46530 Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices

9 15 U.S.C. 78f(b)(5).

10 15 U.S.C. 78s(b)(3)(A)(i).

11 17 CFR 240.19b–4.

12 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by Delta.

firm or by another correspondent of the

member firm. Member firms should

instruct their correspondents not to give

access to the Exchange’s systems to

other customers without the prior

knowledge and consent of the member

firm through whose facilities such

access would be provided.

The Exchange has carried out an

increasing number of investigations of

violative activity involving

correspondent use of the Exchange’s

electronic order-handling systems. In

addition, the Exchange has issued

disciplinary decisions against member

firms due to correspondents’ improper

use of Exchange electronic orderhandling systems. The Exchange

believes that the record-keeping

suggested by the proposed regulatory

circular will serve as an educational tool

to help eliminate violations of the rules

governing the use of such systems.

2. Statutory Basis

The Exchange represents that

proposed rule change is consistent with

the objectives of Section 6(b)(5) 9 in that

it will serve to promote just and

equitable principles of trade and protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change constitutes

a stated policy, practice or

interpretation with respect to the

meaning, administration, or

enforcement of the Exchange’s rules

and, therefore, has become effective

pursuant to Section 19(b)(3)(A)(i) of the

Act 10 and subparagraph (e) of Rule 19b–

4 thereunder.11

At any time within 60 days of the

filing of the proposed rule change, the

Commission may summarily abrogate

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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 also will be

available for inspection and copying at

the principal office of the Chicago Board

Options Exchange. All submissions

should refer to File No. SR–CBOE–97–

32 and should be submitted by

September 24, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23341 Filed 9–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38971; File No. SR–DCC–

97–04]

Self-Regulatory Organizations; Delta

Clearing Corp.; Notice of Filing of a

Proposed Rule Change Relating to the

Combining of Options and Repo

Procedures

August 26, 1997.

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

Securities Exchange Act of 1934

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

March 17, 1997, Delta Clearing Corp.

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

Exchange Commission (‘‘Commission’’)

the proposed rule change (File No. SR–

DCC–97–04) as described in Items, I, II,

and III below, which items have been

prepared primarily by Delta. Delta

amended the proposed rule change on

May 7, 1997, and May 29, 1997. 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

Delta proposes to combine its

procedures (‘‘Options Procedures’’) for

the clearance and settlement of options

trades and its procedures (‘‘Repo

Procedures’’) for the clearance and

settlement of repurchase and reverse

(‘‘repo’’) agreement transactions into

one set of procedures (‘‘Combined

Procedures’’) to be known as the

Procedures for the Clearing of Securities

and Financial Instrument Transactions.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Delta 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. Delta has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statement.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Combined Procedures

The proposed rule change will effect

various modifications to Delta’s

procedures relating to the clearance and

settlement of options and repos.

a. Definitions: In addition to the

defined terms discussed elsewhere in

this notice, the Combined Procedures

will contain the following defined terms

which apply to transactions in both

options and repos: closing transaction,

contract, delivering participant, holder,

long position, opening transaction,

positions, purchasing participant,

receiving participant, selling

participant, settlement date, short

position, system, trade date,

transactions, underlying collateral, unit

of trading, and variable terms.

‘‘Contract’’ will refer to both option

contracts and repo contracts. ‘‘Options

contracts’’ will be defined to include

puts and calls issued by Delta to a

purchasing participant and matching

puts and calls purchased by Delta from

a writing participant. ‘‘Repo contracts’’

will be defined to include repos and
Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices 46531

3The changes to Section 212 proposed by the

Combined Procedures are intended to broaden

Delta’s right of setoff in the event of a participant

default. However, the Combined Procedures are not

intended to affect Delta’s operational netting.

In general, Delta clears option transactions on a

delivery versus payment basis (Sections 2901 (b)

and (c)). However, pursuant to Section 2805, to the

extent that a participant is both a delivering and

receiving participant for option contracts of the

same type (i.e., put or call), covering the same issue

and unit of trading of Treasury securities and

having the same exercise price and settlement date,

the settlement (i.e., payment and delivery)

obligations of the participant with respect to such

option contracts will be netted.

Similarly, Delta clears repo contracts on a

delivery versus payment basis (Section 3103 (b) and

(c) with respect to on-date settlement and Section

3604 (b) and (c) with respect to off-date settlement).

However, pursuant to Sections 3401 and 3402, if a

participant has a repo and reverse repo with the

same underlying collateral and the same on-date or

off-date, as applicable, the participant’s payment

and delivery obligations with respect to such

agreements will be netted. This means that if a

participant is required to deliver $3 million par

amount of a specified security on the off-date of a

reverse repo and to receive on that same date $2

million par amount of the same security on the offdate of a repo, these obligations will be netted and

a net delivery of $1 million par amount (the ‘‘net

par amount’’) will be made by the participant.

Payment obligations for such transactions will also

be netted. The definition of net par amount will be

amended to provide greater clarity consistent with

the foregoing description.

reverse repos entered into by Delta with

participants. ‘‘Holder’’ will be defined

to include the holder of an option or a

repo contract.

The Options Procedures use the term

‘‘underlying treasury securities’’ to refer

to the treasury securities underlying an

option contract. The Repo Procedures

use the term ‘‘underlying collateral’’ to

refer to the treasury securities

underlying a repo contract. The

Combined Procedures will use the term

‘‘underlying collateral’’ for both options

and repo transactions. ‘‘Unit of trading’’

will refer to underlying collateral in the

principal amount of $1,000,000 for a

single option contract or for a single

repo contract.

‘‘System’’ will be defined in the

Combined Procedures as the over-thecounter clearing system to facilitate

clearance and settlement by participants

of transactions in options on treasury

securities and repos in treasury

securities. ‘‘Transactions’’ will refer to

all transactions settled and cleared

through the system, which includes all

options transactions and repo

transactions cleared through the system.

Consistent with this definition, the term

‘‘opening transaction’’ will include

opening purchase and writing

transactions in options and opening

repo and reverse repo transactions, and

the term ‘‘closing transaction’’ will

include closing purchase and sale

transactions in options and closing repo

and reverse repo transactions. Similarly,

‘‘delivering participant’’ will include

the participant to whom an exercise

notice has been assigned on a matching

call, the exercising participant on a put,

the seller of the repo collateral on the

on-date, or the party responsible for

returning the repo collateral on the offdate. ‘‘Receiving participant’’ will

include the exercising participant on a

call, the participant to whom an

exercise notice has been assigned on a

matching put, the holder of the reverse

repo on the on-date, and the holder of

the repo on the off-date. ‘‘Purchasing

participant’’ will include the purchaser

of an option contract or the purchaser of

the collateral on the on-date of a repo

transaction. ‘‘Selling participant’’ will

include the seller of an option contract

or the seller of the collateral on the ondate of a repo transaction.

The Combined Procedures will use

the term ‘‘positions’’ to refer to all

options and repo positions of a

participant. Consistent with this

definition, the term ‘‘long position’’ will

include the interest of a participant as

the holder of one or more option

contracts or reverse repos, and the term

‘‘short position’’ will include the

aggregate obligations of a participant as

a writer of one or more option contracts

and the interest of the holder of one or

more repos.

The Combined Procedures will use

the term ‘‘trade date’’ to refer to the date

on which an option contract was

written, sold, or purchased or the date

that a new repo contract was

established. The Combined Procedures

will use the term ‘‘settlement date’’ to

refer to the first business day

immediately following the day on

which Delta receives matching trade

reports with respect to options

transactions and the business day upon

which two participants agree to transfer

underlying collateral versus payment

with respect to repo transactions.

With respect to an option contract,

‘‘variable terms’’ will refer to the

exercise price, expiration date,

premium, and either the maturity date

and coupon rate (if the underlying

collateral are treasury bonds or notes) or

the maturity week (if the underlying

collateral are treasury bills). With

respect to repo contracts, ‘‘variable

terms’’ will refer to the repo rate, net

money, rights of substitution, settlement

date, maturity date, and coupon rate (if

the underlying collateral are treasury

notes or bonds).

b. Exposure Limit and MPSE: Delta

currently sets exposure limits for each

participant in the system on an

aggregate basis for options and repo

transactions that limit the amount of

exposure such participant can have to

Delta. In addition, the maximum

potential system exposure (‘‘MPSE’’) of

the system is measured on an aggregate

basis for options and repo transactions.

The Combined Procedures will clarify

that calculations of exposure limit and

MPSE are to be determined on an

aggregate system-wide basis by

providing for a single uniform definition

of these terms and by providing in

Section 204 of the Combined Procedures

that each participant agrees to conduct

all transactions cleared through the

system within such participant’s

exposure limit. In the case of option

contracts, a participant may have

exposure on its short positions but does

not have exposure on its long positions.

In the case of repo contracts, a

participant may have exposure on both

its long positions and its short positions.

This distinction will be reflected in the

definitions of exposure limit and MPSE.

C. Participant Default: The proposal

will add to the Combined Procedures

the term ‘‘participant default’’ which

will mean a payment default, delivery

default, premium default, and margin

default. The terms ‘‘payment default’’

and ‘‘delivery default’’ will be revised to

include a payment or delivery default

with respect to options or repo

transactions. The effect of these changes

and other conforming changes in the

Combined Procedures will be to clarify

that a default by a participant with

respect to an options or a repo

transaction may result in remedies,

including suspension and liquidation,

which are applicable to all transactions

in a participant’s account.

Under Delta’s current procedures, a

default by a participant with respect to

an option contract would not constitute

a default with respect to the repo

contracts to which the participant is a

party, and a default by a participant

with respect to a repo contract would

not constitute a default with respect to

the option contracts to which the

participant is a party. Under Section 212

of the Combined Procedures, a default

by a participant in the performance of

any obligations with respect to an

option contract or a repo contract will

constitute a default by the participant

with respect to all transactions of the

participant in the system, and Delta will

be entitled, in such event, to set off any

obligations of Delta in respect of any of

the participant’s transactions in the

system against the participant’s

obligations to Delta.3

Consistent with the foregoing, Section

307 of the Combined Procedures, which

will replace Section 307 of the Options

Procedures and Section 2307 of the

Repo Procedures, will provide that Delta

will have a security interest in all
46532 Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices

4Securities Exchange Act Release No. 38796

(June 30, 1997), 62 FR 37326 [File No. SR–DCC–97–

02] (order approving proposed rule change).

5Such provisions establish qualification

requirements for brokers, including compliance

with Rule 17a–23 under the Act, maintenance of

books and records, and necessary operational

capacity.

6Securities Exchange Act Release No. 38471

(April 2, 1997), 62 FR 17257 [File No. SR–DCC–96–

12] (order approving proposed rule change).

7Securities Exchange Act Release No. 37639

(September 4, 1996), 61 FR 48186 [File No. SR–

DCC–96–09] (order granting approval of proposed

rule change relating to acceptable forms of

collateral).

money and securities of a participant as

security for payment of any liability of

such participant to Delta arising from

participation in the system. For

example, Delta will have a security

interest in margin deposited for repo

transactions which will be security for

payment of a liability resulting from a

default by a participant on an option or

a repo contract.

Upon the occurrence of a participant

default, Delta may liquidate a

participant’s account through a

liquidating settlement account

established for such participant. The

term ‘‘liquidating settlement account’’

will be defined in the Combined

Procedures as the account established

for the orderly liquidation of a

suspended participant’s positions.

Because ‘‘positions’’ will be defined to

include positions in both options and

repo contracts, the Combined

Procedures will clarify that Delta will

effect any liquidation of a participant

through one settlement account rather

than through separate accounts for

liquidation of options and repo

positions.

d. Multiple Brokers: On June 30, 1997,

the Commission approved proposed

changes to Delta’s Options Procedures

to provide for the introduction of

multiple brokers to the clearance system

for options transactions.4 Under the

Combined Procedures, the provisions of

Article XX of the Options Procedures

(‘‘Authorize Brokers’’) will be

incorporated into the Combined

Procedures as Article 12 and thus made

applicable to both options and repo

transactions.5 In addition, other changes

made by such filing will be incorporated

into Article 23 of the Combined

Procedures with respect to trade

reporting for options transactions, and

such changes will be incorporated for

trade reporting of repo transactions by

comparable amendments to Article 30 of

the Combined Procedures. Other

changes made by the filing, such as the

definitions of ‘‘authorized broker’’ and

‘‘authorized broker trade report,’’ will be

incorporated in the Combined

Procedures and thus will be made

applicable to options and repo

transactions.

e. Margin: The Combined Procedures

will combine in Article 22 of the

procedures the margin provisions

currently set forth in Article VI of the

Options Procedures and Article XXVI of

the Repo Procedures. Prior to 8:00 a.m.

of each business day, participants

receive a ‘‘daily margin report’’ showing

the net positive or negative exposure on

their aggregate positions as of the end of

the prior business day. This net positive

or negative exposure takes into account

a participant’s options positions and

term repo positions; margin for a

participant’s positions in overnight

repos is calculated separately.6 The

amendments are not intended to change

existing participant margin

requirements. By combining Articles VI

and XXVI, the Combined Procedures

will clarify that a participant is required

to deposit margin based upon its

aggregate net exposure on its options

positions and its positions in term

repos.

‘‘Settlement time’’ is defined in the

Options Procedures as 11:00 a.m. New

York time or the earliest time

practicable following the opening of the

Federal Reserve wire on the settlement

day. Section 602 of the Options

Procedures requires the deposit of

margin other than intraday additional

margin at or before the settlement time

on each business day. Section 2602.1 of

the Repo Procedures provides for the

deposit of margin other than

supplemental or intraday additional

margin at or before 11:00 a.m. The

Combined Procedures will conform the

Options and Repo Procedures by

providing in Section 2204, which is

applicable to options and repo

positions, that margin deficits shown on

the daily margin report must be

deposited at or before the later of 11:00

a.m. or the earliest time practicable

following the opening of the Federal

Reserve System.

Section 2202 of the Combined

Procedures (the equivalent to Section

601.1 of the Options Procedures and

2601.1 of the Repo Procedures) will

incorporate for options transactions the

recently approved rule change 7 under

the Repo Procedures permitting

participants to deposit treasury notes

and treasury bonds as margin and

incorporating the schedule of applicable

haircuts found in Rule 15c3–

1(c)(2)(vi)(A)(1) under the Act.

Consistent with this change, the defined

term ‘‘cash margin’’ will be changed to

‘‘margin’’ in certain sections of the

Combined Procedures.

Section 602 of the Options Procedures

currently provides that deposits of

additional margin in respect of margin

deficits shown on the daily margin

report are not required if the amount to

be deposited by the participant is $5,000

or less. The Repo Procedures in Section

2602.1 currently provide that deposits

are not required if such amount is

$50,000 or less. Consistent with the

current Repo Procedures, section 2204

of the Combined Procedures will

provide that deposits are not required if

the margin deficit shown on the daily

margin report is $50,000 or less.

However, as discussed above, the daily

margin report will aggregate options

positions and positions in term repo

agreements.

f. Business Day: The Combined

Procedures will conform the definition

of business day for options and repo

transactions. As currently written, the

Repo Procedures define business day to

exclude ‘‘a Saturday, Sunday, or a day

on which banking institutions in the

City of New York are authorized by law

to close,’’ while the Options Procedures

also exclude ‘‘any day on which

government securities dealers in the

City of New York are not open for

business.’’ The Combined Procedures

will conform the definition of this term

in the Repo Procedures to the definition

in the Options Procedures.

g. Sanctions for Late Trade Reports:

Section 3301 of the Repo Procedures

provides that the sanction for filing a

late trade report in an amount not to

exceed $500. In contrast, the Options

Procedures in Section 1301 provide for

sanctions of $100 for the first violation,

$200 for any second violation occurring

within three months of the first

violation, and $300 for any subsequent

violation occurring within three months

of a prior violation. The Combined

Procedures will retain the graduated fee

schedule of Section 1301 and will apply

that schedule to late trade reports

involving repos.

h. Central Bank Wire System; Federal

Reserve System: The Repo Procedures in

various places use the terms ‘‘central

bank funds’’ and ‘‘central bank wire

system’’ in place of the terms ‘‘Federal

Reserve System’’ and ‘‘Fed Funds’’

which are used in the Options

Procedures. The use of these terms was

intended to cover the situation where

Delta had received authorization to clear

trades to be effected by participants

through central banks other than the

Federal Reserve. Because Delta has not

yet applied for nor received any such

authorization, Delta proposes in the

Combined Procedures to replace the
Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices 46533

8Performance margin represents an estimate of

the net shortfall from the liquidation of a

participant’s positions at the close of the next

business day.

9This discussion excludes overnight repos which

are not included within proposed Section 2212.

terms ‘‘central bank funds’’ and ‘‘central

bank wire system’’ with the terms ‘‘Fed

Funds’’ and ‘‘Federal Reserve System.’’

For purposes of consistency, the

Combined Procedures will amend

Delta’s existing procedures by using the

term ‘‘Federal Reserve System’’ in

various sections in place of the term

‘‘Federal Wire System’’ and the term

‘‘Fed Funds’’ in various sections in

place of the term ‘‘Federal Reserve

Funds.’’

i. Suspension or Termination of

Operations: The Repo Procedures

provide that the suspension or

termination of the operation of the

system will not affect the terms of any

existing repo agreement. The Options

Procedures provide that the suspension

or termination of the system will not

affect the terms of any existing option

contract absent the consent of the

participant which is party to such

contract. The Combined Procedures will

adopt the language set forth in the

Options Procedures which will be made

applicable to option and repo contracts.

Delta does not believe that this

constitutes a material change because

the parties could agree to modify a

contract under either provision.

2. Timing of Margin Collection and

Monetization of Net Positive Exposure

The Options Procedures currently

provide that a participant may borrow

from Delta on an overnight basis up to

35% of the participant’s net positive

exposure on its options positions,

adjusted for ‘‘performance margin.’’ 8

Under the Combined Procedures, a

participant will be able to borrow from

Delta on an overnight basis up to 35%

of the participant’s net positive

exposure on its options positions and

positions in term repos.

Each morning at approximately 8:00

a.m. of each business day, Delta sends

to each participant a daily margin report

which includes a statement of the

participant’s net positive or negative

exposure as of the close of the prior

business day.9 Delta requires that any

participant with a negative exposure

deposit with Delta any required margin

by 11:00 a.m. of the morning on which

the report is sent. Under proposed

Section 2212, if the daily margin report

shows that the participant has a net

positive exposure after adjustment for

performance margin, the participant

may request on or before 11:00 a.m. of

the morning on which the report is sent

that Delta lend to it on an overnight

basis cash or treasury securities to the

extent available to Delta with a value of

not more than 35% of the participant’s

net positive exposure after adjustment

for performance margin. In order to

make such overnight loans, Delta will

generally transmit securities by 3:00

p.m. that day or will transmit funds by

5:00 p.m. that day.

Participants may wish to borrow

against their net positive exposure in

order to reduce their exposure to Delta,

to obtain working capital, or for other

purposes. Delta does not believe that

permitting such borrowing exposes the

clearing system to any material

additional risk because participants

borrowing against their net positive

exposure remain over-collateralized

with Delta to the extent of 65% of their

net positive exposure with Delta after

adjusting for performance margin.

3. Waiver of Suspension

Delta proposes that the waiver of

suspension provisions of Section 401 be

revised to provide that suspension may

be deferred not more than two hours in

the event of a margin, premium, or

payment default and for such period as

Delta determines appropriate in the

event of a delivery default if Delta

determines that the participant required

to make delivery has been unable to

obtain the security required to be

delivered after good faith effort and that

such failure to delivery is not the result

of a change in the participant’s financial

condition. The proposed change will

not allow deferral of suspension beyond

the two hour period in the case of a

margin, premium, or payment default,

which all involve the failure to make

payment. In the case of a delivery

default, however, Delta believes that

there may be situations where the

failure to deliver is unrelated to the

participant’s financial condition but

instead results from the scarcity of the

security required to be delivered.

4. Annual List of Participants

Section 213 of the Combined

Procedures will provide that Delta will

on an annual basis send a list of current

participants in the system to all

participants. Section 213 will make this

requirement, currently applicable for

repo participants, applicable for both

options and repo participants. This is in

addition to the existing requirement that

participants be notified upon the

admission or withdrawal of a

participant.

5. Audited Report of Internal

Accounting Controls

Delta’s existing procedures provide

that each participant is required to

deliver to Delta within forty-five days

after the end of its fiscal year an audited

report of its financial condition and its

internal accounting controls prepared in

accordance with generally accepted

accounting principles. Certain

participants have indicated that an

audited report of ‘‘internal accounting

controls’’ is not a standard requirement.

Delta proposes in Section 206 of the

Combined Procedures to eliminate the

requirement that participants deliver

audited reports of their internal

accounting controls. Participants will

continue to be obligated to deliver to

Delta annual audited financial

statements.

6. Allocation of Duties Between Delta

and the Clearing Bank

Delta has determined to undertake

various duties related to operation of the

clearing system instead of delegating

those duties to the clearing bank. The

Combined Procedures will identify

where the change in responsibilities

affects participants. Under the proposed

procedures, Delta, rather than the

clearing bank, will assume the authority

and obligation to receive, compare, and

transmit trade reports and other reports

(Articles 23 and 30); to accept trades for

clearance (Sections 2303 and 3003); to

provide system software (Section 303);

to calculate and maintain margin

(Article 22); to transmit, receive, and

assign exercise notices and to accept

exercise notices for clearance (Article

28); and to reconcile differences with

participants (Sections 2303 and 3003).

7. Miscellaneous Changes

Section 2403 of the current Repo

Procedures provides that Delta will

accept a transaction only if it is

designated as delivery versus payment.

The Combined Procedures will clarify

in Section 3003 that delivery versus

payment is not required in the event

that positions in repo contracts are

netted pursuant to Section 3401 or 3402

of the Combined Procedures (currently

Sections 2901 and 2902 of the Repo

Procedures).

Section 304 of the Combined

Procedures will provide that inspection

by Delta of participants’ records will be

at such time as may be reasonably

requested by Delta and that the scope of

such inspections will be limited to

matters related to the procedures, the

participant’s transactions in the system,

and other matters related to Delta’s

business. Sections 209(b) and 2209(b) of
46534 Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices

10The discussion in this paragraph relates to

option and term repo transactions. Exposures with

respect to overnight repos are subject to a separate

margin requirement. 11 17 CFR 200.30–3(a)(12).

Delta’s existing Options and Repo

Procedures provide that as a condition

to participating in the system, a

participant must agree to permit

inspection of its books and records. The

Combined Procedures will provide that

a participant agrees to permit inspection

subject to Section 304. This means that

a participant only will be required to

permit inspections which relate to the

Combined Procedures, the participant’s

transactions in the system, and other

matters related to Delta’s business.

The Repo Procedures currently use

the terms ‘‘repo’’ and ‘‘repurchase

agreement’’ interchangeably. The

Combined Procedures will provide for

more uniform use of these terms. The

term ‘‘repurchase agreement’’ will be

used in the following defined terms:

repurchase agreement, reverse

repurchase agreement, matching

repurchase agreement, matching reverse

repurchase agreement, term repurchase

and reverse repurchase agreements, and

overnight repurchase and reverse

repurchase agreements. The term ‘‘repo’’

will be used in the following defined

terms: repo transaction, opening repo

transaction, closing repo transaction,

repo contract, repo position, repo

interest, and repo rate.

In the definition of ‘‘closing price,’’

the reference to the New York Fed

publishing quotations will be revised to

include any other similar reputable

pricing source. This is in anticipation of

Delta’s understanding that the New

York Fed will cease publishing such

quotations. Delta intends to use a

pricing source such as Muller Data,

Telerate, Reuters, or Bloomberg which is

widely known and accepted by brokers

and dealers in treasury securities. Delta

will notify the Division of Market

Regulation prior to designating a new

pricing source.

The definitions of ‘‘letter of credit’’

and ‘‘surety bond’’ will be revised to

conform to one another. Redundant

language in Section 2303 of the existing

Repo Procedures (Section 303 of the

Combined Procedures) will be deleted.

The definitions of ‘‘daily margin report’’

and ‘‘daily position activity report’’ will

be amended to more accurately reflect

the titles and contents of such reports.

Delta’s current Options and Repo

Procedures contain various references to

custodian bank and margin accounts for

investment companies, but the use of

such terms is not consistent. However,

at present, there are no registered

investment companies which have

applied to become participants in the

clearing system. Delta is not seeking

authority currently to admit registered

investment companies as participants in

the system. The Combined Procedures

will revise the existing Options and

Repo Procedures by deleting all

references to registered investment

company, margin account, and

custodian bank.

The Combined Procedures will add a

definition of ‘‘correspondent bank’’

which is a term used but not defined by

the Options and Repo Procedures.

‘‘Correspondent bank’’ will refer to a

bank designated by a participant

pursuant to Section 302 of the

Combined Procedures for receipt and

delivery of money and securities. The

Combined Procedures will make other

definitional, conforming, crossreferencing, spelling, and grammatical

changes which do not constitute

material amendments to Delta’s

procedures, including changing article

headings from roman numerals to arabic

numbers.

8. Benefit to Participants

The Combined Procedures will

benefit participants because a

participant’s exposure for option and

term repo transactions and the margin

required to be deposited and maintained

by the participant will be based upon a

single calculation.10 For example, if a

participant has a negative exposure of

$3 million as a result of option

transactions entered into by the

participant in the clearing system and a

positive exposure of $1 million as a

result of term repo transactions entered

into by the participant in the clearing

system, the participant’s margin

requirements will be determined based

upon a net short position of $2 million

rather than $3 million.

Delta believes the proposed rule

changes are consistent with the

requirements of Act and the rules and

regulations thereunder applicable to

Delta and in particular with Section

17A(b)(3)(F) of the Act which requires

that a clearing agency be organized and

its rules be designed to promote the

prompt and accurate clearance and

settlement or securities transactions, to

safeguard funds and securities in Delta’s

possession and control, and to remove

impediments to and perfect the

mechanism of a national system for the

prompt and accurate clearance and

settlement of securities transactions.

Delta believes that the combining of the

Options and Repo Procedures will

permit wider utilization of the clearing

system by participants.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

Delta 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.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Comments were neither solicited nor

received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 Delta 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

Room, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of Delta. All submissions should

refer to the file number SR–DCC–97–04

and should be submitted by September

24, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11
Federal Register / Vol. 62, No. 170 / Wednesday, September 3, 1997 / Notices 46535

1 15 U.S.C. § 78s(b)(1) (1994).

2On July 1, the NASD submitted a technical

amendment. Technical amendments do not need to

be published in the Federal Register. Letter from

Craig L. Landauer, Associate General Counsel,

NASD, to Karl J. Varner, Esq., SEC, dated July 1,

1997.

3Securities Exchange Act Release No. 38566 (May

1, 1997), 62 FR 25683 (May 9, 1997).

4 17 CFR 200.30–3(a)(12)(1997).

1 15 U.S.C. § 78s(b)(1)(1994).

2 17 CFR 240.19b-4(1997).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23261 Filed 9–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38969; File No. SR–NASD–

97–23]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Registration

Category, Study Outline and

Specification for Series 72

Examination, Government Securities

Representative

August 25, 1997.

On April 11, 1997, the NASD

Regulation, Inc. (‘‘NASD Regulation’’)

filed with the Securities and Exchange

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

the proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 to create

a new category of representative

registration, the Government Securities

Representative (Series 72), and to

conform the registration requirements of

the existing Registered Options

Representative (Series 42) category to

take into consideration this new

category.2 Notice of the proposed rule

change, together with the substance of

the proposal, was published in the

Federal Register.3 No comment letters

were received. This order approves the

proposed rule change.

I. Background

The Government Securities Act of

1986 (‘‘1986 Act’’), an amendment to the

Act, required sole government securities

broker-dealers to register with the SEC

for the first time. The 1986 Act also

granted the NASD authority to require

associated persons of such firms to

register with the NASD. However, the

1986 Act did not allow the NASD to

apply its qualification examination

standards to associated persons of

government securities broker-dealers.

Since January 1989, such associated

persons have been required to register as

Government Securities Representatives

or Government Securities Principals,

but have not been required to pass a

qualification examination. Under a 1993

amendment to the Act, the NASD was

given authority to apply its qualification

standards to Government Securities

Representatives and Government

Securities Principals.

The proposed rule change will

establish an examination qualification

requirement for government securities

representatives. A person may qualify to

sell government securities by passing

the existing Series 7 examination or the

new Series 72 examination. The

proposed rule change replaces current

Rule 1112, which was adopted in 1989.

NASD Regulation has determined to

permit persons who have been

registered with the NASD as a

government securities representative for

two years prior to the effective date of

the rule will not have to take the

examination unless they are subject to a

statutory disqualification as defined in

Section 3(a)(39) of the Act or in the last

years have been subject to a suspension

or fine of $5,000 or more imposed by a

securities or commodities regulator.

Currently, individuals who sell OTC

options on government securities are

not required to pass a qualification

examination. The proposed rule change

also will amend Rule 1032(d) for

Registered Options Representatives to

establish registration and qualification

requirements for such individuals, and

to add the Series 72 Examination to the

list of the those examinations which

prequalify an individual to take the

Limited Representative—Options

(Series 42) Examination. A person

selling OTC options on government

securities would be required to pass the

new Series 72 examination and the

existing Series 42 examination.

The Series 72 examination will

consist of one hundred (100) questions.

Candidates will have three hours to

complete the examination. The passing

score for the examination will be 70%.

The NASD will not begin using the

examination until September of 1997.

II. Discussion

The Commission believes that the

proposed rule change is consistent with

the provisions of Sections 15A(b)(6) and

15A(g)(3) of the Act in that the NASD

is required to prescribe standards of

training, experience and competence for

persons associated with NASD

members. Pursuant to this statutory

obligation, the NASD develops and

administers examinations to establish

that persons associated with NASD

members have attained specified levels

of competence and knowledge.

Pursuant to this statutory obligation,

NASD Regulation administers

examinations developed by NASD

Regulation and other self-regulatory

organizations Section 15A(g)(3) of the

Act to prescribe standards of training,

experience and competence for persons

associated with NASD members.

The proposed rule change is

consistent with the format of the other

NASD limited registration categories.

This proposed rule change will change

the language of Rule 1032(d) Registered

Option Representative so that it is

similar to the language used in the other

registration categories in Rule 1032.

This provision is consistent with

previous practice in permitting persons

who have achieved a certain level of

experience in a segment of the securities

industry to be ‘‘grandfathered’’ if a new

qualification examination is adopted for

that particular industry segment.

It is therefore ordered, pursuant to

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

proposed rule change, SR–NASD–97–

23, be, and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23259 Filed 9–2–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38975; File No. SR–NASD–

97–59]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to the Short Sale

Rule

August 26, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b-4 2 thereunder,

notice is hereby given that on August

14, 1997, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II,

and III below, which Items have been

prepared by the NASD. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.