49548 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

4Section 2401 also is amended to require that

overnight repo transactions be reported to Delta

prior to 2:15 p.m. Overnight repos and novated

repos reported one day prior to settlement will be

margined in the same manner. See infra note 5.

5 Delta sends a supplemental daily margin report

to members at 2:30 p.m. each day that indicates the

amount of margin a member must deposit prior to

3:00 p.m. that day. The margin is based on an

intraday mark-to-market calculation based on

overnight repos.

6 15 U.S.C. 78q–1(b)(3)(F).

7 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 GSCC.

3 GSCC currently has forty-six shareholders, each

of which is a party to the Agreement. The National

Securities Clearing Corporation (‘‘NSCC’’), is the

largest shareholder, holding approximately eighteen

percent of GSCC’s shares.

forth in the first paragraph of Section

2401 do not apply to novated repos.

Instead, as a condition for Delta to

assume on such business day the

obligation to clear the off-date portion,

novated repos must be reported to Delta

by 5:00 p.m. on any business day prior

to the settlement day of the off-date

portion. However, if the settlement day

of the off-date portion is the next

business day following the business day

on which a novated repo is reported to

Delta, such novated repo must be

reported to Delta prior to 2:15 p.m. so

that Delta will be able to collect margin

related to the transaction in a timely

manner.4

Section 2507 is added to the Repo

Procedures to clarify that provisions

relating to on-date settlement do not

apply to novated repos. Similarly,

Sections 2801 and 2802 are amended to

clarify that no delivery of collateral or

payment of net money through Delta is

required on the on-date of a novated

repo.

Finally, Section 2904 is added to the

Repo Procedures to provide that Delta

may accept novated repos for clearance.

Section 2904 provides that a

participant’s net exposure resulting

from the assumption by Delta of a

novated repo on any business day will

be included for purposes of calculating

the margin required to be deposited by

the participant by 11:00 a.m. of the

following business day pursuant to

Article XXVI of the Repo Procedures

relating to margin. If Delta assumes by

5:00 p.m. the obligation to clear the offdate portion of a novated repo, any

margin required from a participant as a

result of the participant’s net exposure

resulting from Delta’s assumption of

such novated repo will have to be

deposited by the participant on or

before 11:00 a.m. on the next day.

However, if a novated repo has an offdate which is the next business day

following the business day on which the

novated repo is reported to Delta, such

novated repo is treated as an overnight

repo for margin collection purposes.5

II. Discussion

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

requires that a clearing agency be

organized and its rules be designed to

promote the prompt and accurate

clearance and settlement of securities

transactions. The Commission believes

that the proposed rule change is

consistent with section 17A(b)(3)(F).

The proposal will allow more trades to

be cleared through Delta’s clearance and

settlement system. Such trades will

receive the benefit of Delta’s guarantee

and automated settlement capabilities.

Because of Deltas netting of

transactions, the proposal also may

reduce the number of securities

movements needed to settle

transactions. By reducing the number of

trades settled ex-clearing, the proposal

should assist in the prompt and accurate

clearance and settlement of repo

transactions consistent with section

17A(b)(3)(F).

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of section 17A of the Act

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

DCC–97–03) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25027 Filed 9–19–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39068; File No. SR–GSCC–

97–07]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of a

Proposed Rule Change Relating to

Election of Directors

September 12, 1997.

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

Securities Exchange Act of 1934 (the

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

July 23, 1997, the Government

Securities Clearing corporation

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

Exchange Commission (the

‘‘Commission’’) and on August 18, 1997,

amended the proposed rule change as

described in Items I, II, and III below,

which items have been prepared

primarily by GSCC. 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

GSCC is filing the proposed rule

change to amend its Shareholder

Agreement (‘‘Agreement’’), By-laws, and

Certificate of Incorporation in order to

revise GSCC’s procedures for election of

directors and to revise restrictions

currently placed on transfers of GSCC’s

securities.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

GSCC 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. GSCC 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

GSCC recently completed a

comprehensive review of its Agreement,

By-laws, and Certificate of

Incorporation. Pursuant to that review,

GSCC proposes to amend the

Agreement, By-laws, and Certificate of

Incorporation as described below.3

1. Background

The Agreement was first executed in

1988 before GSCC had a set of rules in

place and before there was any business

history on which to base certain

provisions of the Agreement.

Consequently, the Agreement covers a

broad range of issues, including certain

business matters not found in most

shareholder agreements. For example,

the Agreement includes provisions

relating to loss allocation procedures,

which are now comprehensively

covered by GSCC’s rules.

Moreover, since 1988 there have been

many significant changes in GSCC’s

services and membership and in the

government securities marketplace in
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49549

general making the Agreement

inadequate to meet the realities of that

marketplace and GSCC’s business as it

is conducted today. For example, when

the Agreement was drafted,

participation in the interdealer broker

government securities marketplace was

limited exclusively to primary and

aspiring primary dealers and their

brokers. Therefore, the Agreement

contemplates only primary dealers,

aspiring primary dealers, and brokers as

participants in GSCC. Today, there is a

much broader range of participation in

the interdealer broker government

securities marketplace, including

nonprimary dealers and nondealers.

Furthermore, GSCC believes that the

Agreement sets forth a great number of

fixed standards relating to corporate

governance and shareholder rights,

particularly related to participation on

the board of directors and the issuance

and sale of shares, that are

unnecessarily and overly specific and

rigid and that do not best serve the

interest of GSCC members,

shareholders, and the industry in

general. For example, the Agreement

currently allows for only a set number

of board seats for each category of

dealer, broker, and clearing agent bank.

As described below, the proposed

revisions would provide for the addition

of an ‘‘at-large’’ director seat in lieu of

one of the clearing agent bank seats,

which would allow for participation on

the board by an individual from a

nonmember firm. Also, certain proposed

revisions will allow for much greater

transferability of GSCC shares,

including shares held by entities that

are no longer involved in the

government securities marketplace or

that are no longer in business.

Finally, the proposed revisions will

allow for more flexibility of action by

GSCC to meet future business needs,

including potential matters such as

business partnerships and acquisitions.

Thus, they would provide more

flexibility to GSCC in its business

planning and make the Agreement a

more dynamic, ‘‘living’’ document.

2. Proposed Changes

As described more fully below, the

proposed changes fall under four major

categories: (a) nomination and election

process for board members, (b)

composition of the board, (c) restrictions

on issuance and transfer of shares, and

(d) miscellaneous.

(a) Nomination and Election Process

for Board Members. The current

nomination process for participant

directors is open to all members with

every member being able to nominate

any shareholder member, including

itself. However, a member is restricted

to submitting nominations only for its

own correlative participant category

(i.e., broker participants nominate

broker participant directors, clearing

agent bank participants nominate

clearing agent bank participant

directors, and all other participants

nominate dealer participant directors).

The election process involves ballots

being circulated to every member with

such voting being similarly limited to

one’s own correlative participant

category.

(i) Creation of a Nominating

Committee. Similar to the process in

place at NSCC and other clearing

corporations, GSCC proposes to create a

nominating committee that will be

responsible for nominating candidates

for election as participant directors to

the board. NSCC will continue to

nominate and to elect two directors to

the board outside the nominating

committee process. The board seat for a

management representative and for the

GSCC president will also remain outside

the nominating committee process.

With respect to the composition of the

nominating committee, it is proposed

that the nominating committee be

comprised of five individuals, a

majority of which will be

representatives from active participants

and which may be but are not required

to be former board members. With the

exception of the initial nominating

committee, GSCC proposes that there

must be a one year break between

serving on the board and serving on the

nominating committee (i.e., a year must

pass between a board member’s serving

on the board and being eligible to serve

on the nominating committee and

likewise between a nominating

committee member’s serving on the

nominating committee and being

eligible to serve on the board).

With the exception of the first

nominating committee, GSCC proposes

that incoming nominating committee

members be designated by the board

taking into account but not being bound

by the recommendations of current

nominating committee members. GSCC

also proposes that participant category

be irrelevant for purposes of the

selection of nominating committee

members. However, as a general

guideline, the individuals serving on the

nominating committee will be reflective

of GSCC’s overall membership and

potential membership base.

The term of a nominating committee

member will be two years. There must

be a one year absence from the

nominating committee before a former

committee member is eligible to serve

again. The terms of nominating

committee members will be staggered.

For example, one class with three

individuals will be designated in the

first year for a two year term and

another class with two individuals will

be designated for a one year term. After

these initial terms, both classes will

serve for two year terms. Therefore,

subsequent nominating committees will

have two staggered classes of members.

(ii) Nomination Process for Board

Members. GSCC proposes that there be

two levels of nomination processes for

board members. The first level will be

a standard process for the nominating

committee to name candidates for board

seats. The second level will be a

supplemental process to allow

participants to formally nominate

candidates in addition to those named

by the nominating committee. As with

the designation of nominating

committee members described above,

nominating committee members and

participants will be able to nominate

individuals in all participant categories,

not only the committee member’s or

participant’s own category.

In the standard nomination process,

the nominating committee will

nominate one nominee for each open

participant director seat. The

nominating committee will select

candidates based on both suggestions

solicited from participants as well as

from its own deliberations. GSCC

proposes that participants be provided

an opportunity early in the nomination

process to suggest one nominee for each

open board seat. Participants will then

be notified of the nominating

committee’s slate of candidates for open

board seats.

After participants are notified of the

nominating committee’s selections,

participants will be given the

opportunity to suggest additional

nominees pursuant to a formal

supplemental nomination process.

Specifically, participants will be invited

to nominate additional nominees with a

petition signed by the lesser of seven

participants or five percent of GSCC’s

participants. Each participant will be

limited to signing one petition for each

open board seat.

(iii) Election Process for Board

Members. Similar to the nomination

process described above, there will also

be two levels of election processes for

participant directors. In the standard

election process, which will be followed

if no nominating petitions have been

filed by participants, the nominating

committee will certify to the

shareholders the participant directors

selected by the nominating committee.

Shareholders will then be bound to cast

their votes supporting the nominating
49550 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

4Affiliated members will be considered one

participant for purposes of determining voting

entitlements.

5The clearing fund of affiliated members will be

aggregated to determine their number of votes.

6Before changing the number of directors, GSCC

must file a proposed rule change with the

Commission.

committee selections at the annual

meeting.

However, if participants have filed

one or more formal nominating

petitions, the supplemental election

process will be followed. This process

will involve circulating ballots to all

participants and permitting them to cast

their votes to fill each open participant

director seat in the contested participant

category or categories. GSCC proposes to

eliminate the requirement that

participants only may vote for directors

of their participant category.

Participants will have the following

voting entitlements: (i) active

comparison only participants will be

entitled to one vote per open board seat,

(ii) active netting participants will be

entitled to at least two votes per open

seat, and (iii) active clearing agent bank

participants will be entitled to two votes

per open seat.4 Supplemental voting

entitlements will be allocated to netting

members based on their level of clearing

fund deposit. Each netting member will

receive an additional two votes for

approximately every ten million dollars

of its clearing fund deposit up to a total

of twelve votes.5 Finally, cumulative

voting rights will be removed.

(iv) Vacancies on the Board.

Currently, the board appoints new

directors to replace directors who resign

or are removed. (NSCC designates the

person to be appointed by the board if

the vacating director was an NSCC

director.) The replacement director must

be in the same participant category as

the vacating director. Such replacement

directors serve on the board until the

next annual meeting, at which point the

current nomination and election process

is followed to refill that board seat with

a permanent replacement. This

permanent replacement director then

serves until the vacating director’s

original term would have expired.

GSCC proposes to retain the current

replacement mechanism but to conform

the nomination and election processes

that occur at the annual meeting

following the board’s appointment of

the replacement director with the

revised nominating and election

processes. For example, the nominating

committee will select a nominee for the

open replacement director’s seat. If no

participant petitions have been filed,

shareholders will vote their shares to

support the nominating committee’s

selection. If a participant petition has

been filed, the participants will then

elect the permanent replacement

director.

(v) Election Process for the Chairman

of the Board. Currently, there is no

provision in the Agreement for selecting

the chairman of the board. GSCC

proposes that the incoming board based

upon the recommendation of the

outgoing executive committee will

designate the chairman of the board.

The chairman will be elected for a one

year item with no overall term limit

other than the six year term limit

applicable to all participant directors.

(b) Composition of the Board.

Currently, the Agreement provides for

twelve participant directors consisting

of a set number of directors from each

of the three categories of participants.

The categories and number of

participants are six dealer participant

directors, three broker participant

directors, and three clearing agent bank

participant directors. GSCC believes that

the current composition is inadequate to

meet the reality of GSCC’s business as

it is conducted today. For many years

now, there have been only two clearing

agent banks eligible to fill three director

seats. Moreover, while all participants

are eligible to nominate participant

directors, not all participants are eligible

to serve as participant directors. Thus,

GSCC proposes to restructure the

board’s composition and the

methodology used to fix its composition

in a manner that will provide enough

flexibility to reflect future demographic

changes in GSCC membership.

GSCC believes that specific board

composition requirements should be

removed from the Agreement and that

the Agreement should outline only

broad parameters such as a maximum

number of board seats and a minimum

required number of categories of

directors that will be represented. This

will allow the Agreement to be a

flexible, ‘‘living’’ document that will

enable GSCC to deal readily with

significant changes in its membership

base, largest shareholders, and business

relationships.

The By-laws will state that the

composition of the board may be

changed by majority vote of the

shareholders or by majority vote of the

board. In this manner, the board will be

empowered to make changes within the

Agreement’s broad parameters,

including changing the size or

composition requirements of the board

in order to reflect membership

demographics and other criteria.6

GSCC believes that major changes in

the board’s composition are not now

necessary because the current members,

the vast majority of which are brokers,

dealers, or banks, are adequately

represented. However, GSCC proposes

revisions to the Agreement and By-laws

that will restructure and redefine the

board’s composition in order to ensure

continued fair representation in the

future and to ensure representation to

those types of entities that are neither

brokers, dealers, nor banks. As the most

significant step towards that end, the

dealer participant category will be

replaced with a ‘‘general user

participant’’ category to include more

types of participants. In addition, one of

the clearing agent bank director

positions will be recategorized as a new

‘‘at-large’’ director position which will

be filled by any person whose service as

a board member will be beneficial to

GSCC. The current board composition is

fifteen directors, which will be

recategorized as one management

director, one at-large director, two NSCC

directors, six general user participant

directors, three broker participant

directors, and two clearing agent bank

directors.

In order to effect these changes, the

proposal will amend certain definitions

in the Agreement. ‘‘Broker’’ is currently

defined as an entity regularly engaged in

the business of effecting transitions

specifically in treasury securities and

specifically for the account of primary

dealers and aspiring primary dealers.

GSCC believes this definition is too

narrow and limiting. Hence, GSCC

proposes to broaden the definition of

‘‘broker’’ to include any entity regularly

engaged in the business of effecting

transactions in any securities eligible for

processing by GSCC on behalf of

participants. In a related matter,

references to treasury securities in the

Agreement generally will be changed to

reference all securities eligible for GSCC

services.

‘‘Clearing agent bank’’ is currently

defined as any clearing bank regularly

used by brokers, primary dealers, and

aspiring primary dealers for the

clearance and settlement of transactions

in treasury securities. Under the

proposal, ‘‘clearing agent bank’’ will be

more broadly defined essentially to

mean any commercial bank member of

the Federal Reserve System that

provides clearing services with respect

to GSCC eligible securities on behalf of

others for at least ten percent of GSCC’s

participants and that provides those

services using its own Federal Reserve

account.

‘‘Dealer participant’’ is currently

defined as a primary dealer or an
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49551

7 If GSCC issues additional Class A shares, NSCC

has the right to request that enough additional Class

A shares be issued to it in order for NSCC to retain

its twenty percent holdings in GSCC. The proposal

will not change this provision.

aspiring primary dealer that is a

participant. Again, GSCC believes this

definition is too narrow and limiting.

Thus, GSCC proposes to use the term

‘‘general user participant’’ instead of

‘‘dealer participant.’’ In addition, GSCC

proposes to use the corresponding term

‘‘general user participant director’’

instead of ‘‘dealer participant director.’’

The definition of general user

participant will be broader than the

current dealer member category defined

in the rules in that it will include

essentially any participant that is not a

broker or clearing agent bank, including

futures commission merchants and

registered investment companies.

A related proposal will remove all

references to primary and aspiring

primary dealers from the Agreement. As

noted above, restricting nonbroker

participants to primary and aspiring

primary dealers, the latter of which the

Federal Reserve no longer recognizes,

disenfranchises participants that

nonetheless act in a traditional dealer

capacity.

As noted above, GSCC proposes to

add an at-large category of director to

further fair representation. The use of

this category will allow GSCC the

flexibility to add to the board a

representative from a type of member

not already represented on the board or

an individual from an entity that plays

an important role in the government

securities marketplace but is not a GSCC

member or shareholder.

Finally, GSCC directors are currently

limited to serving two consecutive three

year terms on the board. GSCC is

proposing to retain the current term

limits for all but the vice chairman and

management director, who will not have

term limits. Furthermore, the Agreement

will specify that there must be a one

year absence from the board before a

former director is eligible for a new

overall six year term limit. GSCC

proposes to retain the three staggered

classes of directors. The By-laws will

specify the categories of directors that

compose each of the three classes.

(c) Restrictions on Issuance and

Transfer of GSCC Shares. GSCC is

subject to restrictions on the issuance

and repurchase of its shares. In

addition, GSCC’s shareholders,

including NSCC, are subject to

restrictions on the transfer GSCC shares.

The restrictions differ for Class A voting

shares and Class B non-voting shares.

(i) Restrictions on Shares. One of the

primary restrictions that GSCC would

like to remove from its shares is the

price restrictions. Generally, both Class

A and Class B shares must be issues,

sold, or transferred at a price of $500 per

share. Only NSCC and GSCC, if selling

shares it acquired from NSCC, are

authorized to sell or transfer Class A

shares for a price other than $500. GSCC

proposes to remove this price restriction

completely which will provide a great

deal more flexibility to shareholders

wishing to sell their shares. One

exception to removing the price

restriction will be that GSCC generally

will not be able to sell shares at less

than current book value.

GSCC currently may issue Class A

shares only to participants not already

holding Class A shares. GSCC proposes

to provide itself more flexibility by

being able to issue Class A shares to an

existing Class A shareholder,

participant, or affiliate of a participant.7

This expansion will help GSCC broaden

its shareholder base in an appropriate

manner.

GSCC currently may issue Class B

shares only to holders of Class A shares.

However, the board recently stated its

intention to repurchase the existing

Class B shares when GSCC is

determined to be adequately capitalized

which is expected to occur by year end

1997. Because GSCC’s intention is to

repurchase and then cancel all its Class

B shares, GSCC proposes to remove

from the Agreement GSCC’s authority to

issue new Class B shares.

In addition, the Agreement contains

restrictions on transfers of Class A

shares by participant shareholders

including a requirement that the Class A

shareholder must transfer all of its Class

A shares and that the transfer must be

to a single participant not already

holding Class A shares. GSCC proposes

to make Class A shares more freely

transferable by permitting sales to any

existing Class A shareholder,

participant, or affiliate of a participant

in lots of 300 shares. However, no

shareholder other than NSCC will be

able to own more than five percent of

Class A shares unless such shares are

held as a result of acquisition, merger,

or a comparable event. Similarly,

holders of Class B shares can sell such

shares only to participant shareholders

in lots of 200 and only with GSCC’s

consent. GSCC proposes to authorize

shareholders to sell Class B shares to

any existing shareholder, participant, or

affiliate of a participant in lots of 200

shares. This loosening of the transfer

restrictions would provide a benefit to

existing shareholders in the form of

more flexibility in ownership. For

example, it would allow shareholders

that have multiple sets of GSCC shares

by virtue of acquisitions or mergers to

transfer the ownership of one or more

share sets to an affiliated entity.

Currently, GSCC has a right of first

refusal only with respect to NSCC’s sale

of its Class A shares. GSCC proposes to

extend its right of first refusal to any

sale or transfer of shares by any

shareholder. GSCC may purchase such

shares at the lesser of the agreed price

or the current book value. GSCC may

resell such securities for a price at least

equal to the book value unless the board

approves a lower price.

Unlike other shareholders, NSCC may

sell any number of its Class A shares at

any price to nonparticipants. However,

GSCC has a right of first refusal to

purchase any of NSCC’s Class A shares

for $500 per share. GSCC can then sell

these repurchased Class A shares to

participants not already holding Class A

shares or to any person at any price if

approved by GSCC’s board. The

proposed rule change will amend

GSCC’s right of refusal to require the

sale price to be the lesser of book value

or the negotiated price. Similar to its

proposal with respect to the issuance of

shares, GSCC’s proposal will permit

GSCC to sell repurchased Class A shares

to any existing Class A shareholder,

participant, or affiliate of a participant

at a price equal to current book value.

With respect to shareholders other

than NSCC, GSCC can request to

purchase Class A shares from

participant shareholders provided that

each participant shareholder sells the

same percentage of Class A shares as

each other participant shareholder and

NSCC continues to hold twenty percent

of GSCC’s Class A shares unless NSCC

agrees otherwise. The Agreement

currently provides that GSCC does not

intend to repurchase outstanding Class

A shares unless all Class B shares have

been converted to Class A shares or

have already been repurchased by

GSCC. The proposal will allow GSCC to

repurchase shares at current book value

or at any price determined by the board.

Class B shares are also subject to

restrictions on conversions. Participant

shareholders can convert Class B shares

to Class A shares only upon GSCC’s

request to convert. GSCC is only

authorized to issue such a request in

order to effect a transfer of converted

shares to one or more participants that

do not hold any Class A shares. Because

GSCC’s intention is to repurchase and

then cancel all its Class B shares, GSCC

proposes to delete the conversion

provisions.

(ii) Provision for Extraordinary

Corporate Action. The proposed

changes to the Agreement will allow

GSCC to issue shares in response to an
49552 Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices

extraordinary corporate action. For

example, in the event GSCC engages in

a joint business venture with another

entity or enters into a profit sharing

agreement with another entity, it will be

able to issue Class A shares or a new

class of shares. Pursuant to such an

issuance, GSCC may exchange or

transfer such shares for cash in any

amount or for any noncash

consideration.

(iii) Shareholder Ceasing To Be a

Participant. Regardless of the class of

shares, if a shareholder ceases to be a

GSCC participant, GSCC has the

discretionary right to repurchase its

shares provided that GSCC repurchases

all of the shares for $500 per share.

However, GSCC is not obligated to

repurchase such shares. Difficulties

arise when a GSCC shareholder is no

longer a participant due to insolvency or

merger or because it no longer engages

in the business of trading in government

securities. In these types of instances,

contacting the shareholder or obtaining

required shareholder action such as

shareholder votes is made more

difficult.

GSCC proposes to expand its

authorized process for dealing with

situations where a shareholder no

longer is a participant. GSCC proposes

to amend its current authority to

mandate repurchase of shares of such a

shareholder at book value. However, the

proposal also will authorize GSCC to

offer to repurchase shares for any price

determined by the board.

(d) Miscellaneous Amendments.

There are a number of other provisions

in the Agreement that GSCC proposes to

amend including: (i) loss allocation

provisions, (ii) specific time and name

references, (iii) supermajority voting

requirements, and (iv) changes in

GSCC’s business.

With respect to loss allocation, the

Agreement currently has detailed loss

allocation provisions that are redundant

with the loss allocation provisions set

forth in GSCC’s rules. These loss

allocation provisions represent business

considerations that are not typically

covered by a shareholder agreement.

Therefore, because GSCC believes that

the rules are inherently more flexible

than the Agreement, GSCC proposes to

delete the loss allocation provisions

from the Agreement as they are more

appropriately handled in the rules.

Furthermore, according to GSCC,

inconsistencies can be avoided by

having the loss allocation provisions in

only one document.

With respect to time and name

references, there are a number of

references that are no longer relevant to

the Agreement. For example, there are

provisions in the Agreement relating to

shareholder meetings, classes of

directors, and staggered elections. These

developmental provisions make a

number of references to procedures that

had to be followed during the period

between 1988 and 1991 at which time

standard procedures went into effect.

Similar to the time references, the

Agreement specifically refers to NSCC

in a number of sections and names a

specific individual to hold one NSCC

director seat and another specific

individual to act as the management

director for purposes of the 1988 annual

meeting. GSCC propose to remove all

timing references and procedures

specific to the period between 1988 and

1991. In addition, GSCC proposes to

remove the obsolete provision naming

the specific individuals.

The Agreement now also sets forth a

number of supermajority board voting

requirements that must be met in order

to make certain changes to the

Agreement. These changes to the

Agreement include classification of

directors, procedures for electing and

replacing directors, provisions related to

loss allocation, and procedures and

requirements for amending the

Agreement. Furthermore, eighty percent

of the entire board must vote to change

GSCC’s business.

GSCC proposes to remove these

supermajority voting requirements with

respect to future amendments of the

Agreement. Many of the provisions

affected by the supermajority voting

requirements will be changed to such an

extent that such requirements will no

longer be logical. Furthermore, one of

the overall goals of amending the

Agreement is to make it more flexible.

Notwithstanding the above, GSCC

would retain the requirement that it be

authorized to change its business from

that of a registered clearing agency

including any change that would put

GSCC in the business of being a broker

or of performing brokered transactions,

only upon an affirmative vote of at least

eighty percent of the entire board.

Moreover, for the protection of its

shareholders and members, GSCC

proposes that any change of business

that puts GSCC in competition with

clearing agent banks also be subject to

a veto by a unanimous vote of all the

clearing agent bank directors and one

other participant director.

According to GSCC, the proposed rule

change will benefit GSCC’s members by

allowing a more flexible, efficient, and

responsive administration. Therefore,

GSCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

promulgated thereunder.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule change will have an

impact or impose a burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments relating to the

proposed rule change have not yet been

solicited or received. Members will be

notified of the rule change filing and

comments will be solicited by an

Important Notice. GSCC will notify the

Commission of any written comments

received by GSCC.

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 GSCC 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 in Washington, D.C. Copies of

such filing will also be available for

inspection and copying at the principal

office of GSCC. All submissions should

refer to the file number SR–GSCC–97–
Federal Register / Vol. 62, No. 183 / Monday, September 22, 1997 / Notices 49553

8 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 38925

(August 12, 1997), 62 FR 44158 (August 19, 1997).

Concurrently, pursuant to Section 19(b)(3)(A)(ii) of

the Exchange Act, Nasdaq filed with the

Commission an identical rule change that applies

to NASD members. See Securities Exchange Act

Release No. 38926 (August 12, 1997), 62 FR 44157

(August 19, 1997). 4 15 U.S.C. 78o-3.

5 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).

6 17 CFR 200.30–3(a)(12).

07 and should be submitted by October

14, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25028 Filed 9–19–97; 8:45 am]

BILLING CODE 8010–01–M

SECUTITIES AND EXCHANGE

COMMISSION

[Release No. 34–39083; File No. SR–NASD–

97–54]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Relating to Computer-toComputer Interface Circuit Fees for

Non-NASD Members

September 16, 1997.

On July 28, 1997, the Nasdaq Stock

Market, Inc. (‘‘Nasdaq’’) filed with the

Securities and Exchange Commission

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

rule change pursuant to Section 19(b)(1)

of the Securities Exchange Act of 1934

(‘‘Exchange Act’’) 1 and Rule 19b–4

thereunder 2 to amend Rule 7010 of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), to charge Computer-toComputer Interface (‘‘CTCI’’) subscribers

that are not NASD members a circuit fee

of $200 per month for each circuit.

Notice of the proposed rule change,

together with the substance of the

proposal, was provided by issuance of a

Commission release and by publication

in the Federal Register.3 No comment

letters were received. The Commission

is approving the proposed rule change.

I. Description of Rule Change

Nasdaq proposed the rule change in

order to charge CTCI subscribers that are

not NASD members a circuit fee of $200

per month for each circuit. Firms

employ CTCI between their in-house

computer systems and Nasdaq for a

variety of functions, the most prevalent

being order entry into the Small Order

Execution System (‘‘SOES’’) and the

reporting of transactions into the

Automated Confirmation Transaction

Service (‘‘ACT’’). Nasdaq currently

supports a total of 449 circuits.

Although most users of CTCI are

NASD members, a small number are

not. Specifically, these are mutual funds

or their pricing agents that may use

CTCI for transmitting net asset values

(‘‘NAVs’’) each day to Nasdaq’s Mutual

Fund Quotation Service. To ensure that

the costs are uniformly allocated among

all CTCI subscribers, Nasdaq is

proposing to apply the circuit charge to

these subscribers as well.

The CTCI network is presently

managed by MCI Communications

Corp., which is responsible for customer

services including installation,

relocation and trouble shooting.

Subscribers pay a monthly fee to MCI

for each circuit in use. Nasdaq does not

currently charge CTCI subscribers

beyond the fees associated with the

transaction services supported by the

CTCI network.

Nasdaq believes that the new fee

structure is necessary due to

adjustments and enhancements that

Nasdaq has already made to support

capacity for trading days of 1 billion

shares currently, 1.5 billion shares by

the end of 1997, and 2 billion shares in

1998. As the number of CTCI circuits

grows, the potential to exceed capacity

limits in the CTCI supported services,

notably ACT and SOES, likewise

increases. As a consequence, additional

infrastructure enhancements will be

required to maintain the level of support

required to run these services at an

acceptable level of performance. In

addition to future systems

enhancements, Nasdaq continues to

incur costs for the support of CTCI

circuits and subscribers. These costs

include hardware and software

enhancements and upgrades for the

communications interfaces with Nasdaq

systems, support of the subscriber

database, customer telephone support

and Nasdaq staff planning and

provisioning for CTCI. A recent activitybased costing analysis indicated that

these costs total approximately $1.1

million annually, which Nasdaq seeks

to recover through this fee.

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(5) of the

Exchange Act,4 which requires that the

rules of the NASD provide for the

equitable allocation of reasonable dues,

fees and other charges among members

and issuers and other persons using any

facility or system which the NASD

operates or controls.

II. Discussion

The Commission finds the proposed

rule change is consistent with the

requirements of the Exchange Act and

the rules and regulations thereunder

applicable to a national securities

association and, in particular, the

requirements of Section 15A(b)(5) of the

Exchange Act.5 Section 15A(b)(5)

requires that the rules of a national

securities association provide for the

equitable allocation of reasonable dues,

fees, and other charges among members

and issuers and other persons using any

facility or system which the association

operates or controls. The Commission

believes that the CTCI fee for nonmembers is reasonable and results in an

equitable allocation of the costs between

NASD members and non-members

associated with operating CTCI. The

proposed rule change will merely act to

offset Nasdaq’s costs of doing so.

Further, it is important that Nasdaq

continue to increase its capacity and

that it continue its infrastructure

enhancements. Improvements such as

these, which strengthen the national

market system, are in the public

interest. Accordingly, the Commission

finds that Nasdaq’s proposal is

appropriate and consistent with the

Exchange Act.

III. Conclusion

It Is Therefore Ordered, pursuant to

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

that the proposed rule change (SR–

NASD–97–54) be, and hereby is,

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25082 Filed 9–19–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39080; International Series

Release No. 1100; File No. SR–ODD–97–1]

Self-Regulatory Organizations; OMLX,

The London Securities and Derivatives

Exchange Limited; Order Approving

Proposed Options Disclosure

Document, as Amended

September 15, 1997.

On June 30, 1997, OMLX, The London

Securities and Derivatives Exchange