Federal Register / Vol. 62, No. 178 / Monday, September 15, 1997 / Notices 48329

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

Insurance Company shall be required by

Condition 5 to establish a new funding

medium for any Variable Contract if any

offer to do so has been declined by the

vote of a majority of contract owners

who are materially and adversely

affected by the irreconcilable material

conflict.

7. A Board’s determination of the

existence of an irreconcilable material

conflict and its implications will be

made known promptly and in writing to

all Participating Entities.

8. Participating Insurance Companies

will provide pass-through voting

privileges to all Variable Contract

owners so long as the Commission

continues to interpret the 1940 Act as

requiring pass-through voting privileges

for variable annuity and variable life

insurance contract owners. Accordingly,

the Participating Insurance Companies

will vote shares of the Trust held in

their Separate Accounts in a manner

consistent with voting instructions

timely received from contract owners.

Each Participating Insurance Company

will vote shares of the Trust held in the

Participating Insurance Company’s

Separate Accounts for which no voting

instructions from contract owners are

timely-received, as well as shares of the

Trust which the Participating Insurance

Company itself owns, in the same

proportion as those shares of the Trust

for which voting instructions from

contract owners are timely-received.

Participating Insurance Companies will

be responsible for assuring that each of

their Separate Accounts participating in

the Trust calculates voting privileges in

a manner consistent with other

participation Insurance Companies. The

obligation to calculate voting privileges

in a manner consistent with all other

Separate Accounts investing in the

Trust shall be a contractual obligation of

all Participating Insurance Companies

under their agreements governing their

participation in the trust. Each Qualified

plan will vote as required by applicable

law and governing Plan documents.

9. The Trust will comply with all

provisions of the 1940 Act requiring

voting by shareholders (which, for these

purposes, shall be the persons having a

voting interest in the shares of the

Trust), and, in particular, the Trust will

either provide for annual meetings

(except to the extent that the

/Commission may interpret Section 16

of the 1940 Act not to require such

meetings) or comply with Section 16(c)

of the 1940 Act (although the Trust is

not one of the trusts described in

Section 16(c) of the 1940 Act), as well

as with Section 16(a) of the 1940 Act,

and, if and when applicable, Section

16(b) of the 1940 Act. Further, The Trust

will act in accordance with the

Commission’s interpretation of the

requirements of Section 16(a) with

respect to periodic elections of trustees

and with whatever rules the

Commission may promulgate with

respect thereto.

10. The Trust will notify all

Participating Insurance Companies that

Separate account prospectus disclosures

regarding potential risks of mixed and

shared funding may be appropriate. The

trust will disclose in the prospectuses of

the Series that: (a) The Trust is intended

to be a funding vehicle for all types of

variable annuity and variable life

insurance contracts offered by various

insurance companies and for certain

qualified pension and retirement plans;

(b) material irreconcilable conflicts

possibly may arise; and (c) the Trust’s

Board will monitor events in order to

identify the existence of any material

irreconcilable conflicts and to determine

what action, if any, should be taken in

response to any such conflict.

11. If, and to the extent that, Rules 6e–

2 or 6e–3(T) are amended (or if Rule 6e–

3 under the 1940 Act is adopted) to

provide exemptive relief from any

provision of the 1940 Act or the rules

thereunder with respect to mixed or

shared funding on terms and conditions

materially different from any

exemptions granted in the order

requested by Applicants, then the Trust

and/or the Participating Entities, as

appropriate, shall take such steps as

may be necessary to comply with Rule

6e–2 or 6e–3(T), as they may be

amended, and Rule 6e–3, as it may be

adopted, to the extent such rules are

applicable.

12. At least annually, the Participating

Entities shall submit to the Board such

reports, materials or data as the Board

reasonably may request so that the

Board may carry out fully the

obligations imposed by the conditions

contained in these conditions. Such

reports, materials and data shall be

submitted more frequently if deemed

appropriate by the Board. The

obligations of the Participating Entities

to provide these reports, materials and

data to the Board, when the Board so

reasonably requests, shall be a

contractual obligation of all

Participating Entities under their

agreements governing participation in

the Trust.

13. All reports received by a Board of

potential or existing conflicts, and all

Board action with regard to (a)

determining the existence of a conflict;

(b) notifying Participating Entities of a

conflict; and (c) determining whether

any proposed action adequately

remedies a conflict, will be properly

recorded in the minutes of the Board or

other appropriate records. Such minutes

or other records shall be made available

to the Commission upon request.

Conclusion

For the reasons summarized above,

Applicants assert that the requested

exemptions are appropriate in the

public interest and consistent with the

protection of investors and the purposes

fairly intended by the policy and

provisions of the 1940 Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24378 Filed 9–12–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39028; File No. SR–CHX–

97–15]

Self-Regulatory Organizations;

Chicago Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Relating to a Specialist’s DeRegistration in an Issue

September 8, 1997.

I. Introduction

On June 4, 1997, the Chicago Stock

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

submitted to the Securities and

Exchange Commission (‘‘Commission’’),

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

Securities Exchange Act of 1934

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

proposed rule change to amend Article

XXX, Rule 1, Interpretation and Policy

.01 of the CHX Rules, to change a policy

of the Exchange’s Committee on

Specialist Assignment and Evaluation

(‘‘CSAE’’) relating to the time periods

for which a co-specialist must trade a

security before deregistering as the

specialist for the security. This policy

would be in effect for a one year pilot

program.

Notice of the proposed rule change,

together with the substance of the

proposal, was published for comment in

Securities Exchange Act Release No.

38882 (July 28, 1997), 62 FR 41981

(August 4, 1997). No comments were

received on the proposal. This order

approves the proposed rule change.

II. Description

The Exchange’s CSAE is responsible

for, among other things, appointing
48330 Federal Register / Vol. 62, No. 178 / Monday, September 15, 1997 / Notices

3A specialist is a ‘‘unit’’ or organization which

has registered as such with the Exchange under

Article XXX, Rule 1. A co-specialist is an individual

who has registered as such under Article XXX, Rule

1. See CHX Rules Article XXX, Rule 1,

Interpretation and Policy .01.4(a).

4See CHX Rules Article IV, Rule 4.

5See CHX Rules Article XXX, Rule 1,

Interpretation and Policy .01.2.

6 In this context, ‘‘in competition’’ means that

more than one specialist had applied to be the

specialist in the issue.

7The Exchange stated its intention to have the

new policy apply anytime there will not be another

specialist assigned to the issue, such as if the

security was to be returned to the cabinet, put in

the cabinet for the first time, or traded by a lead

primary market maker pursuant to CHX Rules

Article XXXIV, Rule 3. See Amendment No. 2,

supra note 1. Cabinet securities are those securities

which the Board of Governors designates to be

traded in the cabinet system because in the

judgment of the Board such securities do not trade

with sufficient frequency to warrant their retention

in the specialist system. See CHX Rules Article

XXVIII, Rule 6. For a more detailed explanation of

the operation of the cabinet system, see CHX Rules

Article XX, Rule 11.

8 In this context, posting means that all specialists

are put on notice that the security in question is

available for reassignment. See CHX Rules Article

XXX, Rule 1. Telephone conversation between

David Rusoff, Attorney, Foley & Lardner, and

Heather Seidel, Attorney, Division of Market

Regulation, Commission, on July 24, 1997.

9 15 U.S.C. § 78f(b).

10 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

specialists and co-specialists 3 and

conducting de-registration proceedings

in accordance with Article XXX of the

Exchange’s rules.4 As described in

existing Interpretation and Policy .01 of

Rule 1 of Article XXX, seven

circumstances may lead to the need for

assignment or re-assignment of a

security. One such circumstance is by

specialist request.

Currently, the CSAE ‘‘will initiate a

re-assignment proceeding if it believes

that such action is called for.’’ 5 Using

this standard, the CSAE’s current policy

is to require a co-specialist to trade an

issue awarded in competition 6 for a two

year period, and to trade an issue

awarded without competition for a sixmonth period, before permitting a cospecialist to de-register in the issue.

The CHX proposes to amend this

policy for a one year pilot program.

Specifically, the proposal would change

the time periods for which a cospecialist must trade an issue before the

CSAE will, in general, approve a cospecialist’s request to deregister in an

issue.7 These time periods would vary

depending on whether the issue was

awarded in competition or without

completion and whether another

specialist will assume the responsibility

to trade the issue.

Under the proposed rule change, for

a security that was awarded to a cospecialist in competition, such cospecialist will be required to trade the

security for one year before being able

to deregister in the security if no other

specialist will be assigned to the

security after posting.8 The two year

time period currently in place for an

intra-firm transfer of such issues (i.e.,

transferring the issue to another cospecialist in the same specialist unit)

will remain. For a security that was

awarded to a co-specialist without

competition, such co-specialist will be

required to trade the security for a three

month period before being able to

deregister in the security if no other

specialist will be assigned to the

security after posting. The six month

time period currently in place for an

intra-firm transfer of such issues will

remain.

Whether or not the security was

awarded in competition, the effective

date of a specialist’s deregistration in an

issue for which no specialist will be

assigned after posting will be the first

business day of each calendar quarter;

provided, however, that the applicable

time period for which a specialist is

required to trade an issue must have

been satisfied prior to such date.

Whether or not the security was

awarded in competition, in general, the

CSAE will require specialists to provide

sending firms at least 15 days advance

notice of a its intention to de-register in

the issue.

III. Discussion

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, and, in particular, with the

requirements of Section 6(b).9

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to prevent fraudulent and

manipulative acts, and, in general, to

protect investors and the public.10

The Commission believes that the

new policy, as proposed, should result

in a more accurate balance between the

interests of consistency and continuity

with respect to the trading of an issue

by a particular specialist and that of a

specialist in having the flexibility to

deregister in an unprofitable issue. In

this regard, the Commission believes

that the proposed rule change will still

preserve an appropriate time period for

which the specialist cannot deregister in

an issue. For a security that was

awarded to a co-specialist in

competition, such co-specialist will be

required to trade the security for one

year before being able to deregister in

the security if no other specialist will be

assigned to the security after posting.

For a security that was awarded to a cospecialist without competition, such cospecialist will be required to trade the

security for a three month period before

being able to deregister in the security

if no other specialist will be assigned to

the security after posting.

The Commission also believes that the

proposed new policy may help to

encourage more specialists and cospecialists to apply for additional

issues. The Commission notes that

under the current policy, a specialist or

co-specialist may be reluctant to apply

to become a specialist in an issue

because of the long time period for

which it must hold the security before

deregistering. By reducing the current

time periods for which a specialist or

co-specialist must trade a security

before being allowed to deregister in

that security, when no other specialist

will be assigned to that security, the

proposal may reduce the risk and

exposure that is attendant with

registering for a particular issue. In turn,

the Commission believes that the

proposal could increase the overall

liquidity and depth of the CHX market

by encouraging specialists to register in

additional securities.

The Commission further believes that

the proposed pilot provides adequate

notice to order entry firms of the change

in the status of an issue, by providing

that such firms be given at least 15 days

advance notice of a co-specialist’s

intention to deregister in the issue. In

addition, the effective date of a

specialist’s deregistration will be the

first business day of each calendar

quarter; provided, however, that the

applicable time period for which a

specialist is required to trade an issue

must have been satisfied prior to such

date.

The Commission believes that

approving the proposed rule change as

a pilot program is reasonable under the

Act because it will serve to protect

investors and the public interest by

allowing the CHX time to collect data on

its effectiveness and to determine

whether any modifications are

necessary. The pilot will expire on

September 8, 1998. The Commission

requests that the CHX submit a report

on the effectiveness of the pilot program

by July 8, 1998. The report should state

the Exchange’s views on the

effectiveness of the policy change,

including, but not limited to, whether

there has been an increase in the
Federal Register / Vol. 62, No. 178 / Monday, September 15, 1997 / Notices 48331

11 17 CFR 200.19b–4.

12 15 U.S.C. § 78s(b)(2).

13 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 DTC.

3Letter from Robert L.D. Colby, Deputy Director,

Division of Market Regulation, Commission, to Paul

Saltzman, Senior Vice President and General

Counsel, PSA The Bond Market Association,

(January 17, 1997); letter from Richard L. Gregg,

Commissioner, Bureau of the Public Debt,

Department of the Treasury, to Michael A.

Macchiaroli, Associate Director, Division of Market

Regulation, Commission (January 17, 1997).

4PSA The Bond Market Association Trading

Practice Guidelines for Inflation Indexed Securities

(December 18, 1996).

5 15 U.S.C. 78q–1.

6 15 U.S.C. 78s(b)(3)(A)(iii).

number of specialists or co-specialists

who register in additional securities.

The report should also include data on

(1) the rate of deregistration at the

specialist’s request, and (2) the number

of specialists applying to register in

securities that do not have a specialist

already assigned, and compare that data

for the pilot year to the prior year. In

addition, the Commission requests that

the CHX submit by July 8, 1998, any

proposed rule change pursuant to Rule

19b–4 under the Act 11 to further extend

or seek permanent approval of the pilot

program.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–CHX–97–15)

is approved on a one year pilot basis

through September 8, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–24305 Filed 9–12–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39031; File No. SR–DTC–

97–07]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Immediate Effectiveness of

Proposed Rule Change Relating to

Disclosure Requirements for

Transactions Involving Inflation

Indexed Securities Through the

Institutional Delivery System

September 8, 1997.

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

Securities Exchange Act of 1934

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

May 19, 1997, The Depository Trust

Company (‘‘DTC’’) 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 primarily by DTC. The

Commission is publishing this notice to

solicit comments from interested

persons on the proposed rule change.

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 amend Section M of DTC’s

participant operating procedures in

accordance with certain disclosure

requirements for transactions involving

inflation indexed securities processed

through DTC’s Institutional Delivery

(‘‘ID’’) system.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC 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. DTC has prepared

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

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

PSA The Bond Market Trade

Association (‘‘PSA’’) on behalf of its

members and all other registered

brokers and dealers, received no-action

and interpretive relief from the

Commission and the Treasury

(collectively ‘‘interpretive relief’’) 3

regarding the application of certain

regulations to inflation indexed

securities issued by the U.S. Treasury

Department (‘‘Treasury’’). The purpose

of the proposed rule change is to enable

broker-dealers that use DTC’s ID system

for generating confirmations for their

customer transactions to comply with

the disclosure requirements set forth in

the interpretive relief.

The interpretative relief requires

broker-dealers to disclose in

confirmations for inflation indexed

securities that yield to maturity may

vary due to inflation adjustments or

provide disclosure to similar effect. A

broker-dealer using the ID system can

enter data in the security type field

identifying the security as an inflation

indexed security by using a designated

acronym (i.e., ‘‘ITS’’). Under the

proposed rule change, DTC will add

procedures to its ID system to provide

that when the designated acronym

identifying an inflation indexed security

appears in the security type field of the

ID confirmation, the required disclosure

will be deemed to be a part of the ID

confirmation for that transaction.

The interpretative relief also requires

confirmations involving inflation

indexed securities for when-issued

transactions and for transactions in the

Treasury’s Separate Trading of

Registered Interest and Principal of

Securities (‘‘STRIPS’’) program to

disclose the real yield (i.e., nominal

yield not adjusted for inflation) for the

securities.4 Under the proposed rule

change, a broker-dealer using the ID

system to send confirmations for such

transactions will be able to disclose the

real yield by entering that figure either

in the yield field or in the special

instructions field of trade data

submitted to the ID system.

DTC believes the proposed rule

change is consistent with the

requirements of Section 17A of the Act 5

and the rules and regulations

thereunder because the proposed rule

change will assure the safeguarding of

securities and funds which are in the

custody or control of DTC by facilitating

the confirmation of transactions in

inflation indexed securities through the

use of DTC’s ID system.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

DTC perceives no impact on

competition by reason of the proposed

rule change.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The proposed rule change was

developed through discussions with

PSA acting on behalf of its members and

with several participants. Written

comments from DTC participants or

others have not been solicited or

received on the proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Section

19(b)(3)(A)(iii) 6 of the Act and pursuant