Federal Register / Vol. 62, No. 220 / Friday, November 14, 1997 / Notices 61157

6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CBOE–97–57 and should be

submitted by December 5, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–29932 Filed 11–13–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39307; File No. SR–CHX–

97–21]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange,

Incorporated, Regarding Suitability of

Customer Recommendations

November 6, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4,2 notice is

hereby given that on September 18,

1997, the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

file with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change, as described

in Items I, II, and III below, which Items

have been prepared by the selfregulatory organization. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Change

The Exchange proposes to add Article

VIII, Rule 25 to the Exchange’s Rules

relating to market-at-the-close orders.

The text of the proposed rule change is

as follows: new text is italicized.

Article VIII

Business Conduct

Rule 25. (a) In recommending to a

customer the purchase, sale or exchange

of any security, a member shall have

reasonable grounds for believing that

the recommendation is suitable for such

customer upon the basis of the facts, if

any, disclosed by such customer as to

his other security holdings and as to his

financial situation and needs.

(b) Prior to the execution of a

transaction recommended to a

customer, other than transactions with

customers where investments are

limited to money market mutual funds,

a member shall make reasonable efforts

to obtain information concerning:

(i) the customer’s financial status;

(ii) the customer’s tax status;

(iii) the customer’s investment

objectives;

(iv) such other information used or

considered to be reasonable by such

member or registered representative in

making recommendations to the

customer.

Interpretations and Policies

.01 The following is a non-exclusive

list of practices that the Exchange

deems to violate a member’s duty to

recommend to a customer only

securities suitable for that customer.

(a) Recommending speculative lowpriced securities to customers without

knowledge of or an attempt to obtain

information concerning the customers’

other securities holdings, their financial

situation and other necessary data.

(b) Excessive activity in a customer’s

account, often referred to as ‘‘churning’

or ‘‘overtrading.’’ There are no specific

standards to measure excessiveness of

trading in customer accounts, because

this must be related to the objectives

and financial situation of the customer

involved.

(c) Trading in mutual fund shares,

particularly on a short-term basis. It is

clear that normally these securities are

not proper trading vehicles and such

activity on its face may raise the

question of trade violation.

(d) Fraudulent activity, including:

establishing fictitious accounts in order

to execute transactions which otherwise

would be prohibited; executing

transactions in discretionary accounts

in excess of or without actual authority

from customers; causing the execution

of transactions which are unauthorized

by customers or the sending of

confirmations in order to cause

customers to accept transactions not

actually agreed upon; and unauthorized

use or borrowing of customers’ funds

and securities.

(e) Recommending the purchase of

securities or the continuing purchase of

securities in amounts that are

inconsistent with the reasonable

expectation that the customer has the

financial ability to meet such a

commitment.

.02 Derivatives and Other New

Financial Products. As new financial

products are introduced into the

marketplace, it is important that

members make every effort to

familiarize themselves with each

customer’s financial situation, trading

experience, and ability to meet the risks

involved with such products and to

make every effort to make customers

aware of the pertinent information

regarding new financial products.

Moreover, members should be careful to

always comply with all Exchange

requirements regarding the trading of

such products.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange 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. The

Exchange has prepared summaries, set

forth in sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Purposed Rule

Change

1. Purpose

The Exchange currently does not have

a rule that expressly addresses

suitability, churning and related matters

for Exchange members. While the

Exchange believes that such conduct

may currently fall within existing

Exchange rules, such as the Exchange’s

rule relating to ‘‘just and equitable’’

activity, the Exchange believes that it is

desirable at this time to specifically

address this type of conduct. As a result,

the purpose of the proposed rule change

is to add Rule 25 to Article VIII of the

Exchange’s rules, requiring that, in

recommending to a customer the

purchase, sale or exchange of any

security, a member must have

reasonable grounds for believing that

the recommendation is suitable for such

customer upon the basis of the facts, if

any, disclosed by such customer as to
61158 Federal Register / Vol. 62, No. 220 / Friday, November 14, 1997 / Notices

3 17 CFR 300.30(a)(12).

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

his other security holdings and as to his

financial situation and needs.

Specifically, prior to the execution of

a transaction recommended to a

customer, other than transactions with

customers where investments are

limited to money market mutual funds,

a member would be required to make

reasonable efforts to obtain information

concerning the customer’s financial

status, the customer’s tax status, the

customer’s investment objectives, and

such other information used or

considered to be reasonable by such

member or registered representative in

making recommendations to the

customer.

The rule change would contain a nonexclusive list of practices that the

Exchange deems to violate a member’s

duty to recommend to a customer only

securities suitable for that customer.

These would be: (1) Recommending

speculative low-priced securities to

customers without knowledge of or an

attempt to obtain information

concerning the customers’ other

securities holdings, their financial

situation and other necessary data; (2)

excessive activity in a customer’s

account, often referred to as ‘‘churning’’

or ‘‘overtrading’’; (3) trading in mutual

fund shares, particularly on a short-term

basis; (4) fraudulent activity (including

establishing fictitious accounts in order

to execute transactions which otherwise

would be prohibited, executing

transactions in discretionary accounts in

excess of or without actual authority

from customers, causing the execution

of transactions which are unauthorized

by customers or the sending of

confirmations in order to cause

customers to accept transactions not

actually agreed upon, and unauthorized

use or borrowing of customers’ funds

and securities); and (5) recommending

the purchase of securities or the

continuing purchase of securities in

amounts that are inconsistent with the

reasonable expectation that the

customer has the financial ability to

meet such a commitment.

In addition, with regard to derivative

financial products, the rule change

would require that members made every

effort to familiarize themselves with

each customer’s financial situation,

trading experience, and ability to meet

the risks involved with such products

and to make every effort to make

customers aware of the pertinent

information regarding new financial

products.

2. Statutory Basis

The purposed rule change is

consistent with Section 6(b)(5) of the

Act in that it is designed to promote just

and equitable principles of trade, to

foster cooperation and coordination

with persons regulating securities

transactions, to remove impediments to

and perfect the mechanism of a free and

open market and a national market

system and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 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

90 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 the self-regulatory

organization 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 submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submissions, 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 at

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 the CHX. All submissions

should refer to File No. SR–CHX–97–21

and should be submitted by December

5, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–29987 Filed 11–13–97; 8:45 am]

BILLING CODE 8070–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39309; File No. SR–GSCC–

97–06]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing and Order

Granting Accelerated Approval of a

Proposed Rule Change Regarding

Funds-Only Settlement Payment

Procedures

November 7, 1997.

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

Securities Exchange Act of 1934

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

July 16, 1997, the Government

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

and on September 19, 1997 and on

November 4, 1997, amended the

proposed rule change as described in

Items I and II below, which items have

been prepared primarily by GSCC. The

Commission is publishing this notice to

solicit comments from interested

persons and to grant accelerated

approval of the proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will amend

GSCC’s rules to provide netting

members with the option of making

funds-only settlement payments to

GSCC by authorizing banks to accept

payment directions directly from GSCC.

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),