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
66170 Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices

11The Exchange will not require JBO clearing

members to establish ownership standards that

meet any minimum guidelines in addition to the

rules of the Exchange. As a result, clearing members

will possess the discretion to develop the

ownership criteria governing their JBO accounts.

However, should the Exchange learn of any

inappropriate ownership standards through its

audit and surveillance activities, the Exchange will

move to correct the impropriety. Telephone

conversation between Michele R. Weisbaum, Vice

President and Associate General Counsel,

Exchange, and Michael L. Loftus, Attorney,

Division of Market Regulation, Commission

(November 26, 1997).

12 12 CFR 220.11.

13 15 U.S.C. 78f. 14 15 U.S.C. 78f(b)(5). 15 17 CFR 200.30–3(a)(12).

gross haircuts calculated for all options

market maker and JBO participant

accounts, in aggregate, is attributable to

options market maker transactions. A

JBO clearing firm conducting a primary

options market maker business must

include the gross deductions calculated

for all JBO participant accounts in its

ration of gross options market maker

deductions to adjusted net capital.

Further, each JBO clearing member

shall adjust its net worth daily by

deducting any deficiency between a JBO

participant’s account equity and the

proprietary haircut calculated pursuant

to Rule 15c3–1 for the positions

maintained in the JBO account. As

previously referenced, each clearing

member which maintains JBO accounts

must require and maintain equity of

$1,000,000 for each JBO participant,

over all related funds. The clearing

member is required to issue a margin

call if the JBO participant’s account

equity falls below the $1,000,000

threshold. Finally, each JBO clearing

member will be required to establish

and maintain written ownership

standards for JBO accounts.11 The

clearing member also must develop risk

analysis standards which are acceptable

to the Exchange.

Margin Requirements. The Exchange

proposes to revise Exchange Rule 722,

Margin Accounts, to permit a member

organization to carry the accounts of

JBO participants on a good faith margin

basis. The JBO accounts must comply

with the requirements established in

Regulation T, Section 220.11,12 and

Exchange Rule 703, as modified above.

JBO participants must maintain equity

of at least $1,000,000 in their accounts.

If the equity falls below $1,000,000, the

JBO clearing firm must issue a margin

call for additional funds or securities

which must be satisfied within 5

business days.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act,13 in general, and

with Section 6(b)(5),14 in particular, in

that it is designed to foster cooperation

and coordination with persons engaged

in regulating, clearing, settling,

processing information with respect to,

and facilitating transactions in

securities; to remove impediments to

and perfect the mechanism of a free and

open market and a national market

system; and to protect investors and the

public interest. The Exchange further

believes that the proposed rule change

is designed to ensure the reasonableness

of JBO arrangements in accordance with

the FRB’s directive in its recent

amendments to Regulation T.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe 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

The Exchange did not solicit or

receive written comments with respect

to 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 Exchange consents,

the Commission will:

(A) by order approved 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

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 persons, 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 will also be available for

inspection and copying at the principal

office of the Exchange. All submissions

should refer to File No. SR–Phlx–97–56

and should be submitted by January 7,

1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32824 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

Greater Washington Investments, Inc.;

Notice of Surrender of License

Notice is hereby given that Unco

Ventures, Ltd. (Unco), 520 Post Oak

Blvd., Suite 130, Houston, TX 77027–

9405, has surrendered its license to

operate as a small business investment

company under the Small Business

Investment Act of 1958, as amended

(the Act). Unco was licensed by the

Small Business Administration on

September 30, 1988.

Under the authority vested by the Act

and pursuant to the Regulations

promulgated thereunder, the surrender

was acted on this date, and accordingly,

all rights, privileges and franchises

derived therefrom have been terminated

(Catalog of Federal Domestic Assistance

Program No. 59.11, SmallBusiness

Investment Companies)

Dated: December 8, 1997.

Don A. Christensen,

Associate Administrator for Investment.

[FR Doc. 97–32816 Filed 12–16–97; 8:45 am]

BILLING CODE 8025–01–M

OFFICE OF THE UNITED STATES

TRADE REPRESENTATIVE

Modification of the Tariff-Rate Import

Quota for Certain Cheeses From

Hungary

AGENCY: Office of the United States

Trade Representative.

ACTION: Modification of the Harmonized

Tariff Schedule of the United States.

SUMMARY: This document modifies

Additional U.S. Notes 21 and 25 to