Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Notices 7289

7See Securities Act Release No. 6810 (Dec. 16,

1988), 53 FR 52550 (Dec. 28, 1988).

8See supra note 6 n. 12.

9See Rules Phlx 803 through 805 for equity and

debt security listing standards; Phlx Rules 1009 and

1009A for listing applicable to options on equities

and indexes respectively.

10See supra note 9.

11See supra notes 3 and 5. As discussed above,

NASAA plans to revise the Phlx MOU. The

Commission notes that this approval order is

contingent on the NASAA’s formal amendment of

the Phlx MOU to permit OCC issued options to be

designated as Tier I securities.

12The Commission notes that Phlx’s proposed

rule is almost identical to the Pacific Stock

Exchange’s (‘‘PSE’’) current rule designating PSE

listed options as PSE Tier I securities for blue sky

purposes.

13See Supra note 3.

14See supra notes 5 and 11.

15 Id.

16See supra note 3.

17 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Letter from Michele R. Weisbaum, Vice

President and Associate General Counsel, Phlx, to

Continued

National Association of Securities

Dealers (‘‘NASD’’) and NASAA,7 which

is entitled ‘‘A Model Uniform

Marketplace Exemption.’’

In the order approving the Exchange’s

Tier I listing standards, the Commission

noted that the Exchange was adopting

the MOU standards in an effort to

provide issuers whose securities were

designated as Tier I a greater

opportunity to obtain blue sky

exemptions.8 With the adoption of the

MOU, the Exchange has received blue

sky exemptions for its listed securities

designated as Tier I from a number of

states. When the Exchange adopted its

two tiered listing standards, however,

the Exchange did not include equity and

index options as Tier I securities, and

the Phlx MOU with NASAA did not

designate such options as Tier I

securities. The Exchange has explained

that exclusion of options as Tier I

securities was merely an oversight

rather than an intentional exclusion

because the Exchange’s equity and debt

security listing standards are provided

in a separate rule from its option listing

standards.9

The OCC, which is considered the

issuer of all Phlx listed options, has the

responsibility of registering these

options. OCC has indicated to the

Exchange that it must register Phlx

listed options in numerous states in

which the OCC would not otherwise be

required to register if the options were

able to take advantage of the blue sky

exemptions accorded to the Phlx’s Tier

I securities. Thus, the Exchange

proposes to include its equity options,

index options and any other OCC

issued, cleared and guaranteed products

as Tier I securities for blue sky

purposes. Under the proposal, options

would still have to meet existing

eligibility listing standards set forth in

Phlx rules specifically for options.10

Further, the Phlx and NASAA have

agreed that OCC issued options may

qualify for designation as Tier I

securities and are in the process of

amending the Phlx MOU to reflect this

change.11

Discussion

The proposed rule change is

consistent with Section 6 of the Act in

general, and in particular, with Section

6(b)(5), in that it is designed to promote

just and equitable principles of trade,

prevent fraudulent and manipulative

acts and practices, 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, as well as to protect investors

and the public interest.

The proposed rule change should

facilitate transactions in securities and

remove impediments to a free and open

market by eliminating the need for OCC

to register Phlx listed options in those

states that currently grant a blue sky

exemption to Phlx’s Tier I securities.

This rule change should help to

eliminate some of the costs associated

with listing options as well as making

the process of listing options easier and

quicker.

As discussed above, under the rule

being approved herein, OCC cleared

options will be designated as Tier I

securities for blue sky purposes only.

Accordingly, the rule change does not

affect or change in any way the

standards that must be met to initially,

or continue to, list equity and index

options or such other OCC issued

options permitted under Phlx rules. In

approving the Phlx’s proposal, the

Commission recognizes that the listing

criteria set forth in Phlx Rules 803

through 805 for Tier I securities are for

equity-type securities as opposed to

options issued by the OCC.

Nevertheless, because it is clear under

Phlx’s rule that listed options will still

have to meet options listing criteria and

that the Tier I designation for options is

merely to eliminate the need to register

such securities under certain state blue

sky laws, we believe the change is

appropriate and consistent with the

Act.12

Finally, as noted above, in

conjunction with this proposal, NASAA

and Phlx have agreed that OCC issued

options may be designated as Tier I

securities for blue sky purposes,13 and

NASAA has represented to the

Commission that the Phlx MOU will be

amended as soon as practical to reflect

this agreement.14 Accordingly, this rule

change will not become operative until

NASAA amends the Phlx MOU to

permit OCC issued options to be

designated as Tier I securities.15 This

amendment would ensure that the MOU

is consistent with Phlx rules designating

OCC cleared options as Tier I securities,

and that those states that grant Phlx a

blue sky exemption based on the MOU

will recognize such exemption for Phlx

listed options. In addition, in its letter

to the Commission, NASAA states that

this approach is similar to the structure

adopted in the MOU between the PSE

and NASAA.16

It is therefore ordered, pursuant to

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

proposed rule change SR–Phlx–96–41

be, and hereby is, approved contingent

upon NASAA’s amendment of the Phlx

MOU to permit OCC issued options to

be designated as Tier I securities.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3916 Filed 2–14–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38265; File No. SR–Phlx–

96–23]

Self-Regulatory Organizations; Order

Approving and Notice of Filing and

Order Granting Accelerated Approval

of Amendment No. 1 to Proposed Rule

Change by the Philadelphia Stock

Exchange, Inc. Relating to Options

Specialist Evaluations.

February 11, 1997.

On July 1, 1996, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

modify its procedures for evaluating

options specialists units. Notice of the

proposal was published for comment

and appeared in the Federal Register on

September 12, 1996. The exchange

subsequently filed Amendment No. 1 to

the proposed rule change on December

2, 1996.3 No comment letters were
7290 Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Notices

Jon Kroeper, Esquire, Office of Market Supervision,

Division of Market Regulation, SEC, dated

November 27, 1996. Amendment No. 1 amends

Rule 511 to clarify that the Allocation, Evaluation,

and Securities Committee (‘‘Committee’’) has the

authority to hold a hearing in the event that a

registrant has failed to fulfill minimum performance

standards, and to allow the Committee to take

action against a registrant who does not attend a

scheduled informal meeting or hearing.

4Floor brokers surveyed will be chosen according

to Exchange records. The number of trades may

vary but will be predetermined by the Committee.

5Currently, all of the specialist units that have

been allocated index options are also equity option

specialists; however, if a unit only traded index

options, the survey would be equally applicable.

6The Committee may conduct such reviews or it

may delegate that responsibility to the Quality of

Markets Subcommittee. Exchange Rule 509 is being

amended to note this function as a specific

responsibility of this subcommittee.

7Under the current procedure, a specialist unit

that receives an average score under 5.00 in any one

quarter would be deemed to have performed below

minimum standards.

8CBOE Rule 8.60.

9PSE Option Floor Procedure Advice B–13.

received on the proposal. This order

approves the Phlx proposal as amended.

I. Description of the Proposal

Since at least 1978, the Exchange has

been evaluating its options specialists

based on the same questionnaire in use

today. Subjective series of questions

answered by the floor brokers that have

traded with the particular specialists

over the last quarter. The results of the

questionnaire are used by the

Committee when making allocation and

reallocation decisions regarding option

specialist privileges. The Exchange has

represented that the Committee’s

current review system is very

complicated and needs to be simplified

in order to be more effective. The

evaluations are now scored on a scale of

1 through 10, and any unit with an

overall score below 5 on the

questionnaire in one quarter, a score of

below 5 for three or more questions in

one quarter, or a score below 5 on the

same question for three consecutive

quarters is deemed to have performed

below minimum standards and is

subject to review by the Committee.

The Phlx proposal, as amended,

modifies the survey and revises the

process by which the Committee uses

the questionnaires to evaluate the

specialists’ performance.

1. Survey Modification

The survey is revised such as to

request information that the Exchange

believes would be more directly

indicative of a specialist’s performance.

The new survey has 15 all-new

questions. It would be answered every

six months by floor brokers who would

have traded at least a minimum number

of times in the specialist’s issues over

the past six months.4 Only specialist

units (not individual specialists) would

now be graded as allocations are made

to units, not individual specialists;

however, separate evaluations will be

conducted for each quarter or half turret

post at which a unit has a specialist

operation. Thus, a large specialist unit

which is spread out over the floor may

receive two or three separate evaluation

scores so that the Committee could

focus on exactly where a problem may

be occurring. The same questionnaire

will be used for equity option

specialists, index option specialists 5

and foreign currency option specialists.

Each question must be answered by

giving the unit a score of 1 through 9

(very poor to excellent). Any question

that is answered with a score of 4 or less

must be accompanied by a written

explanation. Floor brokers who submit

negative comments about a particular

specialist unit may, but are not required

to, speak directly with a representative

of the specialist unit in order to try to

resolve any problems that may exist;

Exchange staff may attend such a

meeting. Floor brokers who do not

complete and return the surveys will

continue to be subject to fines pursuant

to Options Floor Procedure Advice C–8.

The questions asked will cover a wide

range of specialist responsibilities such

as the degree of liquidity provided, the

tightness of quotes, timeliness of quote

updates, ability to fill small lot orders,

timeliness of reports, ability to conduct

opening rotations, maintenance of

crowd control, and clerical staffing.

2. Evaluation Procedure

Under the proposed new language in

Supplementary Material .02 to Rule 515,

the Committee 6 would review the

survey as well as regulatory history,

written complaints, timeliness of

openings, trading data, and any other

relevant information in order to

determine if minimum performance

standards have been met in areas such

as quality of markets, observance of

ethical standards, and administrative

responsibilities. If a specialist unit is

ranked by score in the bottom 10% of

all units as a result of a semi-annual

review, it will be presumed to have

failed to meet the minimum

performance standards.7 The Committee

may also make such a presumption if

the information on the survey or the

other information reviewed by the

Committee supports such a finding.

If the Committee makes such a

presumption of failure to meet

minimum performance standards, it

may elect to hold an informal meeting

with the specialist unit. If the unit

refuses to meet without reasonable

justification, or if the evaluation scores

are not improved, the Committee may

proceed with a formal hearing in

accordance with Rule 511(e). The

Committee may only impose sanctions

such as removal of specialist privileges

in one or more options classes or a

prohibition from new allocations as the

result of a formal hearing. The hearing

procedures set forth in Rule 511(e) will

not change as a result of this rule

proposal and decisions will still be

subject to appeal to the Board of

Governors as provided for under ByLaw Article XI, Section 11–1.

II. 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, the

requirements of Sections 6(b)(5) in that

it is designed to prevent fraudulent,

manipulative acts and practices and to

promote just and equitable principles of

trade, and to remove impediments to

and protect the mechanism of a free and

open market and to protect investors

and the public interest.

The Commission believes that the

adoption of a new, expanded survey is

a more precise measurement of

specialist units’ performance and will

serve to enhance the options specialists

evaluation procedures; these evaluation

procedures are designed to help the

Exchange maintain the quality and

integrity of its markets by setting

minimum standards of specialist

performance and providing a means to

identify specialist units which fail to

meet minimum performance standards.

Specifically, the evaluation procedures

should further the Phlx’s ability to

ensure liquid and continuous markets

for options by permitting the Exchange

to enforce more effectively the

affirmative and negative obligations

imposed on specialist units.

The Commission also believes that the

Committee’s consideration of the floor

broker survey results in allocating

options to specialist units should

provide an incentive for improved

specialist performance.

Moreover, the Commission finds the

Phlx’s program is substantially similar

to those of the Chicago Board Options

Exchange (‘‘CBOE’’) 8 and Pacific Stock

Exchange (‘‘PSE’’) 9 which have been in

operation for several years. In particular,

the Commission believes that the

purposes for conducting the

questionnaires will not be compromised
Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Notices 7291

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

by distributing the questionnaires semiannually instead of quarterly. The

Commission notes that the CBOE and

PSE also evaluate their trading crowds

and market makers on a semi-annual

basis.

Finally, the Commission believes that

more stringent formalized specialist

standards will further enhance the

integrity of the options markets and

contribute to investor confidence and

protection.

The Commission finds good cause for

approving Amendment No. 1 to the

proposed rule change prior to the

thirtieth day after the date of

publication of notice thereof in the

Federal Register. Amendment No. 1

made clarifying technical changes to the

text of the rule, and did not propose

new substantive provisions to the

submitted rule change. Accordingly, the

Commission believes that consistent

with Sections 6(b)(5) and 19(b)(2) of the

Act, good cause exists to accelerate

approval of Amendment No. 1.

III. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

1. 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

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–96–23

and should be submitted by March 11,

1997.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act 10 that the

proposed rule change (SR–Phlx–96–23),

as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–3919 Filed 2–14–97; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

[Public Notice No. 2509]

Shipping Coordinating Committee,

Subcommittee for the Prevention of

Marine Pollution; Notice of Meeting

The Subcommittee for the Prevention

of Marine Pollution (SPMP), a

subcommittee of the Shipping

Coordinating Committee, will conduct

an open meeting on Tuesday, March 4,

1997, at 9:30 a.m. in Room 2415, U.S.

Coast Guard Headquarters, 2100 Second

Street, SW., Washington, DC.

The purpose of this meeting will be to

review the agenda items to be

considered at the thirty-ninth session of

the Marine Environment Protection

Committee (MEPC 39) of the

International Maritime Organization

(IMO) to be held from March 10–14,

1997. Proposed U.S. positions on the

agenda items for MEPC will be

discussed.

The major items for discussion will be

the following:

a. Development of a draft protocol to

amend the International Convention for

the Prevention of Pollution from Ships,

1973, as modified by the Protocol of

1978, to include Annex VI (Air

Pollution) regulations.

b. Work relating to the human

element.

c. Harmful aquatic organisms in

ballast water.

d. Identification and protection of

Special Areas and particularly sensitive

sea areas.

e. Implementation of the Oil Pollution

Preparedness, Response, and Cooperation (OPRC) Convention and Oil

Pollution Preparedness Response

Conference resolution, including

expansion of the OPRC Convention to

include Hazardous Substances.

Members of the public may attend

these meetings up to the seating

capacity of the room.

For further information or

documentation pertaining to the SPMP

meeting, contact Ensign Lamont

Bazemore, U.S. Coast Guard

Headquarters (G–MSO–4), 2100 Second

Street, SW. Washington, DC 20593–

0001; Telephone: (202) 267–0713.

Dated: January 30, 1997.

Russell A. LaMantia,

Chairman, Shipping Coordinating Committee.

[FR Doc. 97–3831 Filed 2–14–97; 8:45 am]

BILLING CODE 4710–07–M

TENNESSEE VALLEY AUTHORITY

Sunshine Act Meeting

AGENCY HOLDING THE MEETING: Tennessee

Valley Authority (Meeting No. 1492).

TIME AND DATE: 10 a.m. (CST), February

19, 1997.

PLACE: Bevill Conference Center &

Hotel, Room 267, 550 Sparkman Drive,

Huntsville, Alabama.

STATUS: Open.

Agenda

Approval of minutes of meeting held

on January 29, 1997.

New Business

C—Energy

C1. Approval for TVA Nuclear to

enter into a labor and services contract

with ABB Combustion Engineering,

subject to final negotiation, to provide

professional support and equipment, as

needed, for ultrasonic and eddy current

nondestructive examination services at

TVA’s nuclear plants.

C2. Approval for Transmission/Power

Supply to enter into contracts with

Mesa Associates, Inc., and Sargent &

Lundy LLC, subject to final negotiation,

to provide engineering and design

services for TVA’s generating plant

switchyards, electrical transmission

system, and power control

communication facilities.

C3. Approval for Transmission/Power

Supply to enter into a fixed unit-price

requirements contract with Valmont

Industries Inc., subject to final

negotiation, to provide transmission

steel poles and climbing steps.

E—Real Property Transactions

E1. Land Exchange by the U.S.

Department of Agriculture, Forest

Service, of approximately 14 acres of

former TVA land on Watauga Lake in

Carter County, Tennessee (Tract No.

XTWAR–30), for 120 acres of private

land of equal value.

E2. Modification of condition and

covenant contained in a transfer

instrument affecting approximately 44

acres of former TVA land on

Guntersville Lake, Marshall County,

Alabama (Tract No. XTGR–104), to

allow the City of Scottsboro to license

or lease the tract to private developers

for construction and operation of

recreational facilities.

Unclassified

F1. Filing of condemnation cases.

Information Items

1. Approval of an operating agreement

for Integrated Hydroelectric Machine

Condition Monitoring Consortium, LLC.