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
Federal Register / Vol. 62, No. 236 / Tuesday, December 9, 1997 / Notices 64903

8 15 U.S.C. 78q–1(b)(3)(A).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3On November 28, 1997, the Philadelphia Stock

Exchange, Inc. amended the filing to clarify its

intent that the rule filing be deemed effective upon

filing pursuant to Rule 19b–4(e)(6)(iii). See letter

from J. Keith Kessel, Counsel, Philadelphia Stock

Exchange, Inc., to Mignon McLemore, Esquire,

Division of Market Regulation, SEC, dated

November 24, 1997.

4The Exchange has represented that this

proposed rule change: (i) Will not significantly

affect the protection of investors or the public

interest; (ii) will not impose any significant burden

on competition, and (iii) will not become operative

for 30 days after the date of this filing. The

Exchange did not provide the required five business

day advance notice to the Commission of its intent

to file this proposed rule change, as required by

Rule 19b–4(e)(6) under the Act. However, the

Commission has determined to waive the pre-filing

requirement. See supra note 3.

5Sections 3(a)(4) and 3(a)(5) of the Securities

Exchange Act of 1934 provide:

‘‘(4) The term ‘‘broker’’ means any person

engaged in the business of effecting transactions in

securities for the account of others, but does not

include a bank.’’

‘‘(5) The term ‘‘dealer’’ means any person engaged

in the business of buying and selling securities for

his own account, through a broker or otherwise, but

does not include a bank, or any person insofar as

he buys or sells securities for his own account,

either individually or in some fiduciary capacity,

but not as a part of a regular business.’’

that clearing members are unlikely to

change their systems just to be able to

use the HEDGE system. As a result, OCC

does not expect to be able to achieve

broad-based participation in the HEDGE

system with its current account

segregation requirements.

OCC has determined that there is no

legal reason for OCC’s by-laws to treat

stock loans under the HEDGE system as

hypothecations. Therefore, OCC has

concluded that it may eliminate the

HEDGE system’s account segregation

requirements for stock loans without

violating or causing clearing members to

violate the Commission’s hypothecation

rules.

OCC believes that the proposed rule

change is consistent with the

requirements of Section 17A(b)(3)(A) of

the Act 8 and the rules and regulations

thereunder because it promotes

efficiencies in the clearance and

settlement of securities transactions.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

OCC does not believe that the

proposed rule change will have any

material impact on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were not and are

not intended to be solicited by OCC

with respect to the proposed rule

change, and none have been received.

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 OCC 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, 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

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of OCC. All submissions should

refer to File No. SR–OCC–97–11 and

should be submitted by December 30,

1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32171 Filed 12–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39382; File No. SR–Phlx–

97–50]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating To Adopting a Definition of

‘‘Foreign Broker-Dealer’’ Into Its

Options Rules

December 2, 1997.

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

Securities Exchange Act of 1934

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

notice is hereby given that on November

3, 1997,3 the Philadelphia Stock

Exchange, Inc. (‘‘Phlx’’) or ‘‘Exchange’’)

filed with the Securities and Exchange

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

the proposed rule change as described

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

have been prepared by the Exchange.

The Exchange has designated the

proposed rule change as constituting a

‘‘non-controversial’’ rule change under

paragraph (e)(6) of Rule 19b–4 under the

Act which renders the proposal effective

upon receipt of this filing by the

Commission.4 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 Rule Change

The Phlx is proposing to adopt a

definition of ‘‘foreign broker-dealer,’’

which will treat such broker-dealers like

their U.S. broker-dealer counterparts,

thus precluding foreign broker-dealers

from receiving treatment as customers

under the various option rules.

In accordance with the foregoing, the

Phlx is proposing to adopt Rule

1000(b)(41) to define the term ‘‘foreign

broker-dealer’’ as follows:

The term ‘‘foreign broker-dealer’’ means

any person or entity that is registered,

authorized or licensed, or required to be, by

a foreign governmental agency or foreign

regulatory organization to perform the

function of a broker or a dealer in securities,

or both. The terms ‘‘broker’’ or ‘‘dealer’’ mean

the same as set out in Sections 3(a)(4) and

3(a)(5) of the Securities Exchange Act of

1934, as amended, provided that a broker or

dealer may be a bank.5 For purposes of Rules

1014, 1015, 1033 and 1080, the term brokerdealer includes foreign broker-dealers, which

are not public customers.

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