Federal Register / Vol. 62, No. 234 / Friday, December 5, 1997 / Notices 64417

17Previously, GSCC had the discretionary right to

repurchase its shares provided that GSCC

repurchases all of the shares for $500 per share.

18Prior to the proposed rule change, the

Agreement set forth a number of supermajority

board voting requirements that had to be met in

order to make certain changes to the Agreement,

including classification of directors, procedures for

electing and replacing directors, provisions related

to loss allocation, and procedures and requirements

for amending the Agreement.

19 15 U.S.C. 78q–1(b)(3)(C).

20Securities Exchange Act Release No. 16900

(June 17, 1980), 45 FR 30086.

21 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

The revisions authorize GSCC to issue

shares in response to an extraordinary

corporate action (e.g., a joint business

venture). Pursuant to such an issuance,

GSCC may exchange or transfer such

shares for cash in any amount or for any

noncash consideration.

If a shareholder ceases to be a GSCC

participant, GSCC may mandate the sale

to itself of shares of such a shareholder

at book value.17 However, the proposal

also authorizes GSCC to offer to

repurchase shares for any price

determined by the board under such

circumstances.

D. Miscellaneous Amendments

The proposal deletes loss allocation

provisions in the Agreement that are

redundant with the loss allocation

provisions set forth in GSCC’s rules. All

timing references and procedures

specific to the period between 1988 and

1991 contained in the Agreement are

removed. In addition, provisions

naming 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 are removed.

The supermajority voting

requirements 18 with respect to future

amendments of the Agreement are

removed. However, GSCC retains the

requirement that an affirmative vote of

at least eighty percent of the entire

board is required 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.

Moreover, for the protection of its

shareholders and members, any change

of business that puts GSCC in

competition with clearing agent banks is

subject to a veto by a unanimous vote

of all the clearing agent bank directors

and one other participant director.

II. Discussion

Section 17A(b)(3)(C)19 of the Act

requires that the rules of a clearing

agency assure the fair representation of

its shareholders or members and

participants in the selection of its

directors. In the release announcing

standards for the registration of clearing

agencies (‘‘Standards Release’’), the

Division of Market Regulation

(‘‘Division’’) stated that rather than

prescribing a single method for

providing fair representation, the

Division would evaluate each clearing

agency’s procedures on a case-by-case

basis.20 The Standards Release provided

several examples of procedures that

could be used to satisfy the fair

representation requirement, including

solicitation of board of directors

nominations from all participants and

selection of director candidates by a

nominating committee selected by the

participants.

The Commission believes that GSCC’s

proposal is consistent with its

obligations under the Act because it

provides participants with a meaningful

opportunity to participate in GSCC’s

election process. The board, which

should be responsive to participant

concerns, will designate the members of

the nominating committee. GSCC

participants will have the opportunity

both informally and formally to

nominate candidates for board seats. If

there is a contested election, GSCC

participants will have the opportunity

to vote for participant directors.

Therefore, the Commission believes that

GSCC’s procedures should provide fair

representation to its members.

The Commission also believes that the

changes to the composition of the board

will provide enhanced fair

representation. Several classes of

participants that did not fit within the

eligible categories of participant

directors are now represented by the

general user participant category. Thus,

the Commission believes that GSCC’s

proposal is consistent with its

obligations to assure the fair

representation of participants.

The Commission finds that the

removal of certain restrictions on the

issuance and transfer of GSCC shares

may assist GSCC in operating efficiently

as a clearing agency. By exercising its

right of first refusal, GSCC will be able

to ensure that ownership of GSCC is

limited to industry participants. Thus,

GSCC’s primary focus will continue to

be on the clearance and settlement of

securities. Also, GSCC may be better

able to respond quickly to new business

ventures by having the ability to issue

shares in connection with new

operations.

Finally, the Commission finds that the

remaining miscellaneous amendments

to the Agreement, such as the deletion

of the loss allocation provision, the

removal of obsolete references, and the

removal of the supermajority voting

requirements, provide for a more

flexible and efficient operation of GSCC

and, therefore, are consistent with the

requirements of the Act. For example,

by eliminating supermajority voting

requirements, GSCC will be able to

make necessary changes in its

operations on an expedited basis.

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–

GSCC–97–07) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–31876 Filed 12–4–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39378; File No. SR–MSRB–

97–04]

Self-Regulatory Organizations;

Municipal Securities Rulemaking

Board, Inc.; Order Granting Approval

to Proposed Rule Change and Notice

of Filing and Order Granting

Accelerated Approval to Amendment

No. 2 to Proposed Rule Change

Relating to Its Arbitration Code

December 1, 1997.

I. Introduction

On May 22, 1997, the Municipal

Securities Rulemaking Board, Inc.

(‘‘MSRB’’ or ‘‘Board’’) submitted to the

Securities and Exchange Commission

(‘‘Commission’’), pursuant to Section

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

of 1934 (‘‘Act’’)1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend Rule G–35, the Board’s

Arbitration Code. The proposed rule

change would create two new sections:

Section 37 would state that the Board

will not accept any new arbitration

claims filed on or after January 1, 1998;

and Section 38 would provide that, as

of January 1, 1998, every bank dealer (as

defined in Rule D–8) shall be subject to
64418 Federal Register / Vol. 62, No. 234 / Friday, December 5, 1997 / Notices

3See letter from Richard P. Ryder, Editor,

Securities Arbitration Commentator, to Margaret H.

McFarland, Deputy Secretary, Commission, dated

September 10, 1997.

4Amendment No. 2 was submitted in response to

the comment letter received on the proposed rule

filing. Amendment No. 2 states that the Board has

reviewed the comment letter and has determined to

amend its arbitration code to make publicly

available the names of arbitrators for all customer

awards rendered after May 10, 1989. The Board

believes that this amendment will facilitate the

NASD’s administration of those arbitration claims

received after January 1, 1998 involving the

municipal securities activities of brokers, dealers

and municipal securities dealers where an arbitrator

appointed to such a case previously served as an

arbitrator in the Board’s program but has never

served as an NASD arbitrator. See letter from Jill C.

Finder, Assistant General Counsel, MSRB, to

Katherine A. England, Assistant Director, Market

Regulation, Commission, dated November 12, 1997.

5At such time, the Board will submit a filing to

the Commission to delete sections 1 through 36 of

Rule G–35, as well as new Section 37, and to

rescind Rule A–16 on arbitration fees and deposits.

6See Amendment No. 2, supra note 4.

7See supra note 3.

8 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).

9According to the Board, its caseload grew

steadily for a time; for example, 21 cases were

received in 1980, 82 in 1986, and 115 in 1988.

Between 1978 and 1993, the NASD automatically

transferred to the Board’s arbitration program any

claims received involving municipal securities, and

until approximately 1993 the majority of the

Board’s cases were received in this manner. The

NASD also transferred cases (other than those

involving municipal securities) to other selfregulatory organizations (‘‘SROs’’), such as the New

York Stock Exchange and the American Stock

Exchange, if the particular claim arose out of a

transaction in that SRO’s market. In 1993, the

NASD amended its arbitration code to require a

customer’s consent before it could transfer a case

to another SRO. The practical effect of this

amendment has been to virtually halt the transfer

of municipal cases to the Board’s arbitration

program because customers choose to remain at the

the Code of Arbitration Procedure of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’) for every claim,

dispute or controversy arising out of or

in connection with the municipal

securities activities of the bank dealer

acting in its capacity as such. New

Section 38 would further provide that

each bank dealer shall be subject to, and

shall abide by, the NASD’s Code of

Arbitration Procedure as if the bank

dealer were a ‘‘member’’ of the NASD.

Notice of the proposed rule change,

together with the substance of the

proposal, was published for comment in

Securities Exchange Act Release No.

38935 (August 14, 1997), 62 FR 44501

(August 21, 1997). One comment letter

was received on the proposal.3 The

Exchange submitted Amendment No. 2

to the proposed rule filing on November

13, 1997.4 This order approves the

proposed rule change, as amended.

II. Description

The Board’s arbitration program,

which is limited to the resolution of

disputes involving municipal securities,

has been in effect since December, 1978.

The Board has determined that, effective

January 1, 1998, it will no longer accept

any new claims filed with its arbitration

program. The Board will, however,

continue to operate its program in order

to administer its current, open cases and

any new claims received prior to

January 1, 1998, but will discontinue its

arbitration program when all such cases

have been closed.5

Currently, any customer or securities

dealer with a claim, dispute, or

controversy against a dealer involving

its municipal securities activities may

submit that claim to the arbitration

forum of any SRO of which the dealer

is a member, including the NASD. Bank

dealers, however, are unique in that

they are subject to the Board’s rules but

are not members of any other SRO. In

light of the Board’s decision not to

accept any new arbitration claims on or

after January 1, 1998, the proposed rule

change amends Rule G–35 to state this

and to provide an alternative forum for

claims involving the municipal

securities activities of bank dealers. The

proposed rule change accomplishes this

by subjecting every bank dealer, as of

January 1, 1998, to the NASD’s Code of

Arbitration Procedure for every claim,

dispute or controversy arising out of or

in connection with the municipal

securities activities of the bank dealer

acting in its capacity as such. In

addition, the proposed rule change

requires that bank dealers abide by the

NASD’s Code just as if they were

members of the NASD for purposes of

arbitration.

Pursuant to the proposed rule change,

the bank regulatory agencies (i.e., the

Office of Comptroller of the Currency,

the Federal Reserve Board, and the

Federal Deposit Insurance Corporation)

would continue to be responsible for the

inspection and enforcement of bank

dealers’ municipal securities activities,

including arbitration. Thus, for

example, a bank dealer’s failure to pay

an arbitration award rendered pursuant

to the NASD’s Code of Arbitration

Procedure would constitute a violation

of Board Rule G–35, since it is that rule,

as amended, that subjects bank dealers

to the NASD’s Code. Similarly, a bank

dealer’s refusal to submit to arbitration

pursuant to the NASD’s Code of

Arbitration Procedure would constitute

a violation of Board Rule G–35. The

NASD would notify the Board of any

such violations and the Board, in turn,

would contact the appropriate bank

regulatory agency.

In addition, the proposed rule change

will amend Rule G–35, Section 31(h), to

make publicly available the names of

arbitrators on all customer awards

rendered through the Board’s arbitration

program after May 10, 1989.6

III. Summary of Comments

The Commission received one

comment letter relating to the proposed

rule change.7 The commenter states that

his company collects arbitration awards

and that they obtain information on

these awards through the Public Awards

Program of the various arbitration

forums, which they can then make

available to people who seek

information about past arbitration

awards. The commenter states that

parties and counsel seek the past history

of arbitrators that are appointed to hear

their cases; therefore, they need to know

the names of the arbitrators who

decided particular awards. The

commenter states that the NASD

currently makes arbitrator names for

public arbitration awards publicly

available (and do so retroactively to May

10, 1989), and that the MSRB is the only

SRO that does not make arbitrator

names publicly available.

The commenter wants to know

whether MSRB cases that will be

arbitrated by the NASD will be made

public, along with the names of the

arbitrators. The commenter requests that

the MSRB make publicly available its

public arbitration awards, including the

arbitrator names, retroactively to May

10, 1989 and prospectively in the future,

so that the NASD will be able to

continue its practice of making a list of

arbitrators’ past awards to parties when

they appoint arbitrators.

IV. Discussion

The Commission finds that the

proposed rule change is consistent with

Sections 15B(b)(2) (C) and (D) of the

Act, which provide, respectively, that

the Board’s rules be designed, in

general, to protect investors and the

public interest, and, if the Board deems

appropriate, provide for the arbitration

of claims, disputes, and controversies

relating to transactions in municipal

securities because the proposed rule

change ensures that there is a fair

arbitration forum available for all MSRB

arbitration claims.8

The Commission believes that it is

consistent with the Act to allow the

MSRB to send its arbitration cases to the

NASD for arbitration, in part because

the Board believes its declining caseload

makes it difficult to justify the cost of

continuing to operate its own arbitration

program.9 The Commission also
Federal Register / Vol. 62, No. 234 / Friday, December 5, 1997 / Notices 64419

NASD. Consequently, the Board’s caseload has

declined dramatically from 115 cases received in

1988 to 10 cases received in 1996. As of the time

of the filing of the proposed rule change, the Board

had received two cases in 1997.

10The Commission notes that if another SRO

wanted to eliminate its arbitration program and

send its cases to the NASD, it would be required

to file a rule filing under Section 19(b) of the Act,

and the Commission would independently consider

any such filing.

11The Office of Comptroller of the Currency, the

Federal Reserve Board, and the Federal Deposit

Insurance Corporation.

12The Commission notes that the Board has

stated that at that time it will submit a filing to the

Commission to delete sections 1 through 36 of Rule

G–35, as well as new Section 37, and to rescind

Rule A–16 on arbitration fees and deposits.

13The Commission notes that if the NASD were

to file a proposed rule change to amend fees that

apply to its members, and that also apply to the

bank dealers, it would be able to file that change

under Section 19(b)(3)(A) of the Act, if it otherwise

met the criteria. However, if the NASD were to file

a proposed rule change that only affected fees for

the bank dealers, that change would have to be filed

under Section 19(b)(2) of the Act so that the bank

dealers would have adequate notice and time to

comment on the proposal.

14 15 U.S.C. 78s(b)(2).

15 17 CFR 200.30–3(a)(12).

1 § 15 U.S.C. 78s(b)(1).

believes that procedurally the proposed

rule change should adequately ensure

that all arbitration cases that would be

subject to the MSRB arbitration process

will be provided for under the NASD’s

arbitration program. Those MSRB

members who are also NASD members,

or members of another SRO with an

arbitration forum, will be able to use

that SRO’s arbitration forum.10 Those

MSRB members who are not also

members of another SRO (the bank

dealers) will now be deemed

‘‘members’’ of the NASD for purposes of

arbitrating claims involving the

municipal securities activities of bank

dealers. The proposed rule change

accomplishes this by subjecting every

bank dealer, as of January 1, 1998, to the

NASD’s Code of Arbitration Procedure

for every claim, dispute or controversy

arising out of or in connection with the

municipal securities activities of the

bank dealer acting in its capacity as

such. In addition, the proposed rule

change requires that bank dealers abide

by the NASD’s Code just as if they were

members of the NASD for purposes of

arbitration.

In addition, the Commission believes

that the proposed rule change

adequately provides for the enforcement

of amended Board Rule G–35 because

the enforcement mechanism for bank

dealers would not be altered. The bank

regulatory agencies 11 would continue to

be responsible for the inspection and

enforcement of bank dealers’ municipal

securities activities, including

arbitration. A bank dealer’s failure to

pay an arbitration award rendered

pursuant to the NASD’s Code of

Arbitration Procedure would constitute

a violation of Board Rule G–35, since it

is that rule, as amended, that subjects

bank dealers to the NASD’s Code.

Similarly, a bank dealer’s refusal to

submit to arbitration pursuant to the

NASD’s Code of Arbitration Procedure

would constitute a violation of Board

Rule G–35. The NASD would notify the

Board of any such violations and the

Board, in turn, would contact the

appropriate bank regulatory agency.

Finally, the Board provides adequate

measures for the transition from the

MSRB arbitration forum to the NASD

arbitration forum. Even though the

Board will no longer accept any new

claims filed with its arbitration program

after January 1, 1998, it will continue to

operate its program in order to

administer its current, open cases and

any new claims received prior to

January 1, 1998. The Board will then

discontinue its arbitration program

when all such cases have been closed.12

The Commission notes that the MSRB

stated that the Board will cover any

costs associated with the NASD

arbitrating cases involving the bank

dealers that are not covered by the fees

bank dealers will pay as parties to an

arbitration proceeding, until such time

as the NASD receives approval to

amend its fees to cover such costs. As

members of the NASD for arbitration

purposes, bank dealers will pay the

same arbitration fees as NASD members.

The NASD has also stated that if the

number of cases received from the

MSRB were to increase substantially,

the NASD would want to revisit the fee

issue.13

The Commission finds good cause to

approve Amendment No. 2 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically,

Amendment No. 2 is responsive to the

commenter’s request that the Board

publicly disclose the names of

arbitrators on all customer-related

awards rendered after May 10, 1989 by

amending Rule G–35 to make those

names publicly available. This

amendment should help facilitate the

NASD’s administration of municipal

securities arbitration claims, and will

allow the public to receive more

accurate and complete information on

an arbitrator’s past arbitration activities,

where an arbitrator appointed in a case

has previously served as an arbitrator in

the Board’s program but has never

served as an NASD arbitrator.

Accordingly, the Commission believes

that it is consistent with Section 15B of

the Act to approve Amendment No. 2 to

the proposal on an accelerated basis.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

2 to the rule proposal. 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 at

the Commission’s Public Reference

Room. Copies of such filing also will be

available for inspection and copying at

the principal office of the MSRB. All

submissions should refer to File No.

SR–MSRB–97–4 and should be

submitted by December 29, 1997.

V. Conclusion

It is therefore Ordered, pursuant to

Section 19(b)(2) of the Act,14 that the

proposed rule change (SR–MSRB–97–

04), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–31874 Filed 12–4–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39357; File No. SR–NASD–

97–82]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Computer

Assisted Execution Service and

Intermarket Trading System/Computer

Assisted Execution Service Fees

November 25, 1997.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 notice is

hereby given that on November 10,

1997, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or