Federal Register / Vol. 62, No. 236 / Tuesday, December 9, 1997 / Notices 64901

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

2Securities Exchange Act Release No. 39075

(September 12, 1997), 62 FR 49279.

3For a complete description of BDS, refer to

Securities Exchange Act Release No. 34600 (August

25, 1994), 59 FR 45317 [File No. SR–DTC–94–05]

(order approving proposed rule change).

any investment policy that is

changeable only if authorized by

shareholder vote. The relief requested

from section 13(a)(3) would extend only

to the Funds with a fundamental

investment restriction that prohibits

investments in the securities of

investment companies (‘‘Restricted

Funds’’). Applicants state that each

Restricted Fund has a fundamental

investment restriction prohibiting it

from investing in securities of other

investment companies, except in

connection with a merger,

consolidation, acquisition or

reorganization, or except as permitted

by the Act. Applicants believe that

purchases by the Restricted Funds of

shares of any other Fund under the

Modified Plan will not violate the

Fund’s policies because the purchases

serve solely to offset the Fund’s

liabilities under the deferred fee

arrangements, and, thus, have no impact

on a Fund’s investment results from the

perspective of the shareholders. The

value of the Underlying Securities will

be de minimis in relation to the total

assets of each Restricted Fund. Each

Fund will disclose in its Statement of

Additional Information the existence of

the deferred fee arrangements. Each

Restricted Fund also will disclose that,

for the limited purpose of the deferred

fee arrangements, it may invest in

Underlying Securities.

7. Rule 2a–7 imposes certain

restrictions on the investments of

money market funds that use the

amortized cost method or the pennyrounding method of computing their per

share price. These restrictions would

prohibit each Fund that is a money

market fund from investing in the shares

of any other Fund. Applicants submit

that the requested exemption will

permit the Funds to achieve an exact

matching of Underlying Securities with

the Deferred Fee Accounts, thereby

ensuring that the deferred fee

arrangements will not affect the Fund’s

net asset value. Applicants assert that

the amounts involved in all cases will

be de minimis in relation to the total net

assets of each Fund and will have no

effect on the per share net asset value of

the Funds.

8. Section 17(a) generally prohibits an

affiliated person of a registered

investment company, or any affiliated

person of such a person, from selling

any security to or purchasing any

security from the company. Section

2(a)(3)(C) defines the term affiliated

person of another person to include any

person controlling, controlled by, or

under common control with such other

person. Because the Funds share the

same investment adviser, directors, and

many officers, applicants believe that

each Fund might be deemed to be under

common control with all other Funds.

9. Applicants assert that section 17(a)

is designed to prevent sponsors of

investment companies from using

investment company assets as capital

for enterprises with which they are

associated or to acquire controlling

interests in these kinds of enterprises

and other types of ‘‘overreaching.’’

Applicants believe that the purchase

and sale of securities issued by the

Funds under the Modified Plan will not

implicate the concerns underlying

section 17(a), but merely will facilitate

the matching of liabilities for deferred

Unaffiliated Directors’ fees with the

Underlying Securities that would

determine the amount of a Fund’s

liability.

10. The SEC may exempt a proposed

transaction from section 17(a) when: the

terms of the proposed transaction are

fair and reasonable and do not involve

overreaching on the part of any person

involved, and the transaction is

consistent with the policies of the

investment company and with the

general purposes of the Act. Applicants

assert that the terms of the deferred fee

arrangements are fair and reasonable

and show an absence of overreaching

because the purchases and sales of

Underlying Securities will be made at

net asset value and market prices, which

are the same prices at which the

Unaffiliated Directors may purchase

shares of the Funds outside of the

Modified Plan. Applicants believe that

the relief requested satisfies the

standards of sections 6(c) and 17(b).

11. Section 17(d) and rule 17d-1

prohibit affiliated persons from

participating in joint arrangements with

a registered investment company unless

authorized by the SEC. Rule 17d-1

provides that the SEC will consider

whether the participation of an

investment company is consistent with

the provisions, policies and purposes of

the Act and the extent to which the

participation is on a basis different from

or less advantageous than that of other

participants. Applicants believe the

Modified Plan may be construed to be

a joint arrangement under section 17(d)

and rule 17d-1. Applicants assert that

deferral of Unaffiliated Directors’ fees

would have a negligible effect on each

Fund’s assets, liabilities, net assets and

net income per share. Applicants

believe that deferral of an Unaffiliated

Director’s fees essentially would

maintain the parties, viewed both

separately and in their relationship to

one another, in the same position as if

these fees were paid on a current basis.

Applicants’ Condition

Applicants agree that the order

granting the requested relief will be

subject to the condition that, with

respect to the requested relief from rule

2a-7 under the Act, any Fund that is a

money market fund that values its assets

by the amortized cost method or the

penny-rounding method will buy and

hold Underlying Securities that

determine the performance of Deferred

Fee Accounts to achieve an exact match

between the Fund’s liability to pay

deferred fees and the assets that offset

that liability.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32169 Filed 12–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39387; File No. SR–DTC–

97–13]

Self-Regulatory Organizations; the

Depository Trust Company; Order

Approving a Proposed Rule Change

Regarding the Branch Deposit Service

December 2, 1997.

On June 30, 1997, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–DTC–97–13) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on September 19,

1997.2 No comment letters were

received. For the reasons discussed

below, the Commission is approving the

proposed rule change.

I. Description

DTC currently operates a branch

deposit service (‘‘BDS’’) through which

DTC participants may route securities

certificates and related documentation

from their branches and other satellite

offices directly to DTC rather than

routing them through the participants’

own central locations for processing

before they are deposited at DTC.3 The

rule change permits DTC to enter into

contracts with individual participants to

provide customized processing services
64902 Federal Register / Vol. 62, No. 236 / Tuesday, December 9, 1997 / Notices

4 15 U.S.C. 78q–1(b)(3)(F).

5 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the test of the

summaries prepared by OCC.

3For a complete description of the HEDGE

system, refer to Securities Exchange Act Release No.

32638 (July 15, 1993), 58 FR 39264 [File No. SR–

OCC–92–34] (order approving proposed rule change

establishing HEDGE system).

4OCC By-Laws, Article XXI, Section 5.

5 17 CFR 240.8c–1 and 240.15c2–1.

6For purposes of the hypothecation rules, the

term ‘‘customer’’ includes registered broker-dealers

so long as they are not affiliated in specified ways

with the broker-dealer effecting the pledge. 17 CAR

240.8c–1(b)(1), 240.15c2–1(b)(1). References to

‘‘customers’’ and ‘‘non-customers’’ herein are based

on the definition in the hypothecation rules.

7 17 CAR 240.15c2–1(a)(2). See also 17 CFR

240.8c–1(a)(2) (providing the same requirements as

Rule 15c2–1(a)(2) except that its scope is limited to

exchange members and brokers and dealers that

transact business through exchange members.

under BDS. Under the proposed rule

change, DTC will not be obligated to

enter into any such contracts with

participants or to offer the same terms

under any such contracts to all

participants. DTC has advised the

Commission that it will base all fees

charged for customization of BDS based

on a consistently applied methodology.

II. Discussion

Section 17A(b)(3)(F) of the Act 4

requires that the rules of a clearing

agency be designed to remove

impediments to and perfect the

mechanism of a national system for

prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that the

proposed rule change is consistent with

DTC’s obligations under Section

17A(b)(3)(F) because it should increase

the use of BDS by DTC’s participants.

This increase in use should improve

efficiency in the processing of securities

certificates by eliminating most of the

certificate processing responsibilities of

those participants electing to use BDS

and by reducing the movement of

physical securities certificates. This

reduction in the processing and

movement of physical securities

certificates also should improve

efficiency by reducing the instances of

erroneous processing and loss that

sometimes occur with physical

certificates.

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–

DTC–97–13) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32172 Filed 12–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39386; File No. SR–OCC–

97–11]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing of Proposed Rule Change

Regarding the Stock Loan/Hedge

System

December 2, 1997.

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

Securities Exchange Act of 1934

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

July 11, 1997, The Options Clearing

Corp. (‘‘OCC’’) 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 OCC. 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 purpose of the proposed rule

change is to amend OCC’s by-laws

governing OCC’s stock loan/hedge

system (‘‘HEDGE system’’) to eliminate

the requirements with respect to the

accounts in which stock loan positions

must be maintained.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Base 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

The HEDGE system is a clearing

system for stock loans between OCC

clearing members.3 To date, OCC has

approved only a few clearing members

as stock lenders under the HEDGE

system. OCC believes that the HEDGE

system will have positive effects on

OCC’s risk profile and on the stock loan

marketplace generally and would like to

open the HEDGE system to a broader

group of clearing members. However,

OCC has determined that the HEDGE

system’s requirements with respect to

the accounts in which stock loan

positions must be maintained seriously

limit clearing members’ ability to use

the HEDGE system.

OCC’s by-laws governing the HEDGE

system 4 currently treat stock loans as if

they were pledges of loaned securities

subject to the Commission’s

hypothecation rules.5 The

hypothecation rules limit the

circumstances under which a brokerdealer may pledge securities carried for

the account of any customer 6 and

specifically prohibit broker-dealers from

pledging securities carried for the

account of any customer under

circumstances that will permit such

securities to be commingled with

securities carried for the account of any

person other than a bona fide customer

of such broker or dealer under a lien for

a loan made to such broker or dealer.7

Accordingly, under the HEDGE system’s

account segregation rules, a clearing

member that desires to lend stock must

(1) first determine whether the stock is

a customer or proprietary security; and

(2) if the stock is a customer security,

effect the loan through its OCC

customers’ account (or where permitted

through its OCC market-maker’s

account).

According to OCC, stock loans

historically have not been subject to the

hypothecation rules and clearing

members do not identify the stock in

their ‘‘loan boxes’’ as to origin (i.e., as

customer or proprietary). OCC also has

advised the Commission that ordinary

over-the-counter stock loan transactions

are not subject to the hypothecation

rules. Therefore, according to OCC,

clearing members that desire to loan

stock through the HEDGE system find it

difficult, if not impossible, to comply

with the HEDGE system’s account

segregation requirements. OCC believes