42614 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices

3 15 U.S.C. § 78o–3. In approving this rule change,

the Commission notes that it has considered the

proposal’s impact on efficiency, competition, and

capital formation, consistent with Section 3 of the

Act. Id. § 78c(f).

4Securities Exchange Act Release Nos. 38571

(May 5, 1997), 62 FR 25682 (May 9, 1997)

(approving an Amex proposal to reduce the

minimum trading increment from 1⁄8 to 1⁄16); 38678

(May 27, 1997), 62 FR 30363 (June 6, 1997)

(approving a proposed rule change by the NASD to

reduce the minimum quotation increment from 1⁄8

to 1⁄16); 38744 (June 18, 1997), 62 FR 34334 (June

25, 1997) (approving an NYSE proposal to reduce

the minimum trading increment from 1⁄8 to 1⁄16).

5For example, both the NYSE and the Chicago

Stock Exchange (‘‘CHX’’) require their specialists to

utilize the increment in which bids (offers) are

made when adjusting open orders for securities

quoted ‘‘ex-.’’ See CHX Article XX, Rule 35 and

NYSE Rule 118.21.

6For example, two parties may enter orders to

buy the same security for $9, but one order is

placed with a CHX specialist and the other is

placed with a Nasdaq market maker. Assume

further that the issuer declares a $0.15 dividend.

The CHX order would be rounded down by 5⁄32 to

$827⁄32 ($8,84375, the closest applicable minimum

trading variation) whereas the Nasdaq market maker

would round its $9 order down by 3⁄16 to 813⁄16

($8.8125, the closest applicable variation based on

Nasdaq’s largest variation, notwithstanding that

Nasdaq allows securities under $10 to be quoted in

1⁄32s). The end result is that the CHX order will

obtain price priority over an order that it was on

parity with before the security was quoted ‘‘ex-.’’

Moreover, this shift in priority is not the result of

a conscience decision by a customer to relinquish

priority but rather is attributable to the fact that the

adjustment technique utilized by Nasdaq is

inconsistent with other markets.

7 15 U.S.C. § 78s(b)(2).

8 id

9 17 CFR 200.30–3(a)(12).

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

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

NASD Regulation has neither

solicited nor received written

comments.

Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 20549. 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 at

the Commission’s Public Reference

Room, 450 Fifth Street NW.,

Washington, DC 20549. Also, copies of

such filing will be available for

inspection and copying at the principal

office of the NASD. All submissions

should refer to File No. SR–NASD–97–

48 and should be submitted by August

28, 1997.

IV. Commission’s Findings and Order

Granting Accelerated Approval of the

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange. In particular, the proposed

rule change satisfies the requirements of

Section 15A of the Act.3

Recently, there has been a movement

within the securities industry to reduce

the minimum trading and quotation

increments imposed by the various selfregulatory organizations. As noted

previously, the Amex, Nasdaq, and the

NYSE have recently reduced their

minimum increments.4 The proposed

rule change modifies the NASD’s rule

regarding the adjustment of open orders

so that it can accommodate this

transition to finer increments. This

should promote greater consistency

between the prices at which securities

may be quoted and the price

adjustments made to open orders in

securities quoted ‘‘ex-.’’

The Commission notes, however, that

the NASD’s proposed use of the greatest

minimum variation for adjusting open

orders, rather than the minimum

variation applicable to the particular

security, is inconsistent with the

practices employed by other markets.5

This disparity could result in orders for

the same security at the same price in

different markets being rounded

differently and, thus, could shift the

priority among orders that were

formerly on parity.6

Nevertheless, the method chosen by

NASD Regulation comports with the

Act. By permitting NASD members to

apply the same increment to all open

orders for securities quoted ‘‘ex-,’’ the

proposal should facilitate the ability of

NASD members to quickly adjust such

orders.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. NASD members have

already begun quoting stocks in

increments finer than an eighth. The

proposed rule change facilitates the

NASD’s transition to finer increments.

Requiring NASD members to utilize

eighths when adjusting open orders for

securities quoted ‘‘ex-’’ until the full

statutory review period has elapsed

would unnecessarily inhibit the NASD’s

transition to finer increments.

Therefore, the Commission believes it is

consistent with Section 19(b)(2) of the

Act to grant accelerated approval to the

proposed rule change.7

V. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR–NASD–97–

48) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–20750 Filed 8–6–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38890) ; File No. SR–

Philadep–97–03]

Self-Regulatory Organizations;

Philadelphia Depository Trust

Company; Notice of Filing and Order

Granting Accelerated Approval on a

Temporary Basis of a Proposed Rule

Change to Appoint the Canadian

Depository for Securities Limited as a

Correspondent Depository

July 30, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

April 18, 1997, the Philadelphia

Depository Trust Company (‘‘Philadep’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) and on

April 24, 1997, filed an amendment to

the proposed rule change as described

in Items I and II below, which Items

have been prepared primarily by

Philadep. The Commission is

publishing this notice and order to

solicit comments from interested

persons and to grant accelerated

approval of the proposed rule change

through October 31, 1997.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to extend temporary approval

of the appointment of The Canadian
Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices 42615

2Letter from J. Keith Kessel, Compliance Officer,

Philadep (April 24, 1997).

3The Commission has modified the text of the

summaries prepared by Philadep.

4Securities Exchange Act Release No. 36782

(January 26, 1996), 61 FR 3956 (File No. SR–

Philadep–96–01) (order granting accelerated

approval on a temporary basis of a proposed rule

change to appoint the WCDTC as a correspondent

depository); Securities Exchange Act Release No.

37383, (June 28, 1996), 61 FR 35292 (File No. SR–

Philadep–96–09) (order granting accelerated

approval on a temporary basis through December

31, 1996 of a proposed rule change seeking

permanent approval of the designation of the

WCDTC as a correspondent depository).

5Philadep will eliminate the family of accounts

subaccounting function for the CDS account, and

CDS activity will be processed in an omnibus

account.

6 15 U.S.C. 78q–1(b)(3)(F).

7Supra note 4.

8Securities Exchange Act Release No. 37918

(November 1, 1996), 61 FR 57938 (File No. SRPhiladep-96–17) (order granting accelerated

approval on a temporary basis of a proposed rule

change to appoint The Canadian Depository for

Securities Limited as a correspondent depository).

Depository for Securities Limited

(‘‘CDS’’) as Philadep’s nonexclusive

agent and custodian in receiving

securities deposited by CDS-sponsored

participants for delivery to Philadep and

to eliminate the family of accounts

subaccounting designed for and

pertaining to the individual participants

of CDS.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Philadep included statements

concerning the purpose of and basis for

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below.

Philadep has prepared summaries, set

forth in sections (A), (B), and (C) below,

of the most significant aspects of such

statements.3

Effective November 1, 1996, CDS

became a Philadep participant and has

served as a non-exclusive agent and

custodian for Philadep in receiving

securities deposited by certain CDSsponsored participants for credit to their

respective subaccounts in CDS’s

account at Philadep. Pursuant to

Philadep’s proposed rule change, the

operational arrangements will remain

intact as represented in previous filings

submitted to the Commission;4

however, Philadep will no longer use its

subaccount feature for the CDS account.

Philadep will now administer CDS like

other Philadep participants.5

Philadep believes the proposed rule

change is consistent with the

requirements of Section 17A of Act and

the rules and regulations thereunder

because the rule proposal fosters

cooperation and coordination with

persons engaged in the clearance and

settlement of securities transaction and

further assures the safeguarding of

securities and funds which are in the

custody or control of Philadep or for

which it is responsible.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

Philadep does not believe that the

proposed rule change will impact or

impose a burden on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were neither

solicited nor received with respect to

the proposed rule change. Philadep will

notify the Commission of any written

comments received by Philadep.

III. Date of Effectiveness of the

Proposed Rule Change and Timining

for Commission Action

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

requires that the rules of a clearing

agency by designed to foster cooperation

and coordination with persons engaged

in the clearance and settlement of

securities transactions. The Commission

believes that Philadep’s designation of

CDS as Philadep’s non-exclusive agent

and custodian in receiving securities

deposited by CDS-sponsored

participants for delivery to Philadep is

consistent with Philadep’s obligations

under Section 17A(b)(3)(F) because the

proposed rule change should help foster

cooperation and coordination between

the U.S. and Canada clearance and

settlement systems.

On January 26, 1996, the Commission

granted approval to Philadep’s proposal

that it be allowed to appoint WCDTC as

its nonexclusive agent and custodian in

receiving certain securities deposits.7

On November 1, 1966, the Commission

granted temporary approval to

Philadep’s proposed rule change to

allow Philadep to appoint CDS as its

nonexclusive agent and custodian

because CDS had purchased WCDTC

and would continue the correspondent

depository activities of WCDTC.8 In

connection with this proposed rule

change, Philadep has requested that the

Commission grant Philadep the latitude

to modify the extra financial protections

that are currently being applied to the

CDS account (i.e., $1 million

participants fund deposit and $5 million

(Canadian) letter of credit). Philadep

contends that a decrease in the financial

protections Philadep receives from CDS

is justified given (1) Philadep’s belief

that the short selling activity in the CDS

account may decrease; (2) that SCCP has

filed a proposed rule change with the

Commission to modify the participant’s

fund formula to account for short selling

activity; (3) Philadep’s belief that CDS

has comprehensive and formalized risk

management controls. However,

Philadep has not provided the

Commission with any supporting

documentation regarding these

assertions regarding CDS. Therefore, it

is the Commission’s position that the

extra financial protections that are

currently being applied to the CDS

account (i.e., $1 million participants

fund deposit and $5 million (Canadian)

letter of credit) should remain in place

at the same levels.

On November 1, 1996, the

Commission extended the temporary

approval of Philadep’s custodial

arrangement with CDS so that Philadep

and the Commission could further

monitor, review, and analyze this

custodial arrangement. The Commission

is again granting temporary approval of

the proposed rule change through

October 31, 1997, so that CDS can

continue to act as Philadep’s nonexclusive agent and custodian and can

continue its correspondence depository

activities until similar arrangements can

be implemented between CDS and The

Depository Trust Company in

connection with Philadep’s ceasing to

provide depository services. During this

temporary approval period, Philadep

should continue to monitor the

nonexclusive agent and custodian

arrangement between Philadep and CDS

to ensure that proper risk management

procedures are in place. In this regard,

the Commission requests that Philadep

continue to file monthly reports

analyzing activity in CDS’s omnibus

account and subaccounts.

Philadep has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. The

Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing because

accelerated approval will allow

Philadep to extend CDS’s appointment

as its non-exclusive agent and custodian

thus allowing CDS to continue its

correspondent depository activities. The

staff of the Board of Governors of the

Federal Reserve System concurred with
42616 Federal Register / Vol. 62, No. 152 / Thursday, August 7, 1997 / Notices

9Telephone conversation with John Rudolph,

Supervisory Trust Analyst, Board of Governors of

the Federal Reserve Board.

10 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2The proposal was filed originally by the Phlx on

July 25, 1997, and clarified on July 29, 1997. The

Phlx clarified the text of the rule and the advice to

state that the purpose of quarterly review by the

foreign Currency Options Committee is to

determine if series receiving designation as update

strikes should continue to receive such designation.

See Letter from Philip H. Becker, Senior Vice

President and Chief Regulatory Officer, Phlx, to

Michael Walinskas, Senior Special Counsel, Office

of Market Supervision, Division of Market

Regulation, SEC (July 28, 1997). See also Securities

Exchange Act Release No. 35123 (Dec. 20, 1994), 59

FR 66692, at 12 (permitting the staff discretion to

accept editorial changes to a proposed rule filing

without triggering a new 30 day comment period).

3 17 CFR 240.19b–4.

4Securities Exchange Act Release No. 33067

(October 19, 1993), 58 FR 57658.

the Commission’s granting of

accelerated approval.9

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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. Copies of the

submissions, 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, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filings will also be available for

inspection and copying at the principal

office of Philadep. All submissions

should refer to file number SR–

Philadep–96–17 and should be

submitted by August 28, 1997.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

Philadep–97–03) be, and hereby is,

approved through October 31, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–20749 Filed 8–6–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34—38891; File No. SR–Phlx–

97–34]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Amending the FCO Selective Quoting

Facility

July 31, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

July 25, 1997, the Philadelphia Stock

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the selfregulatory organization.2 The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx pursuant to Rule 19b–4 of

the Act,3 proposes to amend the foreign

currency option (‘‘FCO’’) Selective

Quoting Facility (‘‘SQF’’), embodied in

Rule 1012, Commentary .04 and Floor

Procedure Advice (‘‘Advice’’) F–18,

FCO Expiration Months and Strike

Prices—Selective Quoting Facility, to redesignate some series that maintain

open interest, but have not traded

within the previous five trade days, as

update strikes in certain situations.

Currently, these strikes are considered

non-update strikes under the provisions

of Advice F–18 an Rule 1012.04. The

proposal would permit the Foreign

Currency Options Committee to

designate these non-update strikes as

update strikes, after notification to the

trading community and with a quarterly

review by the Committee. The SQF is a

feature of the Exchange’s Auto-Quote

System. The complete text of the

proposed rule change is available at the

places specified in Item IV below.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and discussed any comments it received

on the proposed rule change. The text

of these statements may be examined at

the places specified in Item IV below.

The self-regulatory organization has

prepared summaries, set forth in

sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

Implemented in 1994,4 the SQF was

intended to reduce the number of strike

prices being continuously updated and

disseminated, thus resulting in more

timely and accurate FCO quote displays.

The SQF establishes criteria to

determine whether the bid/ask

quotation for each FCO series is eligible

for transmission to the Options Price

Reporting Authority (‘‘OPRA’’) for offfloor dissemination to securities data

vendors. Currently, the SQF, a feature of

the Exchange’s Auto-Quote system,

categories certain FCO strikes as ‘‘non

update’’ or ‘‘inactive’’ strikes, which are

disseminated with the OPRA indicator

‘‘I’’ and zeroes (e.g., 000–000), in lieu of

market. When a series is inactive, those

bids and offers are no longer updated in

the Exchange’s Auto-Quote system for

dissemination. However, if interest is

then voiced in any such series, it can be

activated immediately upon

establishment of a quote in that series.

Inactive strikes with open interest (that

have not traded in the previous five

days) are quoted once at the close of

trading in the previous five days) are

quoted once at the close of trading each

day for purposes of mark-to-market

valuation.

In contrast, ‘‘update’’ or ‘‘active’’

strikes include, at minimum: (1) Two inthe-money and six out-of-the-money,

and (2) strikes with open interest that

have traded within the previous five

days. Because Rule 1012.04 establishes

the minimum strikes to be activated,

active strikes may also be added at the

initiative of the Exchange or in response

to a request by the Specialist or an FCO

Floor Official.

Designating as inactive those series

that are away-from-the money or not

recently traded (meaning have the least

investor interest) eliminates quote

changes in those series, thus reducing

the dissemination delays caused by

thousands of quote changes in volatile

trading periods. Because inactive series

are not continuously updated and

disseminated, quotation processing

times are reduced such that quotes

respecting active strikes are updated

and disseminated to customers much

more quickly.

At this time, the Exchange proposes

that the SQF feature of Auto-Quote