30170 Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices

18See 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 41504

(June 9, 1999), 64 FR 32586 (June 17, 1999).

organization consents, the Commission

will:

A. By order approve such proposed

rule change, or

B. Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the proposal,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to the File No.

SR–NASD–00–18 and should be

submitted by May 31, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.18

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11683 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42747; File No. SR–NSCC–

98–14]

Self-Regulatory Organization; National

Securities Clearing Corporation; Order

Approving a Proposed Rule Change

Relating to Ceasing to Act for a

Member

May 2, 2000.

On December 8, 1998, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

a proposed rule change (File No. SR–

NSCC–98–14) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on June 17, 1999.2 No comment letters

were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

The rule change eliminates the

distinction between those instances

where NSCC declines or ceases to act for

a member because the member is

insolvent and where NSCC declines or

ceases to act for a member for another

reason. The rule change also permits

NSCC to complete certain open RVP/

DVP transactions of an insolvent brokerdealer that is a member or clears

through a member.

a. Declining or Ceasing To Act

NSCC’s procedures for ceasing to act

for an insolvent member were set forth

in former Section 3 of Rule 18. Its

procedures for ceasing to act when the

member is not insolvent were set forth

in Section 2 of Rule 18. Former Sections

2(a) and (b) (non-insolvency scenario)

and Sections 3(a) and (b) (insolvency

scenario) set forth the transactions

which could be eliminated by NSCC

from its processing when it ceased to act

for a member. Generally, these sections

provided that if NSCC gave notice that

it was ceasing to act for a member before

NSCC issued the security balance orders

in a pending balance order accounting

operation or before NSCC issued the

consolidated trade summary in a

pending continuous net settlement

accounting operation for that member’s

pending trades. NSCC could in its

discretion exclude that member’s trades

from the balance order or continuous

net settlement accounting operation.

Trades so executed would have to be

settled between the parties outside of

NSCC.

Under the rule change, new Sections

2(a)(i) and (ii) replace Sections 2(a) and

(b) and Sections 3(a) and (b) and

specifically tie the exclusion of a trade

to whether or not the trade has been

guaranteed by NSCC. New Section

2(a)(iii) addresses the exclusion of

security orders issued with respect to

‘‘special trades’’ and transactions in

foreign securities. Prior to the rule

change, the exclusion of these trades

was only addressed in the insolvency

portion of NSCC’s rules, former Section

3(c)(iii).

Former Section 2(c) set forth NSCC’s

procedures for handling envelope

transactions when it ceased to act for a

solvent member. Former Section 3 of

NSCC’s rules did not address envelop

transactions when NSCC ceased to act

for an insolvent member. New Section

4 mirrors former Section 2(c) and

addresses the completion of envelope

transactions of a member for whom

NSCC has ceased to act regardless of the

solvency status of the member.

Former Sections 2(d)(i) and (ii) and

Section 3(b)(ii) governed the completion

of CNS trades. According to NSCC,

when it ceases to act for a member, it

completes CNS trades through a

qualified securities depository

regardless of whether the member was

solvent. However, only former Section 2

(non-insolvency scenario) specifically

addressed the completion of these

trades through a qualified securities

depository. Accordingly, new Section 5

clarifies that CNS transactions will be

completed through a qualified securities

depository regardless of the solvency

status of the relevant member unless in

an insolvency scenario the rules of the

relevant insolvency regime doe not

allow NSCC to take certain actions with

respect to the completion of CNS trades.

Former Sections 2(d)(iii) and 3(c)(ii)

addressed the closing out of any

remaining CNS transactions. Under the

rule change, this is now covered in new

Section 6(a).

Former Sections 2(b) and 3(c)(ii)

pertained to the completion of balance

order transactions after NSCC ceases to

act for a member. Although NSCC’s

procedures for completing balance order

transactions are the same regardless of

whether NSCC is ceasing to act for a

solvent or insolvent member, only

former Section 3 detailed how NSCC

would close-out balance order

transactions and how members were to

submit related close-out losses to NSCC.

The rule change adopts new Section

6(b), which is similar to former Sections

3(c) and (d). New Section 6(b) governs

the close-out of balance order

transactions regardless of whether an

insolvency situation exists.

The language contained in former

Section 2(e), which set forth NSCC’s

rights with respect to any balance due

to it from a member after NSCC had

ceased to act for the member,

technically only applied in noninsolvency scenarios. Under the rule

change, the language of Section 2(e)

now appears in Section 7(a) and applies

to both insolvency and non-insolvency

scenarios. The language set forth in

former Sections 2(f) and (f), which

provided that NSCC would maintain a

lien on all property a member places

with NSCC as security for any and all

liabilities of the member to NSCC now

appears in Section 7(f).

Federal Register / Vol. 65, No. 91 / Wednesday, May 10, 2000 / Notices 30171

3The term ‘‘RVP/DVP transaction’’ is defined in

NSCC Rule 1 to mean any wholly executory receiptversus-payment or delivery-versus-payment

transaction between an NSCC member and an RVP/

DVP customer. The term ‘‘RVP/DVP customer’’ is

defined in Rule 1 to mean a party who has executed

a RVP/DVP transaction with an NSCC member for

whom NSCC has declined or ceased to act, or with

an introducing broker who clears through an NSCC

member for whom NSCC has declined or ceased to

act.

4Supra note 3.

5This notice would typically be sent via The

Depository Trust Company’s electronic message

dissemination system.

6 15 U.S.C. 78q–1(b)(3)(F).

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240. 19b–4.

3See Letter from James E. Buck, Senior Vice

President and Secretary, NYSE, to Terri Evans,

Attorney, Division of Market Regulation

(‘‘Division’’), Commission, dated February 4, 2000

(‘‘Amendment No. 1’’).

4Securities Exchange Act Release No. 42487

(March. 2, 2000), 65 FR 12603.

The rule change also adds the

following terms to NSCC Rule 1

(Definition and Description): ‘‘CNS

Position,’’ ‘‘New Close Out Position,’’

‘‘RVP/DVP Transaction,’’ and ‘‘RVP/

DVP Customer.’’

b. DVP/RVP Transactions

The rule change adds a new Section

3 to Rule 18, which pertains to CNS or

balance order RVP/DVP transactions.3

The RVP/DVP transactions covered by

proposed Section 3 are those in which

the RVP/DVP customer 4 (1) has

executed an RVP/DVP transaction with

the NSCC member for which NSCC has

ceased to act or with an introducing

broker-dealer which clears through an

NSCC member for which NSCC has

ceased to act and (2) would have taken

delivery of the cash or securities from

the broker-dealer for which NSCC has

ceased to ace on an RVP/DVP basis at

its custodian bank or other depository

agent in the absence of the default.

Under the new rule, after NSCC has

ceased to act for a member, NSCC will

attempt to complete: (1) All open RVP/

DVP transactions of which NSCC is

aware prior to ceasing to act but only to

the extent that the completion of the

RVP/DVP transactions would not

increase the size of the position in any

security that NSCC would have to closeout and (2) any additional open RVP/

DVP transactions to the extent deemed

appropriate by NSCC’s Board of

Directors. NSCC’s obligation set forth in

(1) remains regardless of whether NSCC

would gain or lose money by

completing such transactions, and any

determinations by the NSCC Board to

complete any additional RVP/DVP

transactions would be made without

regard to the potential profit or loss for

NSCC in any individual transaction. In

either case, NSCC would have no

obligation to complete any open RVP/

DVP transaction in an issue if: (1) NSCC

believed it could not complete all RVP/

DVP transactions in such issue that it

would be obligated to attempt to

complete under this new provision; (2)

there were allegations of fraud or other

questionable activities with respect to

an issue; or (3) NSCC believed that the

completion of an RVP/DVP transaction

in an issue could not be completed.

The rule change requires NSCC to

provide notice of NSCC’s intent to

complete the RVP/DVP transactions to

the trustee or receiver of the member for

whom NSCC has ceased to act (if one

has been appointed) and to the relevant

RVP/DVP customers or the RVP/DVP

customers’ depository agents or their

depository agents’ depositories. This

notice will alert the RVP/DVP customer

that completion of any such transaction

with NSCC constitutes a presumed

waiver by the RVP/DVP customer of any

claim arising out of such transactions

against the member for whom NSCC has

ceased to act, its receiver or trustee (or

any successor trustee), or SIPC.5

II. Discussion

Section 17A(b)(3)(F) 6 of the Act

requires that the rules of a clearing

agency be designed among other things,

to protect investors and the public

interest. As set forth below, the

Commission finds that NSCC’s rule

change is consistent with this obligation

under the Act.

The Commission finds that allowing

NSCC to complete RVP/DVP

transactions after it ceases to act for an

insolvent member could benefit

customers, counterparties, and creditors

of the insolvent broker-dealer by

minimizing the disruptive market

effects and the large administrative

burdens and costs associated with the

insolvency of a broker-dealer. The

Commission also finds that the merging

within NSCC’s rules of the actions

NSCC will take when it ceases to act for

a member, regardless of whether it

ceases to act because of the insolvency

of the member or for some other reason,

simplifies and makes clearer NSCC rules

without effecting any real changes to its

rules. As such, the Commission finds

that NSCC’s proposed rule change is

consistent with NSCC’s statutory

obligation to protect investors and the

public interest.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

NSCC–98–14) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret McFarland,

Deputy Secretary.

[FR Doc. 00–11608 Filed 5–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42746; File No. SR–NYSE–

99–34]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change and Amendment No. 1 Thereto

Relating to the Exchange’s Allocation

Policy and Procedures

May 2, 2000.

I. Introduction

On July 20, 1999, the New York Stock

Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’), filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change

amending the Exchange’s Allocation

Policy and Procedures (‘‘Policy’’). On

February 7, 2000, the Exchange

submitted Amendment No. 1 to the

proposed rule change.3 The proposed

rule change, as amended, was published

for comment in the Federal Register on

March 9, 2000.4 This order approves the

NYSE proposal, as amended.

II. Description of the Proposal

According to the Exchange, its Policy

is intended to: (1) Ensure that the

allocation process for securities is based

on fairness and consistency and that all

specialist units have a fair opportunity

for allocations based on established

criteria and procedures; (2) provide an

incentive for ongoing enhancement of

performance by specialist units; (3)

provide the best possible match between

a specialist unit and security; and (4)

contribute to the strength of the

specialist system.

Since 1987, the Exchange’s Quality of

Markets Committee has appointed a

number of Allocation Review

Committees (‘‘ARCs’’) to review the