50416 Federal Register / Vol. 62, No. 186 / Thursday, September 25, 1997 / Notices

7Supra note 3.

8 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 38889 (July

30, 1997), 62 FR 42274.

3APS will process variable rate and fixed rate

annuity products. Letter from Julie Beyers,

Associate Counsel, NSCC (February 26, 1997).

4NSCC intends to implement additional phases

in the future to include the processing of annuity

contract applications and the settlement of

premium payments. In addition, the scope of

information included in APS may be expanded

beyond position and valuation information. NSCC

will be required to make the appropriate rule filings

with the Commission at such times as NSCC is

ready to implement these additional components.

5According to NSCC, this feature will not be

available when the APS becomes operational; it will

be added at a later date. Until the exit and cancel

features are added, an annuities agency or annuities

carrier member must go outside of APS to arrange

for the reversal of a commission and charge back

transaction that was erroneously entered into APS.

rule change is consistent with GSCC’s

obligations under the Act because the

proposal permits GSCC to provide the

benefits of centralized, automated

settlement to a broader segment of repos

involving government securities. Thus,

the proposal should assist in the prompt

and accurate clearance and settlement of

securities transactions.

As discussed in the order approving

GSCC’s repo netting system, the

Commission believes that GSCC has put

into place adequate risk management

procedures to limit the settlement risk

associated with repo transactions.7 The

Commission also believes that GSCC has

adequately analyzed the application of

these risk management procedures to

the risks associated with longer term

repo transactions and therefore will be

able to adequately safeguard itself and

its participants from the risk associated

with the inclusion of longer term repo

transactions in the netting system. Thus

the proposal is consistent with GSCC’s

obligation to assure the safeguarding of

securities and funds which are in its

custody or control or for which it is

responsible.

GSCC requests 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 exists for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing

because accelerated approval will allow

GSCC to immediately expand its netting

services to include repos with terms

between 360 calendar days and two

years. This will permit more

participants that conduct repo

transactions to benefit from the positive

effects of netting.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of GSCC. All submissions should

refer to the file number SR–GSCC–97–

08 and should be submitted by October

16, 1997.

It Is Therefore Ordered, pursuant to

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

proposed rule change (File No. SR–

GSCC–97–08) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25462 Filed 9–24–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39096; File No. SR–NSCC–

96–21]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to the

Establishment of the Annuities

Processing Service

September 19, 1997.

On December 26, 1996, the National

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

a proposed rule change (File No. SR–

NSCC–96–21) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’).1 On February 27, 1997,

and May 12, 1997, NSCC amended the

proposed rule change. Notice of the

proposal was published in the Federal

Register on August 6, 1997.2 For the

reasons discussed below, the

Commission is approving the proposed

rule change.

I. Description

The proposed rule change amends

NSCC’s rules to establish the Annuities

Processing Service (‘‘APS’’). APS will be

a centralized communication link that

connects participating insurance

carriers with broker-dealers, banks, and

the broker-dealers’ or banks’ affiliated

life insurance agencies where

appropriate. Only those annuity plans 3

that are purchased by individuals from

insurance carriers through brokerdealers, banks, or their affiliated

insurance agencies will be eligible for

processing through APS.

NSCC will implement APS in phases.

Phase I will provide NSCC’s

participants with the ability to send and

receive daily information regarding

annuity contract positions, the value of

a contract’s underlying assets, and

settlement of commission monies.4 This

information will be transmitted through

the ‘‘position and valuation,’’ and

‘‘commission and charge back’’

components of Phase I.

The position and valuation

component will permit insurance

carriers to transmit information

regarding the value of individual

annuity contracts and the value of the

assets underlying the contracts to

broker-dealers and insurance agencies.

Insurance carriers will submit position

and valuation information to NSCC,

which NSCC will forward to the party

designated as recipient by the insurance

carrier.

The commission and charge back

component will permit insurance

carriers and agencies to communicate

concerning periodic trail or asset-based

compensation and transaction-based

commission payments, each paid by an

insurance carrier to an agency, as well

as charge backs paid by an agency to an

insurance carrier. Insurance carriers and

agencies will settle these payments

through NSCC’s money settlement

system.

Insurance carriers will be able to

initiate commission and charge back

transactions by submitting instructions

to NSCC. On any day prior to

settlement, an annuities agency or

annuities carrier member may submit a

cancel instruction if the member does

not recognize the transaction or an exit

instruction if the member recognizes the

transaction but wants that transaction to

be processed outside of APS.5 A
Federal Register / Vol. 62, No. 186 / Thursday, September 25, 1997 / Notices 50417

Telephone conversation between Julie Beyers,

Associate Counsel, NSCC, and Jeffrey Mooney,

Attorney, Division of Market Regulation,

Commission (September 8, 1997).

6Although no clearing fund deposit will be

required from annuities agency members and

annuities carrier members, NSCC has amended Rule

4 of its rules to state that an annuities agency

member or annuities carrier member may be

required to make a deposit in the clearing fund in

the event that in the future NSCC determines that

a clearing fund deposit should be required.

7 It should be noted that applicants will not be

required to be rated by any rating agency other than

A.M. Best in order to qualify as annuities carrier

members. The standards set forth for the other

rating agencies apply only if a annuities carrier

member determines to utilize a rating agency in

addition to A.M. Best.

8Furthermore, NSCC states that it has not yet

determined the fees for APS. NSCC will make the

appropriate rule filing pursuant to Section

Continued

properly submitted exit or cancellation

will cause the payment transaction to

which it relates to be deleted from APS.

Unless NSCC receives a cancellation or

exit instruction, the commission and

charge back transaction will settle in the

three-day settlement cycle following

their completion unless the parties have

agreed that the transaction will settle on

an extended basis. However, no

transaction will be allowed to settle

more than five business days after the

day on which the last instruction

pertaining to the transaction was

submitted to NSCC.

NSCC will not be responsible for the

completeness or accuracy of any APS

data or for any errors, omissions, or

delays that may occur relating to the

APS data. The proposed rule change

states that the processing of any

transaction through APS will not relieve

a party from its legal or regulatory rights

or its obligations relating to a

transaction.

The proposed rule change will amend

NSCC’s Rule 2 to permit a corporation,

partnership, or agency, including a

registered broker-dealer, bank, or trust

company, that is licensed to sell

insurance products and is subject to

supervision or regulation pursuant to

the provisions of state insurance laws to

become a member of the NSCC. If the

entity agrees to limit their activities to

APS services only, the entity would be

classified as an ‘‘annuities agency

member.’’

The proposed rule change permits

broker-dealers to join NSCC as annuities

agency members regardless of whether

they conduct their insurance business

in-house or through an affiliated or

subsidiary insurance agency. The

proposed rule change provides that

NSCC may restrict the activities of the

broker-dealers’ insurance agency

affiliates and subsidiaries that become

annuities agency members and require

them to enter into agreements for

operational support services with an

entity that is acceptable to NSCC. The

entity can be, but is not required to be,

another annuities agency member and

cannot be replaced without the prior

approval of NSCC. In addition, brokerdealers and banks that are not currently

NSCC members that sell annuity

products also will be permitted to join

NSCC for the purpose of using APS.

The proposed rule change amends

NSCC’s rules to establish the annuities

carrier member category. As proposed,

NSCC Rule 2 will define annuities

carrier member as a company,

partnership, limited liability

corporation, or other organization or

entity that is not a member of NSCC but

is subject to the supervision or

regulation pursuant to state insurance

laws. Annuities carrier members will

not be required to make a deposit to the

clearing fund.6

The proposed rule change also will

create NSCC Rule 56 to establish the

financial and operational standards for

annuities carrier members. Annuities

carrier members will be required to have

an A.M. Best rating of ‘‘A¥.’’ If rated by

(i) Standard & Poor’s, the annuities

carrier member must have a claims

paying ability rating of not less than

‘‘AAA;’’ (ii) Moody’s the annuities

carrier member must have a long-term

debt rating of not less than ‘‘Aaa;’’ or

(iii) Duff & Phelps, the annuities carrier

member must have a long-term debt

rating of not less than ‘‘A¥.’’ 7

Alternatively, if the annuities carrier

member does not satisfy the abovementioned criteria, Rule 56 will require

that the annuities carrier member have

an A.M. Best rating of not less than

‘‘B+.’’ If rated by (i) Standard & Poor’s,

the annuities carrier member must have

a claims-paying ability rating of not less

than ‘‘BBB;’’ (ii) Moody’s, the annuities

carrier member must have a long-term

debt rating of not less than ‘‘A;’’ or (iii)

Duff & Phelps, the annuities carrier

member must have a long-term debt

rating of not less than ‘‘BBB¥.’’ In this

case, Rule 56 also will require that the

annuities carrier member demonstrate to

NSCC’s Board of Directors that its

business and capabilities are such that

it could reasonably expect material

benefit from access to APS, and NSCC

must determine that the financial

condition of such annuities carrier

member does not pose an undue risk to

NSCC or its members.

The proposed rule change will amend

NSCC Rule 15 to require that all

annuities agency members and

annuities carrier members file certain

financial information with NSCC. In

addition to some of the financial

information required of full NSCC

members, Rule 15 will require annuities

agency members and annuities carrier

members to file with NSCC reports filed

with relevant state insurance

departments as may be determined by

NSCC from time to time.

The proposed rule change amends

Addendum B of NSCC’s rules

(Standards of Financial Responsibility &

Operational Capability) to include

membership standards for applicants

that will use only APS. The proposed

rule change will require a broker-dealer

whose membership is limited to the use

of APS to have $25,000 in excess net

capital over the minimum net capital

requirement imposed by the

Commission or such higher minimum

capital requirement imposed by the

broker-dealer’s designated examining

authority. In addition, the broker-dealer

must have a capital ratio or percentage

that would not require it to be placed on

immediate surveillance at NSCC and

must not be on ‘‘closer-than-normal’’

surveillance by its designated

examining authority. If the applicant is

a bank or trust company, it must have

$100,000 minimum excess capital over

the capital requirement imposed by its

state or federal regulatory authority. A

bank or trust company must not be

operating at a loss at the time of its

application and must not have operated

at a loss in any of its previous three

fiscal quarters. All others which apply

for use of APS must only have the

operational capability for membership

or have an agreement concerning the

provision of operational support

services to such applicant with an entity

acceptable to NSCC and which may not

be replaced without prior approval by

NSCC and must agree to restrict its

business activities as NSCC may require.

Addendum B also will require that all

annuities agency members file certain

prescribed information annually. Such

information includes, among other

things, general information concerning

the member’s corporate organizational

structure and licensing, the nature of its

business, bonding, pending

investigations, and litigation.

The proposed rule change explicitly

sets forth that, like NSCC’s Mutual Fund

Services and New York Window

Service, APS will not be a guaranteed

service. An additional paragraph has

been added to Addendum K

Interpretation of the Board of

Directors—Application of Clearing Fund

to make it clear that APS is not a

guaranteed service.8
50418 Federal Register / Vol. 62, No. 186 / Thursday, September 25, 1997 / Notices

19(b)(3)(A) of the Act at such time as NSCC

determines the fees to be charged for APS services.

9The full text of each of these technical rule

changes is set forth in Exhibit A of NSCC’s filing

and subsequent amendments thereto, each of which

is available for inspection and copying at the

Commission’s Public Reference Room or through

NSCC.

10 15 U.S.C. 78q–1(b)(3)(F).

11 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 OCC.

3For a discussion of the PHLX proposal, refer to

Securities Exchange Act Release No. 38867 (May

22, 1997), 62 FR 29385 [File No. SR–PHLX–97–22]

(notice of proposed rule change to list and trade

options on the Mexican peso). The PHLX proposal

has not received final approval from the

Commission.

The proposed rule change amends

NSCC’s Rule 3 (Lists to be Maintained)

to indicate that NSCC will maintain a

list of annuity plans that may be the

subject of orders processed through

APS. The proposed rule change amends

NSCC’s Rule 57 (Annuities Processing

Service) to clarify what governs these

Phase I aspects of APS.

The proposed rule change also makes

technical amendments to the following

NSCC rules to accommodate the APS

service, annuities agency members, and

annuities carrier members: Rule 1

(Definitions and Descriptions), Rule 5

(General Provisions), Rule 6

(Distribution Facilities), Rule 12

(Settlement), Rule 17 (Fine Payments),

Rule 18 (Procedures For When the

Corporation Declines or Ceases to Act),

Rule 20 (Insolvency), Rule 22

(Suspension of Rules), Rule 24 (Charges

for Services Rendered), Rule 26 (Bills

Rendered), Rule 27 (Admission to

Premises of the Corporation—Powers of

Attorney, Etc.), Rule 29 (Qualified

Securities Depositories), Rule 32

(Facsimile Signatures), Rule 33

(Procedures), Rule 34 (Insurance), Rule

35 (Financial Reports), Rule 36 (Rule

Changes), Rule 37 (Hearing Procedures),

Rule 39 (Special Representative/Index

Receipt Agent), Rule 45 (Notices), Rule

46 (Restrictions on Access to Services),

Rule 48 (Disciplinary Proceedings), Rule

55 (Settling Banks), Procedure VIII

(Money Settlement Service), Procedure

XV (Clearing Fund Formula and Others

Matters), Addendum D (Statement of

Policy—Envelope Settlement Service),

and Addendum F (Statement of Policy—

In Relation to Same Day Funds

Settlement).9

II. Discussion

Section 17A(b)(3)(F) 10 of the Act

requires that the rules of a clearing

agency be designed to facilitate the

prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that NSCC’s

proposed rule change is consistent with

its obligations under the Act because

APS will provide centralized

communication between insurance

carriers and broker-dealers, banks, and

their affiliated insurance agencies. APS

also permits commission and charge

back transactions to be processed in a

standardized and automated

environment. Because the activities will

be handled through NSCC, the time and

cost associated with processing should

be reduced. Thus, the proposal

promotes the prompt and accurate

clearance and settlement of securities

transactions.

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–

NSCC–96–21) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–25447 Filed 9–24–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39088; International Series

Release No. 1102; File No. SR–OCC–97–10]

Self-Regulatory Organizations, the

Options Clearing Corporation; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change Seeking Approval to

Issue, Clear, and Settle Flexibly

Structured Options on the Mexican

Peso

September 17, 1997.

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

Securities Exchange Act of 1934

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

June 24, 1997, The Options Clearing

Corp. (‘‘OCC’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I and II

below, which items have been prepared

primarily by OCC. The Commission is

publishing this notice and order to

solicit comments from interested

persons and to grant accelerated

approval, conditioned as described

below, of the proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will allow

OCC to issue, clear, and settle option

transactions where the Mexican peso is

either the trading currency or the

underlying currency.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

OCC 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. OCC 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

Under the proposed rule change, OCC

will issue, clear, and settle flexibly

structured option contracts where the

Mexican peso is either the trading

currency or the underlying currency.

The Philadelphia Stock Exchange

(‘‘PHLX’’) has proposed to list and trade

such foreign currency options through

its customized options facility.3 The

PHLX rule filing proposes to enable its

members to trade customized contracts

between the peso and United States

dollar. The PHLX rule filing further

proposed to offer cross-rate contracts for

the Mexican peso against the Canadian

dollar.

Currently, OCC has approval to list

and clear flexibly structured option

contracts on any combination of the

following currencies: (1) Australian

dollars, (2) British pounds, (3) Canadian

dollars, (4) German deutsche marks, (5)

European Economic Community

currency units, (6) French francs, (7)

Italian lire, (8) Japanese yen, (9) Spanish

pesetas, (10) Swiss francs, and (11)

United States dollars. OCC is now

proposing to add the Mexican peso to

that list of approved currencies.

Options on the peso will be cleared

and settled in accordance with the

clearance and settlement mechanisms

already in place for flexibly structured

foreign currency options and for crossrate foreign currency options. In

addition, options on the peso will be