC's proposed standard of liability.  

          3.   Processing Capacity

          ISCC has agreed pursuant to a service agreement to perform services

     for EMCC with respect to EMCC's clearing agency activities.  ISCC will

     furnish the services necessary to conduct EMCC's operations for a fee

     designed to cover ISCC's costs.  ISCC will provide EMCC with technical

     services in the following areas:  data processing, operations, planning and

     development, communications, and research and development.  Currently, ISCC

     has seven employees.  Such employees' duties are generally limited to

     operational functions.  ISCC currently provides limited clearing agency

     services.  Many of ISCC's functions are performed by NSCC or by the

     International Depository & Clearing, L.L.C. ("IDC").  IDC is a company

     equally owned by NSCC and The Depository Trust Company, both registered

     clearing agencies.  However, IDC is not regulated in any manner.  The

     Commission invites comments as to whether ISCC has sufficient capacity to

     act as the facilities manager and operate another clearing agency.

          ISCC may use outside parties to fulfill its commitments to EMCC. 

     Specifically, NSCC through ISCC will provide EMCC with management and

     administrative services in the following areas: financial, personnel,

     corporate communications, marketing, regulatory or compliance, and legal. 

     The Securities Industry Automation Corporation ("SIAC"), through ISCC and

     NSCC, also will provide EMCC with managerial, clerical, and data processing

     services.  In addition, ISCC will rely on employees of IDC for product
                              

          <(37)>(...continued)
                    Release  No. 25740 (May 24,  1988), 53 FR  19839.  GSCC
                    continues  to operate under its temporary registration.
                    Securities  Exchange  Act Release  No.  38698 (May  30,
                    1997), 62 FR 30911.







                              ======END OF PAGE 29======

     development, marketing and sales, planning, participant services, and

     executive (i.e., decision making) functions.  The Commission asks for

     comment as to whether these service arrangements are appropriate, and

     particularly whether it is appropriate that an unregulated entity such as

     IDC perform the above functions for a clearing agency.

          In addition, as discussed above, EMCC has no independent capacity to

     match trades.  Instead, it relies on Match-EM and TRAX for such services,

     neither of which is regulated in the U.S.  EMCC has represented that it has

     no contractual agreement with either GE (the operator of Match-EM) or ISMA

     Ltd. (the operator of TRAX) that would permit it to review their

     operational capabilities.  Because the failure of Match-EM or TRAX could

     result in EMCC being unable to fulfill its clearance and settlement

     functions with respect to those trades which either Match-EM or TRAX should

     have matched and reported to EMCC, the Commission requests comment on

     whether the current arrangement is consistent with EMCC's obligations to

     ensure that it has sufficient operational capability.  Specifically, the

     Commission believes that at a minimum, EMCC should obtain sufficient

     information to be able to make a determination that Match-EM and TRAX are

     operating in a manner that ensures that they will be able to accurately

     match and to report trades on a timely basis to EMCC.  Furthermore, the

     Commission believes that it should have access to the materials that EMCC

     has relied on to make this determination.  Comment is requested as to

     whether other conditions should be applied.

          4.   Audit Committee and Internal Audit Department

          The Standards Release stated that clearing agencies should have an

     audit committee composed of nonmanagement directors.  A nonmanagement







                              ======END OF PAGE 30======

     director is a director who is not associated with the clearing agency other

     than in a user capacity or with any entity which furnishes securities

     processing services to the clearing agency.  The audit committee should

     have responsibility for reviewing the work performed by the clearing

     agency's independent public accountant.  

          EMCC's bylaws will provide that the board of directors may appoint an

     audit committee consisting of three or more directors other than officers

     of EMCC.  The audit committee will have responsibility for reviewing with

     the independent certified public accountants the scope of their auditing

     procedures and the financial statements of EMCC to be certified by the

     accountants.  The Commission notes that EMCC's bylaws do not prohibit the

     directors that are representatives of NSCC, ISMA, and EMTA from serving on

     the audit committee.  Comment is requested as to whether the relationship

     and the services provided by NSCC, ISMA, and EMTA are such that the

     individuals representing these entities on EMCC's board should not serve on

     the audit committee.     The Standards Release stated that a clearing

     agency should have an internal audit department which is adequately staffed

     with qualified personnel.  NSCC's internal audit department will perform

     EMCC's internal auditing functions.  

          5.   Securities, Funds, and Data Controls

          The Standards Release provides that a clearing agency should have off-

     site storage of up-to-date files, written procedures detailing steps

     involved in handling funds and securities, and emergency mechanisms for

     establishing and maintaining communications with participants and other

     entities.  In addition, clearing agencies should have adequate insurance. 

          EMCC has represented that through its facilities manager, SIAC, it has







                              ======END OF PAGE 31======

     access to two computer sites in different locations, both of which are

     capable of being operated independently and are capable of handling total

     participant activity.  Data received will be automatically written to both

     sites.  EMCC has provided a detailed written statement of security measures

     that will be used to prevent unauthorized access to EMCC's processing

     facilities.  EMCC maintains blanket bond insurance and all risk insurance.

          D.   Fair Representation

          Section 17A(b)(3)(C) of the Exchange Act requires that the rules of a

     clearing agency provide for fair representation of the clearing agency's

     shareholders or members and participants in the selection of the clearing

     agency's directors and administration of the clearing agency's affairs. 

     This section contemplates that users of a clearing agency have a

     significant voice in the direction of the affairs of the clearing agency.

          1.   Governance Procedures

          EMCC's board will have a total of 21 directors, divided into four

     classes.  The first three classes will consist of five directors each

     ("participant directors").  The fourth class will have six directors,

     consisting of one director selected by EMTA, one director selected by ISMA,

     two directors selected by NSCC, and two directors selected by the EMCC

     board.  The term of office of the participant directors will be three

     years, with the term of one class of directors expiring each

     year.<(38)>  Participant directors may not serve for more than six

     consecutive years.  The term of the fourth class will be one year.  

                              

          <(38)>    The term  of the  initial directors in  class one  will
                    expire in 1998,  the term of  the initial directors  in
                    class  two will  expire in  1999, and  the term  of the
                    initial directors in class three will expire in 2000.







                              ======END OF PAGE 32======

          Members may nominate individuals to serve as participant directors by

     filing with EMCC's Secretary at least thirty days prior to the date of the

     annual meeting a petition signed by the lesser of five percent of the

     participants or ten participants.<(39)>  A nominating committee

     selected by the board will also select individuals to serve as participant

     directors.  If any member files a petition for participant director, EMCC's

     Secretary will mail ballots to all members.  Members will then be provided

     the opportunity to vote for participant directors.<(40)>  

          2.   Provision of Information to Participants

          The Standards Release stated that participants should have sufficient

     information concerning a clearing agency's affairs to participate

     meaningfully in its administration.  Clearing agencies should furnish

     participants with audited annual financial statements, an annual report on

     internal accounting control prepared by an independent public accountant,

     and notices of any proposed rule changes.  

          The Standards Release stated that the annual financial statements

     should be provided within 60 days following the close of the clearing

     agency's fiscal year prepared in accordance with generally accepted

     accounting principles.  EMCC's rules will provide that EMCC will undertake

     to provide to all members audited financial statements and a report

     prepared by independent public accountants within 60 days following the
                              

          <(39)>    Only one  director may be selected which  is an officer
                    of any single participant or its affiliate. 

          <(40)>    Members will have three votes for each $1.00 of average
                    clearing fund  deposits during the twelve  month period
                    ending on the last day of the second month prior to the
                    date  of determination and two  votes for each $1.00 of
                    the average monthly  fee payable or paid  by the member
                    to EMCC during the same twelve month period.







                              ======END OF PAGE 33======

     close of its fiscal year.  EMCC also will undertake to provide unaudited

     financial statements to its members within 30 days following the close of

     each of EMCC's fiscal quarters.  

          The Standards Release stated that the report on internal accounting

     control should be based on a study and an evaluation which was made for the

     purpose of reporting on the clearing agency's overall system of internal

     accounting control.  The report should disclose any material weaknesses

     discovered and any corrective action taken or proposed to be taken.  The

     report should be furnished to all participants promptly after it becomes

     available and no later than 60 days after the period covered by the report. 

     EMCC indicated in its Form CA-1 that it intends to prepare an annual

     internal accounting control report.  However, EMCC does not provide that

     such report will be given to its participants.

          As discussed in the Standards Release, the notice of proposed rule

     changes should be provided to participants prior to or as soon as possible

     after filing with the Commission and should provide a description of the

     rule change, its purpose, and its effect.  EMCC's rules will provide that

     it will immediately notify all members and registered clearing agencies of

     all proposals it has made to change, revise, add, or repeal any rule,

     including a brief description of the proposal, its purpose, and its effect. 



          E.   Participant Standards

          Section 17A(b)(3)(B) of the Exchange Act enumerates certain categories

     of persons that a clearing agency's rules must authorize as potentially







                              ======END OF PAGE 34======

     eligible for access to clearing agency membership and services.<(41)> 

     In addition, a clearing agency may accept specific categories of persons

     other than those enumerated, but a clearing agency should be cognizant of

     the impact that participation may have on the safety of the clearing agency

     and should provide safeguards to protect against that risk.  Section

     17A(b)(4)(B) of the Exchange Act contemplates that a registered clearing

     agency have financial responsibility, operational capability, experience,

     and competency standards that are used to accept, deny, or condition

     participation of any participant or any category of participants enumerated

     in Section 17A(b)(3)(B), but that these criteria may not be used to

     unfairly discriminate among participants.  In addition, the Exchange Act

     recognizes that a clearing agency may discriminate among persons in the

     admission to or the use of the clearing agency if such discrimination is

     based on standards of financial responsibility, operational capability,

     experience, and competence.

          1.   Members

          EMCC will provide services to those organizations, entities, or

     persons that qualify as members under EMCC's rules, that apply to EMCC to

     act for them, whose applications are approved by EMCC, and that have

     contributed to EMCC's clearing fund.  A partnership, corporation, limited

     liability company, or other organization, entity, or individual will be

     qualified to become a member of EMCC if it satisfies at least one of the

     following qualifications: (a) it is a broker or dealer registered under the

     Exchange Act; (b) it is a broker or dealer registered or regulated under
                              

          <(41)>    The   classes  are   registered  brokers   or  dealers,
                    registered  clearing  agencies,  registered  investment
                    companies, banks, and insurance companies.







                              ======END OF PAGE 35======

     the laws of the jurisdiction other than the U.S. in which it is organized

     or established; (c) it is a bank or trust company, including a trust

     company having limited power, which is a member of the Federal Reserve

     System or is supervised and examined by state or federal authorities in the

     U.S. having supervision over banks; (d) it is a bank or trust company,

     which is supervised and examined by the banking regulator in the

     jurisdiction other than the U.S. in which it is organized or established;

     or (e) if it does not qualify under (a) through (d) but is the successor or

     assigns of any member and has demonstrated to the board of directors that

     its business and capabilities are such that it could use EMCC's services

     without undue risk, then such successor or assigns may become a member for

     the limited purpose of winding up its business with EMCC in an orderly

     manner.  Initially, only broker-dealers that are organized under the laws

     of the U.K. will be eligible for admission under (b) above.  Comment is

     requested as to the advisability of admission of non-U.S. participants and

     whether the proposed admission standards provide sufficient protection to

     EMCC and the national clearance and settlement system.

          After the issuance of shares to persons which have contributed to the

     development fund for the organization and initial operation of

     EMCC,<(42)> all applicants that EMCC accepts for membership will be

     required to be either a shareholder of EMCC or an affiliate or subsidiary

     of a shareholder of EMCC.  EMCC may deny an application to become a member

     or to use one or more services of EMCC upon a determination by EMCC that

     EMCC does not have adequate personnel, space, data processing capacity, or

     other operational capability at such time to perform its services for the
                              

          <(42)>    See supra note 5.







                              ======END OF PAGE 36======

     applicant or member without impairing the ability of EMCC to provide

     services for its existing members, to assure the prompt, accurate, and

     orderly processing and settlement of securities transactions, or to

     otherwise carry out its functions.  However any such applications which are

     denied will be approved as promptly as the capabilities of EMCC permit.

          2.   Financial Reports

          All applicants for admission to EMCC will need to provide a copy of

     the applicant's financial statements for the two fiscal years ending

     immediately preceding the year in which application is made, certified

     without qualification by the applicant's independent certified public

     accountants.  To the extent that such audited financial statements are not

     prepared in accordance with U.S. generally accepted accounting principles

     ("GAAP"), the applicant will be required to provide EMCC with a discussion

     of the material variations of such accounting principles from U.S. GAAP. 

          A U.S. broker-dealer applicant will need to provide copies of the its

     Form X-17A-5 FOCUS Reports ("FOCUS Reports") or Form G-405 Reports on

     Finances and Operations ("FOGS Reports") for the last 24 months if a

     monthly filer or the last eight quarters if a quarterly filer submitted to

     its designated examining authority and any supplemental reports required to

     be filed with the Commission pursuant to Exchange Act Rule 17a-

     11<(43)> or 17 C.F.R. Section 405.3.  A bank applicant will need to

     provide all quarterly financial statements covered by the last audited

     financial statement plus all subsequent quarterly financial statements.  A

     U.S. bank applicant also will need to provide copies of its three most

     recent Consolidated Reports of Condition and Income ("Call Reports")
                              

          <(43)>    17 CFR 240.17a-11.







                              ======END OF PAGE 37======

     submitted to its appropriate regulatory agency and, to the extent not

     contained within such Call Reports or to the extent that the applicant does

     not have Call Reports, information containing each of the applicant's

     capital levels and ratios, as such levels and ratios are required to be

     provided to its appropriate regulatory agency.  A non-U.S. bank applicant

     also will need to provide all material regulatory filings made with its

     primary regulator in its home country over the prior two years.  If the

     applicant is a U.K. broker-dealer subject to regulation by the Securities

     Futures Association ("SFA"), it will need to provide EMCC with its SFA

     monthly reports and returns for the prior twenty-four months and if

     necessary and feasible, financial statements prepared in accordance with

     U.S. GAAP.

           If required by EMCC, an applicant will need to provide a certificate

     of the chief executive or chief financial officer of the applicant that no

     material adverse changes have occurred in the financial condition of the

     applicant since the date of the most recent financial statements, FOCUS

     Report, FOGS Report, Call Report, or comparable reports to regulatory

     authorities, as applicable, filed with EMCC; that the applicant has not

     guaranteed the obligations of any other person; and that the applicant is

     not subject to any other contingent liabilities, except as set forth in

     such financial statements, FOCUS Report, FOGS Report, Call Report,

     comparable reports to regulatory authorities, or the certificate.

          3.   Admission Criteria for Members

          The board or the membership and risk committee of the board may

     approve an application to become a member upon a determination that such

     applicant meets the applicable admission criteria.  The applicant must have







                              ======END OF PAGE 38======

     adequate personnel, physical facilities, books and records, accounting

     systems, and internal procedures to enable it to satisfactorily handle

     transactions and communicate with EMCC, to fulfill anticipated commitments

     to and meet the operational requirements of EMCC with necessary promptness

     and accuracy, and to conform to any condition and requirement that EMCC

     reasonably deems necessary for its protection or that of its members. 

          The applicant must have an established business history of a minimum

     of three years or personnel with sufficient operational background and

     experience to ensure, in the judgment of the board, the ability of the firm

     to conduct its business.  The applicant must agree to make and have

     sufficient financial ability to make all anticipated payments required to

     be made to EMCC.  The applicant must be in compliance with the capital

     requirements imposed by its designated examining authority or appropriate

     regulatory agency, any other self-regulatory organizations, and any other

     regulatory authority or self-regulatory authority to which it is subject by

     statute, regulation, or agreement.  The applicant cannot be subject to an

     order of statutory disqualification as defined in Section 3(a)(39) of the

     Exchange Act<(44)> or an order of similar effect issued by a federal

     or state banking authority in the U.S. or any non-U.S. regulator.  

          EMCC must have received no substantial information that would

     reasonably and adversely reflect on the applicant or any associated person

     to such an extent that the applicant should be denied membership in EMCC. 

     However, no application will be denied on such basis unless the board has

     reasonable grounds to believe that the applicant or any associated person


                              

          <(44)>    15 U.S.C. 78c(a)(39).







                              ======END OF PAGE 39======

     meets a disqualification criteria specified in EMCC's rules.<(45)> 

          In addition, if the applicant is a bank, it must have net worth as of

     the end of the quarter prior to the effective date of its membership

     determined in accordance with U.S. GAAP of at least $500 million.  However,

     an applicant bank may be accepted if it has a net worth of at least $200

     million if the membership and risk committee of EMCC's board of directors

     makes a formal finding that will become part of EMCC's books and records to

     the effect that other credit factors of the applicant compensate for the

     lower net worth.<(46)>  

          If the applicant is a U.S. broker or dealer, its aggregate

     indebtedness/excess net capital ratio must be less than 950% or its excess

     net capital/aggregate debit items ratio must be in excess of 5.25% and its

     excess net capital must equal at least $100 million.  However, a U.S.

     broker-dealer applicant may have excess net capital of at least $50 million

     if the membership and risk committee of EMCC's board of directors makes a

     formal finding that will become part of EMCC's books and records to the

     effect that other credit factors of the applicant compensate for the lower

                              

          <(45)>    For  example,  disqualification  criteria will  include
                    closer  than normal  surveillance  by  the  applicant's
                    designated    examining   authority    or   appropriate
                    regulatory agency, violations of the federal securities
                    laws,  convictions  of any  criminal  offense involving
                    securities  transactions,  or  any  injunction  against
                    engaging in securities transactions.  

          <(46)>    In making such  determination, EMCC  will consider  the
                    applicant's return  on average assets, capital to total
                    assets  ratio,  non-performing assets  to  total assets
                    ratio,  and liquid assets to total  assets ratio.  EMCC
                    also  will   consider  the  ratings   assigned  to  the
                    applicant by a nationally recognized statistical rating
                    organization, any significant  off balance sheet items,
                    and the applicant's risk management controls.  







                              ======END OF PAGE 40======

     excess net capital.<(47)> 

          If the applicant is a U.K. broker or dealer, its financial resources

     must be at least 120% of its financial resources requirement and its excess

     financial resources must equal at least $100 million.  However, the

     applicant may have excess financial resources of at least $50 million if

     the membership and risk committee of EMCC's board of directors makes a

     formal finding that will become part of EMCC's books and records to the

     effect that other credit factors of the applicant compensate for the lower

     excess financial resources.<(48)>  

          If a U.S. broker applicant is applying to become an interdealer broker

     member, it must have excess net capital of at least $10 million and must

     agree to submit trading data to EMCC in such instruments as requested by

     EMCC.  EMCC will determine the interdealer broker's potential margin calls,

     and the interdealer broker must demonstrate an ability to meet such margin

     calls and loss allocation assessments.  The interdealer broker can

     demonstrate this ability by agreeing to submit to EMCC only transactions

     with EMCC members on both sides and by demonstrating a low error




                              

          <(47)>    EMCC will consider any ratings assigned by a nationally
                    recognized   statistical   rating   organization,   any
                    significant  adverse off-balance  sheet items,  and the
                    applicant's  significant business lines  as compared to
                    its  internal risk  management controls and  short term
                    funding arrangements.  

          <(48)>    EMCC will consider any ratings assigned by a nationally
                    recognized   statistical   rating   organization,   any
                    significant  adverse off-balance  sheet items,  and the
                    applicant's significant business  lines as compared  to
                    its  internal risk  management controls and  short term
                    funding arrangements.  







                              ======END OF PAGE 41======

     rate.<(49)>  

          During the first six months of EMCC's operations, EMCC will permit an

     interdealer broker to become an EMCC member which does not meet the $10

     million excess net capital requirement if it meets an alternate criterion. 

     Such applicant must maintain a clearing relationship with an EMCC member

     which is not an interdealer broker.  Pursuant to the clearing relationship,

     the clearing firm must take the place of the interdealer broker on T+1 on

     all trades which do not have EMCC members on both sides.  The interdealer

     broker will have a fixed clearing fund deposit in lieu of the required

     margin deposit.  However, EMCC will calculate each day for such interdealer

     broker a preliminary and final required fund deposit excluding any

     positions that resulted from a systems failure of a contraparty resulting

     in a failure to submit trade data.  If the required fund deposit exceeds

     the broker's fixed deposit, EMCC will not guarantee any transactions to the

     broker until its required fund deposit is equal to or lower than its fixed

     deposit.<(50)>  However, EMCC will guarantee completion of the





                              

          <(49)>    If an  interdealer broker has a  margin payment because
                    one  of its  contraparties fails  to  submit data  on a
                    trade prior  to 8:00  a.m. ET  on T+1, the  contraparty
                    must compensate the interdealer  broker for the cost of
                    financing the payment obligation  and may be subject to
                    fine by EMCC.  

          <(50)>    The interdealer  broker could  lower its required  fund
                    deposit by  depositing additional funds with  EMCC.  If
                    it does not deposit additional funds, its required fund
                    deposit will  exceed its  fixed deposit until  at least
                    the end of  the next month  (because its required  fund
                    deposit  is  based on  the  highest margin  calculation
                    during the current month and the prior month).







                              ======END OF PAGE 42======

     interdealer broker's trades to the original EMCC contraparties.<(51)> 

     In addition, if the interdealer broker's required fund deposit exceeds its

     fixed deposit, the interdealer broker will not be subject to assessment for

     loss allocations<(52)> and the interdealer broker will be charged a

     market rate of interest on the difference between its required fund deposit

     and its fixed deposit.  EMCC will notify all dealer members whenever an

     interdealer broker's required fund deposit exceeds its fixed deposit. 

     Comment is requested as to whether this alternative standard provides

     sufficient protection to EMCC.  Specifically, EMCC will be guaranteeing

     trades to EMCC members in the event that an interdealer broker becomes

     insolvent even though it will not have collected margin from the broker to

     cover the loss.  Furthermore, this provision does not set forth any minimum

     excess net capital requirements for brokers to meet before becoming EMCC

     members.  Comment is requested as to whether such provisions are consistent

     with a clearing agency's obligations to have appropriate membership

     standards.

                              

          <(51)>    Because EMCC is not  guaranteeing trades to the broker,
                    if a  dealer contraparty becomes insolvent,  the broker
                    is  responsible  for   completing  the  trade   to  its
                    contraparty  on  the  other side.    As  a result,  the
                    nondefaulting EMCC dealer member  does not receive  the
                    benefit of EMCC's guarantee of brokered trades.  If the
                    broker is unable  to complete the trade, EMCC will then
                    guarantee  the  broker's  trade  to  its  EMCC   member
                    contraparty.  However, the trade is treated as a direct
                    trade between  the broker  and its contraparty.   Thus,
                    under the  loss allocation  rules, the dealer  would be
                    allocated a  greater portion  of its  loss than  if the
                    broker had not exceeded its fixed deposit requirement.

          <(52)>    Because  EMCC   is  not  guaranteeing   trades  to  the
                    interdealer broker, there would  be no loss from direct
                    trades entered into with  the broker.  Therefore, there
                    would beno reason to assess the broker for such loss.  







                              ======END OF PAGE 43======

          The foregoing financial responsibility standards are minimum

     requirements, and the board may impose greater standards based upon the

     level of the anticipated positions and obligations of an applicant, the

     anticipated risk associated with the volume and types of transactions an

     applicant proposes to process through EMCC, and the overall financial

     condition of an applicant.  If an applicant does not itself satisfy the

     above minimum capital requirements, the board may include for such purposes

     the capital of an affiliate of the applicant if the affiliate has delivered

     to EMCC a guaranty, satisfactory in form and substance to the board, of the

     obligations of the applicant to EMCC.  

          4.   Membership Agreement 

          Each applicant to become a member of EMCC will be required to sign a

     membership agreement pursuant to which the applicant agrees to abide by the

     rules of EMCC.  Under the agreement, the member's books and records must at

     all times be open to inspection by EMCC, and EMCC must be furnished with

     all such information in respect of the member's business and transactions

     as EMCC may require.  However, upon ceasing to be a member, EMCC cannot

     inspect such member's books and records or require information relating to

     transactions that occurred after the time when it ceased to be a member.  

          The member must agree to submit to the jurisdiction of the courts of

     the state of New York and the U.S. District Court for the Southern District

     of New York and to appoint a person acceptable to EMCC as its agent to

     receive on its behalf service of process.  Under the agreement, membership

     in EMCC and use of EMCC's services is governed by the laws of the state of

     New York.  The member must agree that any judgment obtained in an action or

     proceeding may be enforced in the courts of any jurisdiction where the







                              ======END OF PAGE 44======

     applicant or any of its property may be found, and the applicant must

     irrevocably submit to the jurisdiction of each such court in respect of any

     such action or proceeding.  To the fullest extent permitted by law, members

     must waive all immunity whether on the basis of sovereignty or otherwise

     from jurisdiction, attachment both before and after judgment, and execution

     to which it might otherwise be entitled in any action or proceeding in any

     county or jurisdiction relating in any way to the agreement or to any

     transaction.  

          The membership agreement also provides EMCC with an additional source

     of information for risk control purposes.  Upon the request of and at no

     charge to EMCC, members must provide research that they provide to any of

     their customers relating to EMCC eligible instruments and events or

     conditions which might affect the price of EMCC eligible instruments.

          F.   Capacity to Enforce Rules

          Section 17A(b)(3)(A) of the Exchange Act provides that a clearing

     agency must be organized and have the capacity to enforce (subject to any

     rule or order of the Commission pursuant to Section 17(d) or 19(g)(2) of

     the Exchange Act) compliance by its participants with the rules of the

     clearing agency.  In order to do so, a clearing agency must have procedures

     for determining whether a participant is experiencing financial or

     operational difficulties.  Sections 17A(b)(3)(G) and (H) require that the

     rules of a clearing agency provide that its participants shall be

     appropriately disciplined for violations of any provision of those rules

     and provide fair procedures for disciplining participants, denying

     participation in the clearing agency to any person, prohibiting or limiting

     access to the clearing agency's services, and reviewing summary







                              ======END OF PAGE 45======

     suspensions.

          1.   Financial Standards

          EMCC s Rule 13 will authorize EMCC to examine the financial

     responsibility and operational capability of any member or applicant to

     become a member and to require a member to furnish EMCC with adequate

     assurances of its financial responsibility and operational capability. 

     Pursuant to this rule, a member may be required to provide additional

     assurances with respect to financial responsibility and operational

     capability, including  additional reporting by a member of its financial or

     operational condition; increased clearing fund deposits by a member; and

     other assurances as may be required by EMCC. 

          EMCC also will have general continuance standards that require a

     member to promptly inform EMCC in the event that it no longer is in

     compliance with any of the relevant standards for membership or any

     materially adverse change.  The board may require additional financial

     reporting if the member no longer meets the standards for admission to

     membership, it has violated any rule of EMCC, it fails to satisfy in a

     timely manner any obligation to EMCC, there is a material change in control

     or financial condition of such member, or the board determines that it is

     necessary or advisable to protect EMCC, its other members, or its creditors

     or investors, to safeguard securities and funds in the custody or control

     of EMCC, or to promote the prompt and accurate processing, clearance, or

     settlement of securities transactions.  The board must also make a

     determination as to whether the member should be placed on surveillance

     status consistent with its rules.<(53)>
                              

          <(53)>    See supra note 30.







                              ======END OF PAGE 46======

          2.   Ceasing to Act

          Section 17A(b)(5)(C) provides that a clearing agency may summarily

     suspend and close the accounts of a participant that has been and is

     expelled or suspended from any self-regulatory organization; that is in

     default of any delivery of funds or securities to the clearing agency; or

     that is in such financial or operational difficulty that the clearing

     agency determines and so notifies the appropriate regulatory agency for

     such participant that such suspension and closing of accounts are necessary

     for the protection of the clearing agency, its participants, creditors, or

     investors.  

          Upon providing notice to the member, EMCC may at any time cease to act

     for a member if the board of directors determines that adequate cause

     exists to do so.<(54)>  EMCC may cease to act either with regard to a
                              

          <(54)>    Such  cause may exist if one or more of certain factors
                    are found, including: the  member has failed to perform
                    any of  its  obligations  or  has failed  to  make  any
                    required  payment to EMCC;  the member is  no longer in
                    compliance with the admissions standards or continuance
                    standards; the board has reasonable grounds  to believe
                    the member  has been responsible for  any fraudulent or
                    dishonest conduct  or breach  of fiduciary duty  or has
                    made any  material misstatement  to EMCC  in connection
                    with  its  application  to  be a  member  or  any  EMCC
                    service; the board  has reasonable  grounds to  believe
                    the member is in financial or operation difficulty; the
                    member  is in breach  of any requirement  imposed by an
                    appropriate    regulatory    agency,    self-regulatory
                    organization, or any regulatory body; the member is not
                    paying  its debts as  they become  due or  is otherwise
                    involved  in  a bankruptcy  proceeding;  the member  is
                    dissolved  or  ceases to  carry  on  its business;  the
                    member  contests  the  validity of  any  agreement with
                    EMCC; the  member fails  to perform its  contracts with
                    EMCC; or  the board  has reasonable grounds  to believe
                    that  ceasing  to  act  is  necessary  either  for  the
                    protection of EMCC or  for any of the other  members or
                    to facilitate the orderly and continuous performance of
                    EMCC's services.







                              ======END OF PAGE 47======

     particular transaction or with regard to transactions generally.  EMCC will

     promptly notify all members when it ceases to act for a member.  A member

     for which EMCC has ceased to act may request a hearing to review EMCC's

     decision.  

          If certain factors are present, EMCC will treat a member as

     insolvent.<(55)>  EMCC will notify all members of the treatment of

     the member as insolvent.  Upon a determination of insolvency, EMCC will

     immediately cease to act for such member.  EMCC will delete all trades of

     that member to which EMCC's guaranty has not attached except trades that

     the board determines will promote an orderly market.  EMCC will then close

     out the guaranteed trades and the trades that the board has accepted.  EMCC

     will close out by buying in or selling out securities deliverable by or to

     the insolvent.  The close out procedure will be completed by EMCC as

     promptly as practicable after EMCC has given notice of the treatment of the

     member as insolvent.  

          3.   Hearing Procedures

          Section 17A(b)(5) of the Exchange Act provides that in any proceeding

     to determine whether a participant should be denied participation,

     prohibited or limited with respect to access to the clearing agency's

     services, or disciplined, the clearing agency must notify the participant

     of the specific grounds of the denial of services or the charges brought
                              

          <(55)>    Such  circumstances include: the member provides notice
                    to  EMCC  that  it  is  insolvent;  the  board  or  any
                    regulatory  body   determines   that  the   member   is
                    insolvent;  a  court  order  is  entered adjudging  the
                    member to be insolvent; the member files or consents to
                    the filing of a petition seeking bankruptcy relief; the
                    member makes a general assignment to its creditors; the
                    member is dissolved;  or a resolution is  passed by the
                    member that it be wound up, liquidated, or dissolved.







                              ======END OF PAGE 48======

     against the member.  The clearing agency must provide the member with an

     opportunity to be heard on the grounds of the denial or to defend against

     any charges.  The clearing agency must keep a record of the proceeding.  

          A member may request a hearing by filing with EMCC a written request

     setting forth the contested action of EMCC.  Within seven business days

     after filing the request or three business days in the case of summary

     action, the objecting member must provide EMCC with a detailed written

     statement setting forth the contested action and the basis for objection. 

     EMCC will notify the member in writing of the date and place of the hearing

     at least five business days prior to the hearing.

          The hearing will be before a panel drawn from participant directors on

     the membership committee unless the contested action was taken by the

     membership committee.  In such a case, the panel will be drawn from

     participant directors on the executive committee.  The committee will

     select the members of the panel.  The objecting member will have an

     opportunity to be heard and may be represented by counsel.  The panel will

     make a decision within ten business days after conclusion of the hearing. 

     Although the panel's decision is considered final, the board may overturn

     any decision adverse to the member.

          G.   Equitable Allocation of Dues, Fees, and Charges

          Section 17A(b)(3)(D) of the Exchange Act requires that the rules of

     the clearing agency provide for the equitable allocation of reasonable

     dues, fees, and other charges among its participants.  EMCC's proposed fee

     schedule provides that it will charge $5 for input, $7.50 for late

     instructions after 9:00 p.m. on T, $25 for late instructions after 11:00







                              ======END OF PAGE 49======

     a.m. on T+1, and $7.50 for net settlement.<(56)>

          H.   Burden on Competition

          Section 17A(b)(3)(I) of the Exchange Act requires that the rules of a

     clearing agency not impose any burden on competition not necessary or

     appropriate in furtherance of the purpose of the Exchange Act.  As

     discussed in Section III.A., EMCC will automatically receive data on all

     trades of EMCC members that have been submitted to TRAX or Match-EM.  EMCC

     members do not have the ability to exclude trades from the EMCC clearance

     system unless they confirm trades without using TRAX's and Match-EM's

     automated confirmation system.  Although EMCC's rules do not require that

     EMCC members submit all of their eligible trades to EMCC, as a practical

     matter EMCC members that want to obtain the benefit of Match-EM or TRAX

     must settle at EMCC.  The Commission is concerned that this aspect of

     EMCC's operations could either force EMCC members to settle all their

     eligible trades at EMCC or result in trades being excluded from automated

     processing.<(57)>  In addition, EMCC's arrangements with the locked-

     in trade sources could result in inhibiting future clearing agencies from

     beginning operations.  Comment is requested as to whether this aspect of

                              

          <(56)>    The Commission understands that EMCC may adjust its fee
                    schedule  soon after  being registered  (providing that
                    the Commission grants EMCC registration).

          <(57)>    To exclude  trades from  EMCC settlement,  EMCC members
                    would  be forced  to  use manual  processes to  confirm
                    trades.  Members may want to exclude trades from EMCC's
                    system for various reasons.   For example, if the trade
                    would cause  a member to exceed  its overnight exposure
                    cap, it  may want to  process the  trade through  other
                    means.   In addition,  brokers may have  agreed to only
                    submit trades to  EMCC with EMCC members on both sides.
                    Information  on  such trades  would  then be  generally
                    unavailable which would reduce market transparency.  







                              ======END OF PAGE 50======

     EMCC's operations is consistent with the Exchange Act.

     V.   SOLICITATION OF COMMENTS 

          Interested persons are invited to submit written data, views, and

     arguments concerning the foregoing application by [insert date 30 days from

     date of publication in the Federal Register].  Such written data, views,

     and arguments will be considered by the Commission in deciding whether to

     grant Euroclear's request for exemption from registration.  Persons

     desiring to make written submissions should file six copies thereof with

     the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W.,

     Washington, D.C. 20549.  Reference should be made to File No. 600-30. 

     Copies of the application and all written comments will be available for

     inspection and copying at the Commission's Public Reference Room, 450 Fifth

     Street, N.W., Washington, D.C. 20549.

          For the Commission by the Division of Market Regulation, pursuant to

     delegated authority.<(58)>

                                        Jonathan G. Katz
                                        Secretary

















                              

          <(58)>    17 CFR 200.30-3(a)(16).