Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices 66167

28Such judicially created causes of action might

include, for example, claims alleging ‘‘wrongful

discharge’’ without any accompanying claim of

discrimination on account of age, sex, race, or other

status protected by a specific law.

29 15 U.S.C. 78o-3.

1The amendment was technical in nature and

therefore did not require republication of notice of

filing.

2 15 U.S.C. 78s(b)(1)(1988).

3Securities Exchange Act Release No. 38954

(August 23, 1997) 62 FR 45901.

4To distinguish the title of the current Vice

Chairman from the staff position of Management

Vice Chairman, the modifier ‘‘Member’’ has been

added to the office’s title. Conforming changes have

also been made to several other sections of OCC’s

by-laws to reflect addition of the modifier

‘‘Member’’ to the office’s title.

to causes of action created solely by

judicial precedents.28 Similarly, it does

not apply to other causes of action

under state or federal law, which remain

subject to mandatory arbitration under

paragraph (a).

Paragraph (c) of the proposed rule is

former paragraph (b), which is

unchanged except for the renumbering.

Effective Date and Related Issues

The NASD has requested that the

proposed rule become effective one year

from the date of Commission approval

for several reasons. The NASD believes

that a one year period from the date of

Commission approval would permit

employees and firms to determine what

agreements they might wish to reach

with regard to dispute resolution.

During this period, the NASD will make

related enhancements to the forum so

that employees will have confidence

that there are adequate procedures and

safeguards of their rights in NASD

arbitration. The NASD has formed an

advisory working group to explore

various options for the employment

arbitration area, including additional

due process standards, standard

discovery lists, arbitrator list selection,

and other related issues. It is expected

that the working group will be able to

provide advice to NASD management

and the Boards during 1998. Such

enhancements to the NASD’s arbitration

forum are expected to be the subject of

future rule proposals.

In this connection, the NASD also

plans to provide improved disclosure to

employees of the effect of signing the

Form U–4, their rights under the

proposed rule, and the features of

arbitration, so that they can make

informed decisions.

Finally, the NASD intends to work

with other regulators to consider

expanded disclosure on the Form U–4

itself. Amendment to the Form U–4, an

industry-wide form, requires the

agreement of the SROs, the state

regulatory authorities, and NASAA, as

well as approval by the Commission.

This process could take several months

or longer.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) of

the Act 29 in that the amendment will

protect the public interest by allowing

associated persons to choose whether to

pursue their statutory claims of

employment discrimination in court or

in arbitration, and by improving parties’

confidence in the arbitration process.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 the 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 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 NASD. All

submissions should refer to File No.

SR–NASD–97–77 and should be

submitted by January 7, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32825 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39420; File No. SR–OCC–

97–08]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Approving a Proposed Rule Change to

Create a New Office of Management

Vice Chairman and to Change the Title

of Vice Chairman to Member Vice

Chairman

December 10, 1997.

On May 9, 1997, The Options Clearing

Corporation (‘‘OCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) and on May 12, 1997,

amended 1 a proposed rule change (File

No. SR–OCC–97–08) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).2 Notice

of the proposal was published in the

FEDERAL REGISTER on August 29, 1997.3

On September 29, 1997, OCC filed a

second amendment to the proposed rule

change. No comment letters were

received. For the reasons discussed

below, the Commission is approving the

proposed rule change.

The proposal amends OCC’s by-laws

to create a new office of Management

Vice Chairman and to change the title of

Vice Chairman to Member Vice

Chairman. The proposal amends Article

IV, Section 1 to clarify that the existing

Vice Chairman is elected by the Board

of Directors from among OCC’s Member

Directors 4 and will be renamed the

Member Vice Chairman. Article IV,

Section 1 is also amended to create the

position of Management Vice Chairman

which will be elected at the discretion

of the Board of Directors. The board will

not be required to fill this position. Only

OCC staff members will be eligible to

serve as the Management Vice

Chairman, and any person serving in
66168 Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices

5A conforming change is being made to Article

IV, Section 9 to clarify that the office of the

Management Vice Chairman shall be in the line of

succession in the absence of the Chairman.

6As proposed, the rule change would have also

included a conforming amendment to Article IV,

Section 8 that would have added the Member Vice

Chairman to the line of succession in the event of

the absence or disability of the Chairman. This

proposed change would have additionally clarified

that the President’s duty to act in the place of the

Chairman would arise only in the absence of the

Chairman, the Management Vice Chairman, and the

Member Vice Chairman. In accordance with OCC’s

second amendment, Article IV, Section 8 will not

be amended. 7 15 U.S.C. 78q–1(b)(3)(A).

this office shall not be eligible to serve

concurrently in any other OCC office.

Article IV, Section 7, paragraphs (a)

and (b) are amended to provide for the

duties and responsibilities of the

Management Vice Chairman and to

clarify the duties and responsibilities of

the Member Vice Chairman. The duties

of the Management Vice Chairman

include assuming all of the Chairman’s

responsibilities in the absence or

disability of the Chairman, including

presiding over meetings of the Board of

Directors and the shareholders.5 The

Member Vice Chairman presides at such

meetings and assumes all of the

Chairman’s responsibilities only in the

absence of the Chairman and

Management Vice Chairman. The

Member Vice Chairman remains the

chair of any committee responsible for

evaluating the performance of OCC or

the compensation of OCC’s officers.6

The proposal also amends Article III,

Section 15 paragraphs (a), (b), and (e) to

add the office of Management Vice

Chairman to the list of officers who may

be granted emergency powers to declare

the existence of an emergency, call

special meetings during such

emergency, and who may be

empowered to act on behalf of any other

officer who is unable to fulfill any

emergency powers granted to such

officer. Accordingly, the Management

Vice Chairman position adds another

person to OCC’s line of succession,

which reduces the risk that OCC would

be without qualified leadership. The

proposals establish a clear line of

succession. Article II, Section 4 is

amended to add the office of the

Management Vice Chairman to the list

of officers who may direct the notice of

meetings of shareholders. The purpose

of this change is to ensure the

managerial readiness of OCC in the

event the Chairman is unavailable.

A technical correction to Article IV,

Section 1 deletes the requirement that

the Board of Directors elect a senior

management officer of OCC to be in

charge of each OCC office that is (i)

responsible for 20% or more of the

volume of exchange transactions cleared

through OCC or (ii) located in the same

city as an exchange on which 20% or

more of the volume of the exchange’s

transactions are cleared through OCC.

This requirement is no longer necessary

due to advances in systems design.

Article IX, Section 1(a) is amended to

add the office of the Management Vice

Chairman to the list of officers who

may, in conjunction with at least one

director, access or withdraw securities

owned by OCC from the appropriate

safekeeping vault or account. Article IX,

Section 11 is similarly amended to give

the Management Vice Chairman the

authority to sign OCC’s share

certificates.

Interpretations and Policies .03 to

Article V, Section 1 is amended to add

the office of the management vice

Chairman to the list of officers

authorized to approve or disapprove

applications for clearing membership on

a temporary basis. Interpretations and

Policies .01 to Article V, Section 3 is

similarly amended with respect to

approvals and disapprovals of deadline

extensions for satisfaction of the

preconditions for qualification as a

clearing member.

Interpretations and Policies .01 to

Article VI, Section 17 is amended to

include the Management Vice Chairman

as one who may act on behalf of OCC

in imposing exercise restrictions

pursuant to Section 17(b).

In addition to the changes to OCC’s

by-laws, the proposal also makes several

conforming changes to OCC rules.

Spxeifically, Rule 305 paragraphs (a),

(b), and (c) are amended to authorize the

management vice chairman to impose

restrictions on clearing members’

transactions, positions, and activities.

Interpretations and Policies .07 and .10

to Rule 305 are amended to include the

Management Vice Chairman. Rule

309(d) is amended to enable the

Management Vice Chairman to act

pursuant to Rule 305(a) in the event a

managing clearing member’s net capital

shall fall below a prescribed minimum

level.

Certain Interpretations and Policies to

Rules 601 and 602, and Rules 608, 609,

and 609A, are amended to add the office

of the Management Vice Chairman to

the list of officers authorized to act

pursuant to such rules in connection

with members’ margin positions, the

withdrawal of margin, intra-day margin,

and the waiver of margin.

Rules 801(e), 804, and 1905 are

amended to authorize the Management

Vice Chairman to permit clearing

members to file, revoke, or modify

eligible exercise notices and to require

clearing members to file certain reports

with respect to the allocation of

exercises, including allocations of IP

exercises.

Rule 913(d) is amended to permit the

Management Vice Chairman to extend

or postpone the deadline for the

delivery of securities in the event that

certain settlement arrangements are

revoked. Rule 1312 is amended to

authorize the Management Vice

Chairman to determine whether good

cause exists for any delay in delivery or

payment for transactions in GNMA

options by its clearing members. Rules

1411, 1512, 1610, 2110, and 2408 are

similarly amended for such

determinations regarding the settlement

of transactions in treasury security

options, certificate of deposit options,

foreign currency options, cross-rate

foreign currency options, and flexibily

structured index options denominated

in a foreign currency, respectively.

Rule 1104(b) and Rule 1106

paragraphs (d) and (e) are amended to

authorize the Management Vice

Chairman to take certain actions with

respect to the suspension of a clearing

member and the creation of a

liquidating settlement account. These

changes permit the Management Vice

Chairman to determine whether it is in

the best interest of OCC, its clearing

members, or the general public to

convert to cash a suspended clearing

member’s margin deposits and whether

to close out such member’s

unsegregated long or short positions. If

such margin is not converted to cash, or

such long or short position is not closed

out, the change to Rule 1106(e) permits

the Management Vice Chairman to

engage in hedging transactions to reduce

the risk to OCC resulting from such

decisions.

II. Discussion

Section 17A(b)(3)(A) requires that a

clearing agency have the capacity to

facilitate the prompt and accurate

clearance and settlement of securities

transactions for which it is responsible.7

The Commission believes that the

proposal is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because the addition of the

position of Management Vice Chairman

should strengthen the line of succession

in the absence or disability of the

Chairman of the Board and should ease

any transition from an existing

Chairman of the Board to his or her

successor. As a result, these changes

should promote the efficiency of OCC’s

operations and therefore should support

the goals of Section 17A of the Act.
Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices 66169

8 17 CFR 200.30–3(a)(12).

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

2Amendment No. 1 modified the proposed rule

change to require Joint Back Office clearing

members to develop risk analysis standards which

are acceptable to the Exchange. See Letter from

Michele R. Weisbaum, Vice President and Associate

General Counsel, Exchange, to Michael L. Loftus,

Attorney, Division of Market Regulation,

Commission, dated November 21, 1997.

3Under the proposed rule change, JBO

participants would not be considered self-clearing

for any purpose other than the extension of credit

under Exchange Rule 722, as revised, or under the

comparable rules of another self-regulatory

organization.

4 12 CFR 220 et seq. Regulation T is entitled

‘‘Credit by Brokers, and Dealers.’’ The Board of

Governors of the Federal Reserve System issued

Regulation T pursuant to the Act.

5See Board of Goverors of the Federal Reserve

System Docket No. R–0772 (Apr. 26, 1996), 61 FR

20386 (May 6, 1996).

6Section 220.11(a)(2) of Regulation T only

requires that a JBO clearing firm be ‘‘a clearing and

servicing broker or dealer owned jointly or

individually by other [broker-dealers].’’ 12 CFR

220.11(a)(2).

7The proposed rule change allows member

organizations and foreign currency option

participant organizations to establish JBO

arrangements with JBO clearing members.

8 17 CFR 240.15c3–1.

9 17 CFR 240.15c3–1(b)(1).

10The term ‘‘tentative net capital’’ refers to a

clearing member’s net capital before the application

of haircuts and undue concentration deductions.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with 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–

OCC–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. 97–32827 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39419; File No. SR–Phlx

97–56]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

Philadelphia Stock Exchange, Inc.

Relating to Margin and Net Capital

Requirements for Joint Back Office

Arrangements

December 10, 1997.

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

Securities Exchange Act of 1934

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

November 7, 1997, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) 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 by the Exchange. On

November 24, 1997, the Exchange filed

with the Commission Amendment No. 1

to the proposed rule change.2 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 Exchange seeks to amend

Exchange Rules 703 and 722 to establish

margin and net capital requirements for

Joint Back Office (‘‘JBO’’) participants

and clearing firms.

The text of the proposed rule change

is available at the office of the Secretary,

the Exchange, and at the Commission.

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 Proposed Rule

Change

1. Purpose

The Exchange seeks to revise

Exchange Rules 703 and 722 to establish

margin and net capital requirements for

JBO participants and clearing firms. JBO

arrangements permit a participating

broker-dealer to be deemed self-clearing

for margin purposes and entitle the

participating broker-dealer to good faith

credit.3

In recent amendments to Regulation

T,4 the Board of Governors of the

Federal Reserve System (‘‘FRB’’) placed

its reliance on the authority of selfregulatory organizations (‘‘SROs’’) to

ensure the reasonableness of JBO

arrangements.5 When the provision

permitting JBO arrangements was first

adopted, the FRB assumed there would

be a reasonable relationship between the

good faith credit extended to a JBO

participant and its ownership interest in

the clearing firm. Consequently, the FRB

did not establish any explicit

requirement for the amount of

ownership each participant should have

in the JBO. Because Regulation T does

not provide an ownership standards,6

however, good faith credit has been

extended to ‘‘owners’’ holding merely a

nominal interest in a clearing firm.

In conjunction with other SROs and

representatives from the securities

industry, the Exchange has established

standards for JBO participants and

clearing firms. These standards will

permit the extension of good faith credit

to clearing firm ‘‘owners’’ only when the

owners maintain meaningful assets on

deposit with the JOB clearing firm, and

the clearing firm maintains sufficient

net capital and risk control procedures

to carry such accounts. The Exchange’s

proposed rule change would establish

the following requirements:

Net Capital Requirements. As

proposed, Exchange Rule 703 will

require each JBO participant 7 to be a

registered broker-dealer subject to the

net capital requirements prescribed by

Commission Rule 15c3–1 (‘‘Rule 15c3–

1).8 JBO participants may not claim the

net capital exemption available to

option market makers under

Commission Rule 15c3–1(b)(1).9 JBO

participants will be required to deposit

and maintain minimum account equity

of $1,000,000, and also will be subject

to Financial and Operational Combined

Uniform Single Report (‘‘FOCUS’’)

filings and certified audits. In addition,

each JBO participant must meet and

maintain the ownership standards

established by the JBO clearing member.

To ensure that adequate procedures

exist for complying with these

requirements, JBO participants will be

required to employ or have access to a

qualified Series 27 principal.

In addition, the proposed rule change

will require a clearing member carrying

JBO accounts to notify its Designated

Examining Authority in writing of its

intention to clear such accounts and

will require the clearing member to

comply with additional net capital

requirements prescribed by the

Exchange. Such a clearing member must

maintain either: (i) tentative net capital

of $25 million;10 or (ii) net capital of $10

million, if the clearing member’s

primary business is the clearance of

option market maker accounts. A

clearing member will be deemed to

conduct a primary options market

maker business if at least 60% of the