Federal Register / Vol. 62, No. 29 / Wednesday, February 12, 1997 / Notices 6595

between non-self-clearing floor brokers and selfclearing floor brokers. See letter from Michael D.

Pierson, PSE, to Heather Seidel, Attorney, Market

Regulation, Commission, dated February 4, 1997.

4 15 U.S.C. 78f(b)(5).

5 15 U.S.C. 78f(b).

6See Amendment No. 1.

7See supra note 3.

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 38059

(December 19, 1996), 61 FR 68087.

order approves the proposed rule

change, as amended.

II. Description

The rule change adopts new Rule 4.21

to provide that each member

organization whose principal business

is as a floor broker on the Exchange and

who is not self-clearing must establish

and maintain an account with a clearing

member of the Exchange, for the sole

purpose of carrying positions resulting

from bona fide errors made in the course

of its floor brokerage business. The new

rule further provides that with respect

to options floor brokers only, such an

account for options transactions must be

maintained with an entity that is also a

member of the Options Clearing

Corporation.

The purpose of the proposed rule

change is to strengthen the Exchange’s

ability to detect and deter rule

violations that may occur in connection

with floor brokers’ trading errors. The

proposed rule change would assist

routine examinations of the floor

brokers’ trading by the PSE’s

Department of Member Examinations.

The Exchange notes that the proposed

rule change is consistent with Rule

703(c)(vi) of the Philadelphia Stock

Exchange, Inc. (‘‘PHLX’’). The Exchange

believes that the proposed rule change

is consistent with Section 6(b) of the Act

in general and furthers the objectives of

Section 6(b)(5)4 in particular in that it is

designed to promote just and equitable

principles of trade and to protect

investors and public interest.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Section 6(b).5 More

specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to prevent fraudulent and

manipulative acts, and, in general, to

protect investors and the public,

because the proposed rule change

facilitates the enhanced surveillance of

floor brokers’ error trades.

The Commission believes that the

proposed rule change may enhance the

Exchange’s ability to detect and prevent

rule violations committed by floor

brokers that may arise in connection

with trading errors, by facilitating

routine surveillance examinations of

floor brokers with regard to error trades.

This enhanced surveillance capability

results from the Exchange’s ability to

more easily review trades designated by

floor brokers as errors by reviewing the

required error account for each floor

broker. The Commission notes that the

proposed rule change will conform the

treatment of error trades by non-selfclearing floor brokers with that

conducted by self-clearing floor brokers,

whose practice is to have one or more

trading accounts in which to segregate

errors.6

The Commission also notes that the

proposed rule change is similar to rule

703(c)(vi) of the PHLX, previously

approved by the Commission, which

requires all non-self-clearing floor

brokers to have error accounts.

Accordingly, the Commission believes

that the proposed rule change does not

raise any new significant regulatory

issues.

The Commission finds good cause for

approving Amendment No. 1 on an

accelerated basis prior to the thirtieth

day after the date of publication of

notice thereof in the Federal Register.

Specifically, the Commission believes

that accelerated approval of

Amendment No. 1 is appropriate

because the amendment does not

change the substance of the proposal.

Rather, it simply clarifies and explains

certain aspects of the proposed rule

change.7

Accordingly, the Commission believes

that it is consistent with Section 6(b)(5)

of the Act to approve Amendment No.

1 on an accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment No.

1 to the proposed rule change. 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

rules change that are filed with the

Commission, and all written

communications relating to Amendment

No. 1 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

Room. Copies of such filing will also be

available at the principal office of the

Exchange. All submissions should refer

to File No. SR–PSE–96–36 and should

be submitted by [insert date 21 days

from date of publication].

VI. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR–PSE–96–36),

as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3429 Filed 2–11–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38252; File No. SR–PTC–

96–07]

Self-Regulatory Organizations;

Participants Trust Company; Order

Approving a Proposed Rule Change

Relating to the Right of Set-Off Upon

the Default of a Participant

February 6, 1997.

On December 2, 1996, the Participants

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

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–PTC–96–07) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’) 1 to clarify

PTC’s right of setoff upon the default of

a participant. Notice of the proposal was

published in the Federal Register on

December 26, 1996.2 No comment

letters were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

The proposed rule change clarifies

that upon a participant’s default in

payment of a debit balance PTC will setoff any credit balances in the

participant’s accounts to reduce the

unpaid obligation of the participant.

Participants maintain their securities

positions at PTC in one or more master

accounts, each of which is comprised of

one or more accounts of the following

types: proprietary accounts for

securities that are held by the

participant as principal; agency

accounts for securities that are held by

the participant as agent; pledgee

accounts for securities that are held by
6596 Federal Register / Vol. 62, No. 29 / Wednesday, February 12, 1997 / Notices

3The maximum NDML for any participant is the

amount of PTC’s committed line of credit for

settlement, which is currently $2 billion. 4 15 U.S.C. 78q–1(b)(3)(F). 5 17 CFR 200.30–3(a)(12).

the participant as pledgee or pursuant to

financing arrangements; and various seg

and hold-in-custody accounts associated

with the proprietary and agency

accounts for purposes of segregation.

Each proprietary account, agency

account, and pledgee account has a cash

balance associated with it against which

credits and debits are posted, including

amounts owing with respect to

securities delivered versus payment

intraday to the transfer account

associated with the account. Each cash

balance is either a credit balance or

debit balance depending on whether the

participant is in a net funds credit

position or debit position with respect

to the applicable account to which the

cash balance relates at the time the

determination is made.

PTC restricts the net debit amount

each participant may owe PTC by

imposing a net debit cap by means of a

Net Debit Monitoring Level (‘‘NDML’’).3

A participant’s NDML is compared to

the total of the net cash balances in its

proprietary accounts, agency accounts,

and pledgee accounts. PTC will not

process a transaction that will result in

a net debit balance that exceeds a

participant’s NDML. If a participant is at

its NDML limit, it must take steps to

reduce the net debit balance. The ability

to apply a defaulting participant’s

proprietary, agency, and pledgee credit

balances against its unpaid settlement

obligations is implicit in the NDML

structure to assure that the failure of a

single participant is covered by PTC’s

committed line of credit for settlement.

PTC’s rules however are silent on the

application of pledgee and agency credit

balances in the event a participant does

not make complete payment of all

account obligations at settlement. In

addition, PTC’s ‘‘default rule’’ states

that PTC will set-off any credit balance

in a proprietary account of a defaulting

participant against an unpaid debit

balance in another account. This rule

does not make reference to PTC’s right

to set-off against agency and pledgee

credit balances of a defaulting

participant.

The proposed rule change clarifies

that upon a participant’s default in

payment of a debit balance PTC is

authorized to apply any credit balances

in the participant’s proprietary

accounts, pledgee accounts, and agency

accounts to reduce any unpaid

obligations of the participant. The

proposed rule change also will extend

PTC’s right of set-off in the event of a

participant’s default to include any

agency seg credit balances of the

defaulting participant.

II. Discussion

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

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds in

the custody or control of the clearing

agency or for which it is responsible. As

discussed below, the Commission

believes that PTC’s rule change is

consistent with this obligation under the

Act.

One of the principal risks to PTC and

its participants is that a participant will

not pay its net debit balance and will

cause PTC or its participants to incur

substantial losses. Default by one or

more participants with a large net debit

balance relative to PTC’s committed

lines of credit would strain PTC’s ability

to meet its settlement obligations on the

day of default.

As previously discussed, the

proposed rule change clarifies PTC’s

right to apply any credit balances in the

participant’s proprietary accounts,

pledgee accounts, and agency accounts

to reduce the unpaid obligation of the

participant upon the participant’s

default, modifies the NDML calculation

to include agency seg credit balances,

and authorizes PTC to set-off against

agency seg credit balances in the event

a participant defaults in the payment of

its debit balances.

The Commission believes that

clarifying and extending PTC’s right of

set-off upon the default of a participant

reduces the risks to PTC and its

participants. PTC’s set-off and NDML

procedures are designed to safeguard

PTC and its participants against the risk

of participant default and provide PTC

with sufficient liquidity to complete

settlement in the event of a participant

default. PTC’s NDML also assures PTC

and its participants that one or more

participants will not accumulate an

intraday net debit so large as to

compromise the integrity of PTC’s

system. The proposed rule change

should not only better enable PTC to

fulfill its safeguarding obligations under

the Act but should benefit participants

by including agency seg credit balances

in the NDML calculation which will

allow participants to have the benefit of

these credits in the calculation of their

net obligation to PTC.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change 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–

PTC–96–07) 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. 97–3478 Filed 2–11–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38247; File No. SR–Phlx–

97–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.,

To Reduce the Value of the Super Cap

Index

February 5, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on January 9, 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 self-regulatory organization. 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 proposes to reduce the

value of its Super Cap Index (‘‘Index’’)

option (‘‘HFX’’) to one-half its present

value by doubling the divisor used in

calculating the Index. The Index is

comprised of the top five optionseligible common stocks of U.S.

companies traded on the New York

Stock Exchange, as measured by

capitalization. The other contract

specifications for the HFX will remain

unchanged.

The text of the proposed rule change

is available at the Office of the

Secretary, Phlx 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

Phlx included statements concerning