Federal Register / Vol. 62, No. 162 / Thursday, August 21, 1997 / Notices 44501

3See File No. SR–CBOE–97–36.

4 15 U.S.C. 78f(b)(5).

5 17 CFR 200.30–3(a)(12).

1The MSRB filed Amendment No. 1 to the

proposed rule change on August 14, 1997, the

substance of which has been incorporated into the

notice. See letter from Jill C. Finder, Assistant

General Counsel, MSRB, to Katherine A. England,

Assistant Director, Market Regulation, Commission,

dated August 14, 1997.

factors set forth in Rule 6.3, which are

the same factors currently considered by

the Board in a suspension decision. This

proposed approach is consistent with

the procedure for index options under

Rule 24.7, where trading halts or

suspensions do not require action by the

Board.

In addition, the proposed rule change

would make clear that trading may

resume only upon a determination by

two Floor Officials that such a

resumption is in the interests of a fair

and orderly market. The present form of

Rule 6.3(b) allows trading to resume

when two Floor Officials determine

either that the conditions that led to the

halt no longer are present or that a

resumption of trading would serve the

interests of a fair and orderly market.

The Exchange believes that taken

literally, this would enable trading to

resume if the conditions that led to the

halt no longer are present, even if a

resumption of trading would be contrary

to the interests of a fair and orderly

market, an interpretation that would

conflict with the CBOE’s practice and

would be contrary to the policies under

the Act: Accordingly, the Exchange

believes that the proposed rule change

would make clear that: (1) Option

trading may resume after a halt if, and

only if, two Floor Officials determine

that such a resumption would be in the

interests of a fair and orderly market;

and (2) the fact that the conditions

leading to the halt no longer are present

is just one of the factors that Floor

Officials may consider in determining

whether the interests of a fair and

orderly market would be served by a

resumption of trading. The CBOE notes

that the Exchange has proposed similar

changes to Rule 24.7(b), which governs

the resumption of trading after a trading

halt in index options.3

Finally, because of the deletion of

Rule 6.4, the Exchange believes that it

also is necessary to make conforming

deletions of certain non-substantive

references to trading suspensions under

Rule 6.4 that appear in Rule 21.12 and

Interpretation .02 of Rule 21.19

(concerning government securities

options) and in Rule 23.8 (concerning

interest rate option contracts).

The Exchange believes that the

proposed rule change is consistent with

and furthers the objectives of Section

6(b)(5) of the Act 4 in that it is designed

to perfect the mechanism of a free and

open market and to protect investors

and the public interest by enabling

Floor Officials to evaluate and to

consider market conditions and

circumstances and to halt trading for as

long as necessary in the interests of a

fair and orderly market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE does not believe that the

proposed rule will impose any burden

on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

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 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

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

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

available for inspection and copying in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of all

such filings will also be available for

inspection and copying at the principal

office of CBOE. All submissions should

refer to File No. SR–CBOE–97–35 and

should be submitted by September 11,

1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–22184 Filed 8–20–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38935; File No. SR–MSRB–

97–04]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board Relating to Its Arbitration Code

August 14, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on May 22, 1997,1 the

Municipal Securities Rulemaking Board

(‘‘Board’’ or ‘‘MSRB’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. 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 Board is filing a proposed rule

change to amend Rule G–35, the Board’s

Arbitration Code. The proposed rule

change would create two sections:

Section 37 would state that the Board

will not accept any new arbitration

claims filed on or after January 1, 1998;

and Section 38 would provide that, as

of January 1, 1998, every bank dealer (as

defined in Rule D–8) shall be subject to

the Code of Arbitration Procedure of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’) for every claim,

dispute or controversy arising out of or

in connection with the municipal

securities activities of the bank dealer

acting in its capacity as such. New

Section 38 would further provide that

each bank dealer shall be subject to, and

shall abide by, the NASD’s Code of

Arbitration Procedure as if the bank

dealer were a ‘‘member’’ of the NASD.
44502 Federal Register / Vol. 62, No. 162 / Thursday, August 21, 1997 / Notices

2The NASD also transferred cases (other than

those involving municipal securities) to other selfregulatory organizations (‘‘SROs’’), such as the New

York Stock Exchange and the American Stock

Exchange, if the particular claim arose out of a

transaction in that SRO’s market.

3At such time, the Board will submit a filing to

the Commission to delete sections 1 through 36 of

Rule G–35, as well as new Section 37, and to

rescind Rule A–16 on arbitration fees and deposits.

The text of the proposed rule change is

as follows, with additions in italics:

Arbitration

Rule G–35. Every broker, dealer and

municipal securities dealer shall be

subject to the Arbitration Code set forth

herein.

Arbitration Code

Section 1 through Section 36. No

change.

Section 37. Arbitration Claims Filed

On or After January 1, 1998. The Board

will not accept any new arbitration

claims filed on or after January 1, 1998.

Section 38. Arbitration Involving Bank

Dealers. As of January 1, 1998, every

bank dealer (as defined in rule D–8)

shall be subject to the Code of

Arbitration Procedure of the National

Association of Securities Dealers, Inc.

(‘‘NASD’’) for every claim, dispute or

controversy arising out of or in

connection with the municipal

securities activities of the bank dealer

acting in its capacity as such. For

purposes of this rule, each bank dealer

shall be subject to, and shall abide by,

the NASD’s Code of Arbitration

Procedure as if the bank dealer were a

‘‘member’’ of the NASD.

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

Board 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 Board 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

1. Purpose

The Board’s arbitration program,

which is limited to the resolution of

disputes involving municipal securities,

has been in effect since December 1978.

The Board’s caseload grew steadily for

a time; for example, 21 cases were

received in 1980, 82 in 1986, and 115

in 1988. Between 1978 and 1993, the

NASD automatically transferred to the

Board’s arbitration program any claims

received involving municipal securities,

and until approximately 1993 the

majority of the Board’s cases were

received in this manner.2 In 1993, the

NASD amended its arbitration code to

require a customer’s consent before it

could transfer a case to another selfregulatory organization (‘‘SRO’’). The

practical effect of this amendment has

been to virtually halt the transfer of

municipal cases to the Board’s

arbitration program because customers

choose to remain at the NASD.

Consequently, the Board’s caseload has

declined dramatically from 115 cases

received in 1988 to 10 cases received in

1996. For 1997, the Board has thus far

received two cases.

The Board believes that its declining

caseload makes it difficult to justify the

cost of continuing to operate the

arbitration program. Accordingly, the

Board has determined that, effective

January 1, 1998, it will no longer accept

any new claims filed with its arbitration

program. The Board will, however,

continue to operate its program in order

to administer its current, open cases and

any new claims received prior to

January 1, 1998, but will discontinue its

arbitration program when all such cases

have been closed.3

The Board notes that, currently, any

customer or securities dealer with a

claim, dispute, or controversy against a

dealer involving its municipal securities

activities may submit that claim to the

arbitration forum of any SRO of which

the dealer is a member, including the

NASD. Bank dealers, however, are

unique in that they are subject to the

Board’s rules but are not members of

any other SRO. In light of the Board’s

decision not to accept any new

arbitration claims on or after January 1,

1998, it is necessary to amend Rule G–

35 to state this and to provide an

alternative forum for claims involving

the municipal securities activities of

bank dealers. The proposed rule change

accomplishes this by subjecting every

bank dealer, as of January 1, 1998, to the

NASD’s Code of Arbitration Procedure

for every claim, dispute or controversy

arising out of or in connection with the

municipal securities activities of the

bank dealer acting in its capacity as

such. In addition, the proposed rule

change requires that bank dealers abide

by the NASD’s Code just as if they were

‘‘members’’ of the NASD for purposes of

arbitration.

The Board notes that, pursuant to the

proposed rule change, the enforcement

mechanism for bank dealers would not

be altered; the bank regulatory agencies

(e.e., the Office of Comptroller of the

Currency, the Federal Reserve Board,

and the Federal Deposit Insurance

Corporation) would continue to be

responsible for the inspection and

enforcement of bank dealers’ municipal

securities activities, including

arbitration. Thus, for example, a bank

dealer’s failure to pay an arbitration

award rendered pursuant to the NASD’s

Code of Arbitration Procedure would

constitute a violation of Board Rule G–

35; since it is that rule, as amended, that

subjects bank dealers to the NASD’s

Code. Similarly, a bank dealer’s refusal

to submit to arbitration pursuant to the

NASD’s Code of Arbitration Procedure

would constitute a violation of Board

Rule G–35. The NASD would notify the

Board Of any such violations and the

Board, in turn, would contact the

appropriate bank regulatory agency.

2. Statutory Basis

The Board believes that the proposed

rule change is consistent with Sections

15B(b)(2) (C) and (D) of the Act, which

provide, respectively, that the Board’s

rules shall:

be designed* * *, in general, to protect

investors and the public interest * * *. [and

if the Board deems appropriate, provide for

the arbitration of claims, disputes, and

controversies relating to transactions in

municipal securities * * *.

As discussed above, the Board deems

it no longer appropriate to operate an

arbitration program. The Board believes

that the proposed rule change provides

for the protection of investors and the

public interest, particularly those public

investors who wish to pursue arbitration

claims against bank dealers in

connection with their municipal

securities activities. The proposed rule

change ensures that there is an

arbitration forum available for those

claims.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act since the proposed

rule change would make all bank

dealers subject to the NASD’s Code of

Arbitration Procedure in connection

with their municipal securities

activities. Non-bank dealers already are

subject to this Code by virtue of being

NASD members.
Federal Register / Vol. 62, No. 162 / Thursday, August 21, 1997 / Notices 44503

4 MSRB Reports, Vol. 16, No. 3 (Sept. 1996) at 25.

1See Securities Exchange Act Release No. 25637

(May 2, 1988), 53 FR 16488 (May 9, 1988).

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

In September 1996, the Board

published a notice expressing its

concern over the costs of operating the

arbitration program in light of the

decreasing number of cases filed with

the Board.4 The Board stated that the

decline in its caseload makes it difficult

to justify the cost of continuing to

operate the arbitration program, and that

it was considering discontinuing its

arbitration program. The Board

requested comment on the impact that

such action would have on the public

and the industry, and specifically

requested comment on what effect, if

any, the elimination of its arbitration

program would have on bank dealers

who are not NASD members.

In response to its request, the Board

received comment letters from a dealer

and from an individual who serves as an

arbitrator for the Board. The dealer

expressed its concern that arbitrators

serving in other SRO arbitration

programs do not have sufficient

knowledge of the municipal securities

industry. In an attempt to address this

concern, the Board, in the next few

months, plans to forward its list of

arbitrators to the NASD.

With regard to bank dealers, the

dealer stated that the Board’s program

should not be eliminated until an

arbitration forum is established for these

dealers, and suggested that the Board

require bank dealers to use the NASD’s

arbitration program for resolving

disputes involving municipal securities.

The proposed rule change accomplishes

this.

The other commentator expressed his

belief that elimination of the Board’s

program will not impair the industry’s

arbitration process.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of

this notice in the Federal Register or

within such longer period (i) as the

Commission may designate up to 90

days of such date if it finds such longer

period to be appropriate and publishes

its reasons for so finding or (ii) as to

which the self-regulatory organization

consents, the Commission will:

(A) By order approve the 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 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

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. Copies of such filing will also be

available for inspection and copying at

the principal office of the Board. All

submissions should refer to File No.

SR–MSRB–97–04 and should be

submitted by September 11, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–22182 Filed 8–20–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38936; File No. SR–NASD–

97–42]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Amend NASD Rule

2320(g) To Provide Authority to the

Staff of NASD Regulation To Grant

Exemptions From Such Provision

August 14, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on June 17, 1997, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by the selfregulatory organization. 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

NASD Regulation is proposing to

amend NASD Rule 2320(g) to provide

authority to the staff of NASD

Regulation to grant exemptions from

such provision. Below is the text of the

proposed rule change. Proposed new

language is in italics.

Rule 2320. Best Execution and

Interpositioning

(g) (1) In any transaction for or with

a customer pertaining to the execution

of an order in a non-Nasdaq security (as

defined in the Rule 6700 Series), a

member or person associated with a

member, shall contact and obtain

quotations from three dealers (or all

dealers if three or less) to determine the

best inter-dealer market for the subject

security.

(g)(2) The staff, upon written request,

after taking into consideration all

relevant factors, may exempt any

transaction or classes of transactions,

either unconditionally or on specified

terms from any or all of the provisions

of this paragraph if it determines that

such exemption is consistent with the

purpose of this rule, the protection of

investors, and the public interest. Any

decision whether to grant such an

exemption may be appealed to the

National Business Conduct Committee.

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

1. Purpose

NASD Rule 2320(g) (‘‘The Three

Quote Rule’’ or ‘‘Rule’’) originally was

adopted on May 2, 1988 1 as an

amendment to the NASD’s best

execution interpretation (‘‘Interpretation

of the Board of Governors—Execution of