Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices 66153

1 15 U.S.C. 80b–3a(a)(1).

2 15 U.S.C. 80b–3a(a)(2).

3 15 U.S.C. 80b–3a(c).

4S. Rep. No. 293, 104th Cong., 2d Sess. 4 (1996).

5 Id. at 5.

N.W., Washington, D.C. 20549, facts

bearing upon whether the application

has been made in accordance with the

rules of the Exchange and what terms,

if any, should be imposed by the

Commission for the protection of

investors. The Commission, based on

the information submitted to it, will

issue an order granting the application

after the date mentioned above, unless

the Commission determines to order a

hearing on the matter.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 97–32820 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IA–1686/803–116]

ProFutures Capital Management, Inc.;

Notice of Application

December 11, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for

Exemption under the Investment

Advisers Act of 1940 (‘‘Advisers Act’’).

Applicant: ProFutures Capital

Management, Inc. (‘‘PMC’’).

Relevant Advisers Act Sections:

Exemption requested under section

203A(c) from section 203A(a).

Summary of Application: Applicant

requests an order to permit it to register

with the SEC as an investment adviser.

Filing Dates: The application was

filed on July 8, 1997, and amended on

October 3, 1997 and December 2, 1997.

Hearing or Notification of Hearing

An order granting the application will

be issued unless the SEC orders a

hearing. Interested persons may request

a hearing by writing to the SEC’s

Secretary and serving applicant with a

copy of the requests, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

January 7, 1998, and should be

accompanied by proof of service on

applicant, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the SEC’s

Secretary.

ADDRESSES: Secretary, SEC, 450 5th

Street, N.W., Washington, D.C. 20549.

Applicant, ProFutures Capital

Management, Inc., Suite 200, 1310

Highway 620 South, Austin, Texas

78374.

FOR FURTHER INFORMATION CONTACT:

Robert J. Leonard, Attorney, at (202)

942–0646, or Jennifer S. Choi, Special

Counsel, at (202) 942–0716 (Division of

Investment Management, Task Force on

Investment Adviser Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee at the SEC’s

Public Reference Branch.

Applicant’s Representations

1. Applicant is a Texas corporation

with its principal place of business in

Austin, Texas. Applicant researches and

evaluates the performance and trading

programs of other investment advisers

who manage client accounts on a

discretionary basis and refers clients to

those advisers selected by applicant.

2. Applicant assists prospective

clients in identifying their investment

objectives and risk tolerance, and

provides information on investment

advisers whose trading programs seek to

meet those objectives. Applicant

provides clients with account opening

documents and reviews all account

documents for accuracy before

forwarding them to the adviser that the

client has selected. Applicant also

reviews all accounts for client

suitability. Additionally, applicant

assists clients in allocating assets among

the selected investment advisers and

suggests adjustments to the allocations.

Applicant does not have discretionary

authority on behalf of clients to select

the advisers or allocate client funds to

selected advisers.

3. Applicant is compensated for

referring clients to selected advisers by

sharing in up to one half of the

management fee charged by such

adviser. Applicant has over 700 clients

located nationwide. These clients

include individuals, financial

institutions, pension and profit sharing

plans, trusts, estates and other corporate

entities

4. Applicant is legally obligated to be

registered in at least 30 states as an

investment adviser, taking into account

the national de minimis standard in

section 222(d) of the Advisers Act and

all applicable exemptions and

exclusions under the securities laws and

regulations of such states. Applicant is

currently registered in 46 states.

Applicant was registered as an

investment adviser with the SEC until

July, 1997.

Applicant’s Legal Analysis

1. On October 11, 1996, the National

Securities Markets Improvement Act of

1996 was enacted. Title III of the Act,

the Investment Advisers Supervision

Coordination Act (‘‘Coordination Act’’),

added new section 203A to the Advisers

Act. Under section 203A(a)(1),1 an

investment adviser that is regulated or

required to be regulated as an

investment adviser in the state in which

it maintains its principal office and

place of business is prohibited from

registering with the SEC unless the

investment adviser (i) has assets under

management of not less than $25

million or (ii) is an adviser to an

investment company registered under

the Investment Company Act of 1940

(‘‘Investment Company Act’’). Section

203A(a)(2) defines the phrase ‘‘assets

under management’’ as the ‘‘securities

portfolios with respect to which an

investment adviser provides continuous

and regular supervisory or management

services.’’ 2

2. applicant states that it does not

qualify for registration as an investment

adviser with the SEC. Applicant states

that it has no assets under management,

does not act as an investment adviser to

an investment company registered

under the Investment Company Act, and

does not qualify for exemption from the

prohibition on SEC registration as

provided in rule 203A–2 under the

Advisers Act. Applicant also maintains

its principal place of business in Texas,

which regulates applicant as an

investment adviser.

3. Section 203A(c) of the Advisers Act

authorizes the SEC to permit an

investment adviser to register with the

SEC if prohibiting registration would be

‘‘unfair, a burden on interstate

commerce, or otherwise inconsistent

with the purposes of [section 203A].’’ 3

4. Applicant states that Congress

noted that ‘‘the definition of ‘assets

under management’ . . . may, in some

cases, exclude firms with a national or

multistate practice from being able to

register with the SEC.’’ 4 Applicant

asserts that to remedy any unfairness,

burdens or inconsistencies caused by

the assets under management

requirement, Congress intended the SEC

to use its exemptive authority to

‘‘permit, where appropriate, the

registration of such firms with the

[SEC].’’ 5

5. Applicant believes that Congress in

adopting section 203A intended the SEC
66154 Federal Register / Vol. 62, No. 242 / Wednesday, December 17, 1997 / Notices

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

2Under the proposed rule change, JBO

participants would not be considered self-clearing

for any purpose other than the extension of credit

under Exchange Rule 12.3, as revised, or under the

comparable rules of another self-regulatory

organization.

3 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.

4See Board of Governors of the Federal Reserve

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

20386 (May 6, 1996).

5Section 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).

6The proposed rule change allows members and

member organizations to establish JBO

arrangements with JBO clearing members.

7 17 CFR 240.15c3–1.

to grant these exemptions to advisers

having a ‘‘national or multistate

practice’’ and that ‘‘[l]arger advisers,

with national businesses, should be

registered with the [SEC] and be subject

to national rules.’’ 6 Applicant notes that

Congress chose an assets under

management requirement as a rough

proxy that would divide responsibilities

between the SEC and the states;

investment advisers managing $25

million or more of assets under

management are more likely to be

national investment advisers.

6. Applicant asserts that prohibiting it

from registering with the SEC would be

a burden on interstate commerce in that

applicant would be subject to the

regulations and oversight of at least 30

jurisdictions, which would impede

applicant’s ability to operate its national

business on a uniform basis. Applicant

states that it is legally obligated to be

registered in at least 30 jurisdictions as

an investment adviser, taking into

account the national de minimis

standard in section 222(d) of the

Advisers Act and all applicable

exemptions and exclusions under the

securities laws and regulations of such

states. Applicant states that the extent of

its investment advisory services means

that it does not qualify for the national

de minimis exemption, as set forth in

section 222(d) of the Advisers Act, in at

least 30 states because it has provided

investment advisory services to more

than five clients during the preceding

twelve months who are residents of

those states.

7. Section 222(d) of the Advisers Act

makes state investment advisers statutes

inapplicable to investment advisers that

do not have a place of business located

within that state and, during the

preceding twelve month period, have

fewer than six clients who are residents

of that state.

8. Applicant also asserts that to

prohibit it from registered with the SEC

would be unfair because applicant’s

investment advisory business is

substantially similar to that of other

national investment advisers who are

eligible for SEC registration and

oversight. Moreover, applicant believes

that it would be inconsistent with the

purposes of section 203A if it is

prohibited from being registered with

the SEC.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32919 Filed 12–16–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39418; File No. SR–CBOE–

97–58]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated 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

October 27, 1997, the Chicago Board

Options Exchange, Incorporated

(‘‘CBOE’’ 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. 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 Rule 12.3 and adopt new

Exchange Rule 13.4 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 proposes to revise

Exchange Rule 12.3 and adopt new

Exchange Rule 13.4 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.2

In recent amendments to Regulation

T,3 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.4 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 standard,5

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 JBO 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 13.4 will

require each JBO participant 6 to be a

registered broker-dealer subject to the

net capital requirements prescribed by

Commission Rule 15c3–1 (‘‘Rule 15c3–

1’’).7 JBO participants may not claim the