50978 Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices

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 prepared by NSCC.

3The minimum net capital requirements are set

forth in Rule 13c3–1(a) under the Act. 17 CFR

240.15c3–1(a).

4 ‘‘Municipal securities brokers’ broker’’ is

defined in Rule 15c3–1(a)(8) under the Act. 17 CFR

240.15c3–1(a)(8).

5NSCC believes that this is consistent with the

Commission’s approach of maintaining separate

capital rules for municipal securities brokers’

brokers.

6See 17 CFR 240.15c3–1(a)(2)(i).

7Under the proposed rule change, NSCC will

maintain its current right to impose higher capital

requirements on members depending on the

circumstances and type of business that the member

is in.

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, 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 such

filing also will be available for

inspection and copying at the principal

office of DTC. All submissions should

refer to File No. SR–DTC–97–15 and

should be submitted by October 20,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25692 Filed 9–26–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39110; File No. SR–NSCC–

97–07]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Notice of a Proposed

Rule Change Relating to Changes in

Membership Standards

September 22, 1997.

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

Securities Exchange Act of 1934

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

August 5, 1997, the National Securities

Clearing Corporation (‘‘NSCC’’) 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 NSCC.

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 proposed rule change will amend

NSCC’s membership standards to

increase the minimum excess net capital

requirements imposed on members and

applicants for membership.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NSCC 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. NSCC 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

The purpose of the proposed rule

change is to amend NSCC’s membership

standards to increase the amount of net

capital required over the Commission’s

minimum net capital requirements

(‘‘excess net capital’’).3 Currently, the

excess net capital requirement for all

members is $50,000. The proposed

amendments: (i) Will increase the

excess net capital requirement for full

service members to $500,000 except for

municipal securities brokers’ brokers 4

for which the excess net capital

requirement will be $100,000 5 and (ii)

will increase the excess net capital

requirement for members that clear for

other broker-dealers to $1,000,000.

NSCC’s current excess net capital

requirements were implemented in 1976

when NSCC was formed. The

environment in which NSCC members

operate has changed significantly since

that time. In terms of the change in the

value of money alone, $50,000 in 1976

dollars is worth nearly $150,000 today.

Trading volumes and the average value

of securities traded have increased even

more significantly. The Commission

also has changed its minimum net

capital requirements for most NSCC

members during this time period from

$25,000 (i.e., one-half of NSCC’s current

excess net capital requirement) to

$250,000 (i.e., one-half of NSCC’s

proposed excess net capital

requirement).6

As a result of the changing

environment, it has been NSCC’s recent

experience that when a member with

less than $500,000 in excess net capital

has problems with even one transaction

that would not be considered large by

today’s standards, concerns arise with

respect to that member’s ability to settle

on a timely basis and to post additional

required collateral with NSCC.

Additionally, even though the size of

the exposure due to the failure of any

one of these small firms is relatively

small, NSCC believes that the time and

resources that it must spend addressing

problems related to small firms is

disproportionate to the magnitude of the

potential loss and is unjustifiably

disruptive of NSCC’s daily surveillance

process.

NSCC also believes that the owners or

principals of an NSCC member should

have a meaningful amount of their own

assets at stake to absorb losses before a

member’s excess net capital falls below

regulatory minimums and the member

is required to cease doing business.

NSCC believes that this provides a

strong motivation for firms to

implement appropriate risk

management controls on their own. In

today’s environment, NSCC does not

believe that $50,000 is a meaningful

amount and believes that $500,000 is a

more appropriate amount.7

In addition, NSCC has recognized that

members that clear for other brokerdealers present special risks to the

clearance and settlement process. These

firms become legally responsible for the

settlement of transactions of other firms

and generally do not have complete

control over those transactions. Many of

these firms have surveillance

procedures and other risk controls in

place and can cease clearing for a

correspondent broker-dealer if they

perceive that a risk has developed. But

the clearing arrangements of these firms

and marketplace rules generally require

that the clearing firm (i.e., the NSCC

member) take on settlement

responsibility for most of the
Federal Register / Vol. 62, No. 188 / Monday, September 29, 1997 / Notices 50979

8 15 U.S.C. 78q–1.

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The NYSE’s Shareholder Approval Policy is

contained in Paragraphs 312.03 through 312.05 of

the Exchange’s Listed Company Manual.

4Letter from Noreen M. Culhane, Senior Vice

President, Listings and Client Service, NYSE, to

Howard Kramer, Associate Director, Division of

Market Regulation, Commission (August 7, 1997).

correspondent broker-dealer’s

transactions before the clearing firm has

had a chance to review such

transactions. This increases the

possibility that a clearing firm will be

responsible for problematic or risky

transactions. In light of the higher risk

presented by these firms, NSCC believes

that they should be subject to higher

minimum capital standards.

Currently, twenty-nine NSCC

members do not meet the proposed

$500,000 standard for full service

members. For this reason, NSCC

proposes that the new standard become

effective on the later of (a) one year from

the date of publication in the Federal

Register of the notice of the filing of this

rule change or (b) the date of

Commission approval of this rule

change. NSCC believes that this

effective date will give those firms

sufficient time to obtain appropriate

capital infusions or make other clearing

arrangements.

In addition, two NSCC members that

clear for other broker-dealers do not

meet the $1,000,000 standard.

Therefore, NSCC proposes that this new

standard become effective on the later of

(a) six months from the date of

publication in the Federal Register of

the notice of the filing of this rule

change or (b) the date of Commission

approval of this rule change. NSCC

believes that this effective date will give

those firms sufficient time to obtain

appropriate capital infusions.

During the interim period, if any,

between Commission approval of this

rule change and its effective date, NSCC

will not consider applicants that do not

meet the new minimum capital

standards other than those firms

applying for membership in connection

with the agreement between NSCC and

the Stock Clearing Corporation of

Philadelphia (‘‘SCCP’’) under which

SCCP has agreed to cease operations as

a clearing corporation.

In view of the facts that: (i) The costs

of surveillance and of collateral

collection procedures in both time and

resources falls on NSCC and all of its

members and that these costs are

disproportionately high relative to the

size of the potential loss for members

with less than $500,000 in excess net

capital, (ii) the default or insolvency of

any settling member potentially imposes

burdens and costs on NSCC and all of

its members, and (iii) the changes

proposed by this filing are meant to

reduce these burdens and costs, NSCC

believes that this filing is consistent

with Section 17A of the Act 8 and the

rules and regulations thereunder.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will impose a

burden on competition. In fact, NSCC

believes that the proposed rule change

will rectify a burden on competition

that has slowly developed due to

changing circumstances by having the

costs of risk management more

equitably borne by all NSCC members

and by requiring all firms to have a

meaningful amount of capital at risk.

NSCC believes the increased capital

requirements better reflect current

marketplace realities.

(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 received by NSCC.

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 NSCC 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, 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 such

filing also will be available for

inspection and copying at the principal

office of NSCC. All submissions should

refer to File No. SR–NSCC–97–07 and

should be submitted by October 20,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25690 Filed 9–26–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39098; File No. SR–NYSE–

97–14]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Approving Proposed Rule Change

Relating to Amendments to the

Shareholder Approval Policy

September 19, 1997.

I. Introduction

On May 16, 1997, the New York Stock

Exchange, Inc., (‘‘NYSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) 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 relating to amendments to its

Shareholder Approval Policy.3 The

proposed rule change was published for

comment in Securities Exchange Act

Release No. 38716 (June 5, 1997), 62 FR

32135 (June 12, 1997). No comment

letters were received, however, on

August 8, 1997, the Exchange submitted

a letter in support of its filing.4

II. Description of the Proposal

Currently, the Exchange’s shareholder

approval policy requires a listed

company to obtain shareholder approval

in four situations:

• Related-Party Transactions: when

selling more than one percent of the

company’s stock, for either cash or other

assets, to a ‘‘related party,’’ define to

mean officers, directors and holders of

five percent or more of the company’s

common stock (or stock with five