Federal Register / Vol. 62, No. 176 / Thursday, September 11, 1997 / Notices 47863

6 15 U.S.C. 78q–1(b)(3)(F).

7This order also approves future limited crossguarantee agreements into which NSCC or OCC may

enter which other clearing agencies provided that

the form of such agreements are substantially

similar to the form of agreement approved in this

filing.

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries submitted by OCC and NSCC.

3Securities Exchange Act Release No. 38410

(March 17, 1997), 62 FR 13931 (order approving

proposed rule change). In general, the proposed rule

change added a provision to OCC Rule 1104 to

permit OCC to pay any amount owed by OCC to

another cross-guaranty party pursuant to a limited

cross-guaranty agreement; added a provision to

Article VIII, Section 5 of OCC’s by-laws to authorize

OCC to have recourse to a suspended clearing

member’s clearing fund contribution for the amount

of any payment which it is required to make

pursuant to a limited cross-guaranty agreement; and

added additional provisions to Article VIII, Section

5 of OCC’s by-laws to address the treatment in

various circumstances of amounts which OCC

might receive under a limited cross-guaranty

agreement.

securities and funds in the clearing

agency’s custody or control or for which

it is responsible and fosters cooperation

and coordination with other entities

engaged in the clearance and settlement

of securities transactions.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will have an

impact on 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

No written comments relating to the

proposed rule change have been

solicited or received. NSCC will notify

the Commission of any written

comments it receives.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

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

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible and to foster cooperation

and coordination with persons engaged

in the clearance and settlement of

securities transactions. The Commission

believes that the proposal is consistent

with NSCC’s obligations to assure the

safeguarding of securities and funds in

its custody or control or for which it is

responsible because the agreement

should reduce NSCC’s risk of loss due

to a member’s default.7 The agreement

should also mitigate the systemic risks

posed to the national clearance and

settlement system as a result of a

defaulting common member and thus

should foster cooperation and

coordination with persons engaged in

the clearance and settlement of

securities transactions.

NSCC 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

publication of notice because it will

permit NSCC to put a risk reduction

mechanism into place in an expedient

fashion.

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, 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 in

the Commission’s Public Reference

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

filing will also be available for

inspection and copying at the principal

office of NSCC. All submissions should

refer to File No. SR–NSCC–97–11 and

should be submitted by October 2, 1997.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NSCC–97–11) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24136 Filed 9–10–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39022; File Nos. SR–OCC–

97–17 and SR–NSCC–97–12]

Self-Regulatory Organizations; The

Options Clearing Corporation and

National Securities Clearing

Corporation; Notice of Filing and Order

Granting Accelerated Approval of

Proposed Rule Changes Relating to a

Limited Cross-Guaranty Agreement

September 4, 1997.

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

Securities Exchange Act of 1934

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

September 2, 1997, The Options

Clearing Corporation (‘‘OCC’’) and on

September 3, 1997, the National

Securities Clearing Corporation

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

Exchange commission (‘‘Commission’’)

the proposed rule changes as described

in Items I and II below, which items

have been prepared primarily by OCC

and NSCC. The Commission is

publishing this notice and order to

solicit comments from interested

persons and to grant accelerated

approval of the proposed rule changes.

I. Self-Regulatory Organizations’

Statements of the Terms of Substance of

the Proposed Rule Changes

The purpose of the proposed rule

changes is to obtain Commission

approval of the form of limited crossguaranty agreement into which OCC and

NSCC propose to enter.

II. Self-Regulatory Organizations’

Statements of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

In their filings with the Commission,

OCC and NSCC included statements

concerning the purpose of and basis for

the proposed rule changes and

discussed any comments they received

on the proposed rule changes. The text

of these statements may be examined at

the places specified in Item IV below.

OCC and NSCC have prepared

summaries, set forth in sections A, B,

and C below, of the most significant

aspects of such statements.2

A. Self-Regulatory Organizations’

Statements of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

The purpose of the proposed rule

changes is to obtain Commission

approval of the form of limited crossguaranty agreement into which OCC and

NSCC propose to enter. OCC amended

its by-laws and rules in File No. SR–

OCC–96–18 3 to accommodate limited

cross-guaranty agreements and

accordingly is not proposing to amend

the language of its by-laws and rules
47864 Federal Register / Vol. 62, No. 176 / Thursday, September 11, 1997 / Notices

4Securities Exchange Act Release No. 33548

(January 31, 1994), 59 FR 5638 (order approving

proposed rule change). The proposed rule change

incorporated the limited guaranty provisions into

NSCC’s rules and approved NSCC’s limited crossguaranty agreement with The Depository Trust

Company.

5See Securities Exchange Act Release No. 37616

(August 28, 1996), 61 FR 46887 (order approving

proposed rule changes seeking authority to enter

into limited cross-guaranty agreements filed by

MBSCC, GSCC, and ISCC).

6See Securities Exchange Act Release No. 37731

(September 26, 1996), 61 FR 51731 (order approving

proposed rule change).

7OCC has several cross-margining agreements in

place with various community clearing agencies.

8OCC believes this statement to be important to

reflect its Rule 1104(d) which in turn reflects that

its account structure provides for maintaining

customer positions in separate customers’ accounts

and marketmaker positions in separate marketmakers’ accounts. (A market-maker that is not

affiliated with its clearing firm is a ‘‘customer’’ of

that firm for purposes of the hypothecation rules

even though it is regulated as a broker-dealer.)

9 15 U.S.C. 78q–1(b)(3)(F).

10This order also approves future limited crossguarantee agreements into which NSCC or OCC may

enter with other clearing agencies provided that the

form of such agreements are substantially similar to

the form of agreement approved in this filing.

further at this time. NSCC amended its

rules in File No. Sr–NSCC–93–07 4 to

accommodate limited cross-guaranty

agreements and is not proposing to

amend the language of its rules further

at this time.

Essentially, a limited cross-guaranty

agreement is an agreement between two

or more securities clearing corporations

and/or commodities clearing

organizations (collectively, ‘‘clearing

agencies’’ and each, a ‘‘clearing

agency’’) that provides a guarantee that

can be invoked in the event that the

parties to the agreement must liquidate

the assets of an entity that is a member

of two or more of the clearing agencies

(‘‘common member’’). Pursuant to such

guarantee, if at least one clearing

agency’s liquidation of the assets of the

common member in its control results

in a loss and at least one clearing

agency’s liquidation of the assets of the

common member results in a gain, each

clearing agency liquidating to a gain

will make the excess assets of the

common member in its control available

to each clearing agency liquidating to a

loss, up to the amount of the loss. If all

of the liquidations results in a gain or

if all of the liquidations results in a loss,

the agreement provides that no assets

will be made available by any party to

the agreement to any other party.

The effect of a limited cross-guaranty

agreement is to enable each party to the

agreement to have recourse to the assets

of a defaulting common member in the

control of the other parties to the

agreement. Therefore, a limited crossguaranty agreement should reduce the

risk of each of the clearing agencies

which is a party to the agreement

because a defaulting common member

may well have the positions which were

spread across markets in such a manner

as to cause its net asset position at one

clearing agency to be positive even

though its net asset position at another

clearing agency is negative.

NSCC and OCC believe that the form

of limited cross-guaranty agreement

which they propose to sign is

substantially similar to the limited

cross-guaranty agreement previously

entered into by NSCC with the

International Securities Clearing

Corporation (‘‘ISCC’’), the Government

Securities Clearing Corporation

(‘‘GSCC’’), and the MBS Clearing

Corporation (‘‘MBSCC’’) except as

described below.5 Like NSCC’s

agreements with MBSCC, GSCC, and

ISCC, the agreement provides that

demand for payment must be made

within six months of the suspension of

the common member.

The NSCC–OCC agreement differs

from NSCC’s agreements with MBSCC,

GSCC, and ISCC principally in three

ways. The agreement contains

statements to make explicit that the net

resources which either clearing agency

might have to pay over to the other are

to be calculated taking into account the

obligations to each to the other pursuant

to the options exercise settlement

agreement 6 between them and the

obligations which either might have

pursuant to any cross-margining

agreement to which it is a party.7 The

agreement also contains a statement to

make explicit that the net resources

which either clearing agency might have

to pay over to the other are to be

calculated taking into account any

amount deemed by the clearing agency

to be necessary to cover any deficiency

in the bankruptcy estate of the common

member with respect to customers of the

common member or to constitute

customer funds or securities which the

clearing agency has an obligation to

return to the common member or its

bankruptcy trustee or other

representative.8 The agreement also

contains a section providing for the

indemnification of the clearing agency

paying funds under the agreement by

the clearing agency receiving funds

under the agreement.

OCC and NSCC believe that the

proposed rule changes are consistent

with the requirements of Section 17A of

the Act because they will establish an

additional linkage of clearance and

settlement facilities which reduces the

risk exposure of the clearing agencies

and their members to the liquidation of

any defaulting common members and

thus reduces systemic risk.

B. Self-Regulatory Organizations’

Statements on Burden on Competition

OCC and NSCC do not believe a

burden will be placed on competition as

a result of the proposed rule changes.

C. Self-Regulatory Organizations’

Statements on Comments on the

Proposed Rule Changes Received From

Members, Participants, or Others

No written comments relating to the

proposed rule changes have been

solicited or received. OCC and NSCC

will notify the Commission of any

written comments they receive.

III. Date of Effectiveness of the

Proposed Rule Changes and Timing for

Commission Action

Section 17A(b)(3)(F) 9 of the Act

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible and to foster cooperation

and coordination with persons engaged

in the clearance and settlement of

securities transactions. The Commission

believes that the proposals are

consistent with the NSCC’s and OCC’s

obligations to assure the safeguarding of

securities and funds in the custody or

control of the clearing agency or for

which they are responsible because the

agreement should reduce their risk of

loss due to a common member’s

default.10 The agreement should also

mitigate the systemic risks posed to the

national clearance and settlement

system as a result of a defaulting

common member and thus should foster

cooperation and coordination with

persons engaged in the clearance and

settlement of securities transactions.

NSCC and OCC have requested that

the Commission find good cause for

approving the proposed rule changes

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 changes

prior to the thirtieth day after

publication of notice because it will

permit NSCC and OCC to put a risk

reduction mechanism into place in a

timely fashion.

V. Solicitation of Comments

Interested person are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions
Federal Register / Vol. 62, No. 176 / Thursday, September 11, 1997 / Notices 47865

11 15 U.S.C. 78s(b)(2).

12 17 CFR 200.30–3(a)(12).

1See Letter from Philip H. Becker, Senior Vice

President and Chief Regulatory Officer, Phlx, to

Michael Walinskas, Senior Special Counsel,

Division of Market Regulation, SEC, dated August

1, 1997 (‘‘Amendment No. 1’’). The substance of

amendment No. 1 has been incorporated into this

notice.

2The PACE Quote consists of the best bid/offer

among the American Stock Exchange (‘‘Amex’’),

New York Stock Exchange (‘‘NYSE’’), Pacific

Exchange, Phlx, Boston, Cincinnati, and Chicago

Stock Exchanges, as well as the Intermarket Trading

System/Computer Assisted Execution System

(‘‘ITS/CAES’’). See PACE Rule.

3A market order is an order to buy or sell a stated

amount of a security at the best price obtainable

when the order is received. A marketable limit

order is an order to buy or sell a stated amount of

a security at a specified price, which is received at

a time when the market is trading at or better than

such specified price.

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submissions, all subsequent

amendments, all written statements

with respect to the proposed rule

changes that are filed with the

Commission, and all written

communications relating to the

proposed rule changes 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, NW.,

Washington, DC 20549. Copies of the

respective filing swill also be available

for inspection and copying at the

respective principal offices of OCC and

NSCC. All submissions should refer to

File Nos. SR–OCC–97–17 and SR–

NSCC–97–12 and should be submitted

by October 2, 1997.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule changes (File Nos. SR–

OCC–97–17 and SR–NSCC–97–12) be

and hereby are approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24134 Filed 9–10–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39000; File No. SR–Phlx–

97–23]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

Philadelphia Stock Exchange, Inc.

Relating to the Treatment of PACE

Orders in Double-up/Double-Down Tick

Situations

September 2, 1997.

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

Securities Exchange Act of 1934

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

hereby given that on May 2, 1997, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change, and on August 4, 1997 filed

with the Commission Amendment No. 1

thereto,1 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 Phlx, pursuant to Rule 19b–4 of

the Act, proposes to adopt paragraph (c)

to Supplementary Material .07 of Rule

229, Philadelphia Stock Exchange

Automatic Communication and

Execution (‘‘PACE’’) System, relating to

automatic double-up/double-down price

improvement and manual double-up/

double-down price protection. The

operation of the PACE System, which is

the Exchange’s automatic order routing

and execution system for equity

securities, is governed by Phlx Rule 229

(‘‘PACE Rule’’).

Proposed paragraph (c)(i), Automatic

Double-up/Double-down Price

Improvement, would state that where

the specialist voluntarily agrees to

provide automatic double-up/doubledown price improvement to all

customers and all eligible orders in a

security, in any instance where the bid/

ask spread of the PACE Quote 2 is a 1⁄4

point or greater, market and marketable

limit orders 3 in NYSE-listed or Amexlisted securities for 599 shares or less

that are received through PACE in

double-up/double-down situations shall

be provided with automatic price

improvement of 1⁄8 of a point, beginning

at 9:45 a.m. Moreover, a specialist

voluntarily may agree to provide

automatic double-up/double-down price

improvement to larger orders in a

particular security to all customers

under this provision. Automatic doubleup/double-down price improvement

will not occur where the execution price

would be outside the primary market

high/low range for the day, if out-ofrange protection was elected by the

member organization entering the order

pursuant to Supplementary Material

.07(a) of the PACE Rule. In addition, the

Exchange proposes to adopt a corollary

provision in Supplementary Material

.10(a) to the PACE Rule respecting

automatic double-up/double-down price

improvement for marketable limit

orders.

The Exchange also proposes to adopt

an alternative to automatic double up/

double-down price improvement.

Specifically, proposed Supplementary

Material .07(c)(ii), Manual Double-up/

Double-down Price Protection would

state that where the specialist does not

agree to provide automatic double-up/

double-down price improvement in a

security, in any instance where the bid/

ask spread of the PACE Quote is 1⁄8 of

a point or greater, beginning at 9:45

a.m., the specialist must provide manual

double-up/double-down price

protection to all customers and all

eligible orders in a security. The manual

double-up/double-down price

protection feature causes eligible market

and marketable limited orders of 599

shares or less in NYSE-listed and Amexlisted securities that are received

through PACE in double-up/doubledown situations to be stopped at the

PACE Quote at the time of their entry

into PACE. Moreover, a specialist may

voluntarily agree to provide manual

double-up/double-down price

protection to larger orders in a

particular security to all customers

under this provision. However, if the

execution price of an order would be

outside the primary market high/low

range for the day, where out-of-range

protection is elected by the member

organization entering the order, the

order would be stopped for manual

handling by the specialist, regardless of

the existence of a double-up/doubledown situation. Manual double-up/

double-down price protection does not

provide an automatic execution or

automatic price improvement. Instead,

this feature stops orders to provide an

opportunity for manual price

improvement in double-up/doubledown situations.

Finally, proposed paragraph (c)(iii)

would provide that both automatic

double-up/double-down price

improvement and manual double-up/

double-down price protection may be

disengaged in a security or floorwide in

extraordinary circumstances with the

approval of two Floor Officials of the

Exchange.