Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8065

3See, supra, note 1.

Act.3 In addition, shareholders of any

portfolio of Sierra Funds could

exchange their shares for shares of the

Trust of equal value in lieu of cash. The

exchanges of shares from the Sierra

Funds into shares of the Trust will

comply with rule 11a–3 under the Act,

except to the extent that the Trust

operates as a closed-end fund. Although

applicants currently do not intend to do

so, the Trust may in the future offer a

class of shares that will convert into

shares of another class of the Trust.

Except to the extent that the Trust

operates as a closed-end fund, it would

comply with rule 18f–3 under the Act

with respect to such conversions.

Applicant’s Legal Analysis

1. Applicants request an exemption

under section 6(c) of the Act from

sections 18(c) and 18(i) of the Act to the

extent that the proposed issuance and

sale of multiple classes of shares might

be deemed to result in the issuance of

a ‘‘senior security’’ within the meaning

of section 18(g) of the Act and thus be

prohibited by section 18(c), and violate

the equal voting provisions of section

18(i) of the Act.

2. Section 18(c) provides, in relevant

part, that a closed-end investment

company may not issue or sell any

senior security that is stock if,

immediately thereafter, the company

has more than one class of senior

security that is a stock. An exception to

this prohibition is that any such class of

stock may be issued in one or more

series provided no series has a

preference or priority over any other

series upon the distribution of the

company’s assets or in respect of

payment of interest or dividends. The

creation of multiple classes of shares

may result in shares of a class having

priority over another class as to the

payment of dividends because

shareholders of different classes would

pay different Distribution Fees, Service

Fees, and other incremental expenses

that should be allocated to a particular

class of shares.

3. Section 18(i) provides that each

share of stock issued by a registered

management company shall be a voting

stock and have equal voting rights with

every other outstanding voting stock.

The System may violate section 18(i)

because each class would be entitled to

exclusive voting rights with respect to

matters solely related to such class.

4. Section 6(c) of the Act provides that

the SEC may exempt persons or

transactions from any provision of the

Act if the exemption is necessary or

appropriate in the public interest and

consistent with the protection of

investors and the purposes fairly

intended by the policy and provisions of

the Act.

5. Applicants believe that the

proposed allocation of expenses and

voting rights in the manner described

above is equitable and would not

discriminate against any group of

shareholders. According to applicants,

the proposed arrangements would

permit the Trust to facilitate the

distribution of its securities and provide

investors with a broader choice of

shareholder services without the Trust

assuming excessive costs or unnecessary

investment risks.

6. Applicants represent that if the

Trust was required to organize separate

investment portfolios for each class of

shares, it could face liquidity and

diversification problems that could

prevent the Trust from producing a

favorable return. Under the proposal,

investors would be able to benefit,

according to applicants, by investing in

an established, sizable fund. In addition,

shareholders may be relieved of a

portion of the fixed costs of the Trust

because such costs, potentially, would

be spread over a greater number of

shares than they would be otherwise.

7. Applicants believe that their

proposal does not raise the concerns

that section 18 was designed to

ameliorate to any greater degree than

open-end investment companies’

multiple class systems. Under rule 18f–

3, open-end investment companies may

offer multiple classes of shares without

seeking individual exemptive orders

from the SEC. Applicants further believe

that their arrangement does not involve

borrowings and it would not adversely

affect the assets of the Trust.

8. Section 17(d) and rule 17d–1

prohibit an affiliated person of an

investment company, acting as

principal, from participating in or

effecting any transaction in connection

with any joint enterprise or joint

arrangement in which the investment

company participates. Applicants

request an order pursuant to section

17(d) and rule 17d–1 to permit the Trust

to impose Distribution Fees in a manner

similar to rule 12b–1 fees imposed by

open-end investment companies. While

rule 12b–1 does not apply to closed-end

investment companies, there is some

question as to whether section 17(d) and

rule 17d–1 apply to such fees.

9. In passing upon applications

submitted pursuant to section 17(d) and

rule 17d–1, the SEC considers whether

the participation of such registered or

controlled company in such joint

enterprise, joint arrangement, or profitsharing plan on the basis proposed is

consistent with the provisions, policies,

and purposes of the Act, and the extent

to which such participation is on a basis

different from or less advantageous than

that of other participants.

10. Applicants have agreed to comply

with rule 12b–1 as if the Trust is an

open-end investment company.

Applicants believe that any section

17(d) concerns in connection with the

Trust financing the distribution of its

shares should be resolved by this

undertaking. By complying with rule

12b–1, applicants believe that the Trust

would participate in substantially the

same way and under substantially the

same conditions as would be the case

with an open-end investment company

imposing distribution fees under rule

12b–1.

Applicants’ Condition

Applicants expressly consent, in

connection with this request for

exemptive relief, to be subject to

conditions applicable to open-end

investment companies as set forth in

rules 18f–3, 6c–10, and 12b–1 under the

Investment Company Act, as amended

from time to time, as if the rules applied

to them.

For the SEC, by the Division of Investment

Management, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4244 Filed 2–20–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38285; File Nos. SR–

AMEX–97–07, SR–BSE–96–11, SR–CHX–96–

34, SR–CSE–97–03, SR–NASD–97–09, SR–

NYSE–97–03, SR–PSE–97–05]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Changes by

the American Stock Exchange, Inc.,

Boston Stock Exchange, Inc., Chicago

Stock Exchange, Inc., Cincinnati Stock

Exchange, Inc., National Association of

Securities Dealers, Inc., New York

Stock Exchange, Inc., and Pacific

Stock Exchange, Inc., To Amend Each

Exchange’s Rules Concerning the PreOpening Application of the Intermarket

Trading System

February 13, 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 December 10, 1996,

December 19, 1996, January 29, 1997,

January 31, 1997, February 10, 1997,

February 10, 1997, and February 11,

1997, respectively, the Boston Stock

Exchange Incorporated (‘‘BSE’’), the

Chicago Stock Exchange, Incorporated
8066 Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices

1The Commission is noticing these rule filings in

one notice and will notice the proposed rule

changes from the remaining self-regulatory

organizations as they are filed.

2The Participants filed substantially similar

proposed rule changes to amend their respective

ITS Rules regarding the ITS Pre-Opening

Application. The Commission notes that some of

the proposed rule changes by the ITS Participants

contain additional technical changes. In addition,

the NASD is proposing to incorporate language into

NASD Rule 5240 from the model Pre-Opening

Application Rule contained as Exhibit A to the ITS

Plan that was previously inadvertently omitted.

Also, the PSE and CHX proposed amendments to

their respective Pre-Opening Application rules to

add a footnote from the model Pre-Opening

Application Rule regarding the definition of when

a market in a security is considered opened or reopened, for purposes of pre-opening responses. The

language of each proposed rule changes is on file

at the Commission and at the principal offices of

the various Participants. The file numbers for the

rule filings are as follows: SR–AMEX–97–07; SR–

BSE–96–11; SR–CHX–96–34; SR–CSE–97–03; SR–

NASD–97–09; SR–NYSE–97–03; and SR–PSE–97–

05.

3The respective Pre-Opening Application Rules

that the Participants are proposing to amend are:

AMEX, Rule 232; BSE, Chapter XXXI; CHX, Article

XX, Rule 39; CSE, Chapter 14, Rules 14.1 and 14.3;

NASD, Rule 5210, 5240 and 5250; NYSE, Rule 15;

and PSE, Rule 5.20.

6 In its proposed rule change, the NYSE notes that

indications are also required pursuant to NYSE

rules in other situations, including circuit breaker

halts, when a stock’s price will change the lesser

of 10% or three points from the last sale, or five

points for stocks over $100, unless the price change

(‘‘CHX’’), the Cincinnati Stock

Exchange, Incorporated (‘‘CSE’’), the

New York Stock Exchange, Incorporated

(‘‘NYSE’’), the American Stock

Exchange, Incorporated (‘‘AMEX’’), the

Pacific Stock Exchange, Incorporated

(‘‘PSE’’), and the National Association of

Securities Dealers, Incorporated

(‘‘NASD’’) (each individually referred to

herein as a ‘‘Participant’’ and two or

more collectively referred to as

‘‘Participants’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

changes as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization.1 The Commission is

publishing this notice to solicit

comments on the proposed rule changes

from interested persons.

I. Self-Regulatory Organizations’

Statement of the Terms of Substance of

the Proposed Rule Changes

The proposed amendments are to

enhance the operation of the PreOpening Application 2 by effectively

including circuit breakers as a trading

halt situation that will trigger the PreOpening Application.3

II. Self-Regulatory Organizations’

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

In their filings with the Commission,

the self-regulatory organizations

included statements concerning the

purpose of and basis for the proposed

rule changes and discussed any

comments they received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

self-regulatory organizations have

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organizations’

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

1. Purpose

The purpose of the proposed rule

change is to enhance the operation of

the ITS Pre-Opening Application. The

Participants’ ITS Pre-Opening

Application rules contain basic

definitions pertaining to ITS, prescribe

the types of transactions that may be

effected through ITS and the pricing of

commitments to trade, and specify the

procedures pertaining to the PreOpening Application, whereby an

Exchange specialist (‘‘specialist’’) or a

ITS/CAES market maker (‘‘market

maker’’) in any ITS participant market

who wishes to open his or her market

in an ITS security may obtain any preopening interest in that security by

other market makers registered in that

security in other Participant markets.

The current Pre-Opening Application

prescribes that, if a specialist or a

market maker anticipates that its

opening transaction in the security the

specialist or market maker trades

through ITS will be at a price that

represents a change from the security’s

previous day’s consolidated closing

price of more than the ‘‘applicable price

change,’’ the specialist or market maker

shall notify other Participant markets by

sending a pre-opening notification

through the ITS. The ‘‘applicable price

changes’’ are:

Consolidated closing

price 4

Applicable price

change (more than)

Network A: 5

Under $15 .............. 1⁄8 point.

$15 or over ............ 1⁄4 point.

Network B:

Under $5 ................ 1⁄8 point.

$5 or over .............. 1⁄4 point.

4 If the previous day’s consolidated closing

price of the security exceeded $100 and the

security does not underlie an individual stock

option contract listed and currently trading on

an exchange, the ‘‘applicable price change’’ is

one point. 5 Network A is comprised of NYSE securities; Network B is comprised of AMEX securities.

Thereafter, the specialist or market

maker shall not open the market in the

security until not less than three

minutes after the transmission of the

pre-opening notification. Once a

specialist or market maker has issued a

pre-opening notification, other

Participant markets may transmit ‘‘preopening responses’’ to the specialist or

market maker through the ITS that

contain ‘‘obligations to trade.’’ The

specialist or market maker is then

obligated to combine these obligations

with orders it already holds in the

security, and, on the basis of this

aggregated information, decide upon the

opening transaction in the security.

The Pre-Opening Application also

applies whenever an ‘‘indication of

interest’’ is sent to the Consolidated

Tape Association (‘‘CTA’’) Plan

Processor prior to the opening of trading

in the relevant security or prior to the

reopening of trading in the relevant

security following the declaration of a

trading halt for certain defined reasons,

even if the anticipated opening or reopening price is not greater than the

‘‘applicable price change.’’ The current

Pre-Opening Application provides that

the Pre-Opening Application applies

when an indication of interest is

disseminated following five defined

trading halt situations; reopenings

following order imbalance, order influx,

equipment changeover, news pending

and news dissemination, and for a

delayed opening.

The purpose of the proposed

amendments to the Participants’

respective rules, to which all the

Participants have agreed, is to amend

the Pre-Opening Application to provide

that the Pre-Opening Application would

be triggered whenever an ‘‘indication of

interest’’ (i.e., an anticipated opening

price range) is sent to the Consolidated

Tape system prior to the opening or

reopening of trading in the relevant

security. Under the proposed change,

the Pre-Opening Application would also

be triggered when indications of interest

are disseminated in situations other

than those five defined trading halts,

including the resumption of trading

following the activation of market-wide

circuit breakers. In particular, the

proposed amendment would delete the

definition of ‘‘Trading Halt,’’ which is

limited to the five defined trading halt

situations mentioned above, and replace

all references to ‘‘Trading Halt’’ with

‘‘halt or suspension in trading.’’ As a

result, one standard procedure would

then govern all trading halt situations

and would include suspensions of

trading pursuant to circuit breakers.6
Federal Register / Vol. 62, No. 35 / Friday, February 21, 1997 / Notices 8067

is less than one point. The NYSE notes that NYSE

rules would continue to govern when NYSE

specialists would be required to issue indications

of interest. See NYSE filing SR–NYSE–97–03.

Similarly, AMEX notes that in connection with a

reopening following a ‘‘circuit breaker’’ halt,

AMEX’s rules require dissemination of an

indication in the same circumstances as the NYSE.

AMEX notes that its proposed amendments are

intended to conform to the amendment to the ITS

Plan agreed to by the Participants. See AMEX filing

SR–AMEX–97–07.

7 15 U.S.C. 78f(b)(6); 15 U.S.C. 78o–3(b)(6).

8 15 U.S.C. 78k–1(a)(1)(D). 1 15 U.S.C. 78s(b)(1).

2The Commission has modified the text of the

summaries prepared by DTC.

2. Statutory Basis

These proposed amendments are

consistent with sections 6(b)(5) and

15A(b)(6) of the Act 7 in that it is

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, 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 to perfect

the mechanism of a free and open

market and a national market system,

and, in general, to protect investors and

the public interest. The amendment is

also consistent with section 11A(a)(1)(D)

of the Act 8 which provides that the

linking of all markets for qualified

securities through communications and

date processing facilities will foster

efficiency, enhance competition,

increase the information available to

brokers, dealers, and investors, facilitate

the offsetting of investors’ orders, and

contribute to the best execution of such

orders. In particular, by enhancing the

linkage among all ITS Participant

Markets and promoting coordinated

openings and reopenings in ITS

Securities, the Participants believe the

proposed rule changes are consistent

with the Act.

B. Self-Regulatory Organizations’

Statement on Burden on Competition

The Participants do not believe that

the proposed rule change will impose

any inappropriate burden on

competition.

C. Self-Regulatory Organizations’

Statement on Comments on the

Proposed Rule Changes Received From

Members, Participants, or Others

No written comments were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Changes 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, NW.,

Washington, DC 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 Participants.

All submissions should refer to File

Nos. SR–AMEX–97–07, SR–BSE–96–11,

SR–CHX–96–34, SR–CSE–97–03, SR–

NASD–97–09, SR–NYSE–97–03, and

SR–PSE–97–05 and should be submitted

by March 14, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4231 Filed 2–20–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38272; File No. SR–DTC–

96–24]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Immediate Effectiveness of

a Proposed Rule Change Relating to

Revision of Fees

February 11, 1997.

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

Securities Exchange Act of 1934

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

December 31, 1996, The Depository

Trust Company (‘‘DTC’’) 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 primarily by DTC. 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 proposed rule change amends

DTC’s schedule of fees to establish a 3.5

percent surcharge on all service fees

DTC charges to participants, pledge

banks, limited participants, and other

DTC users (‘‘participants and users’’).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC 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. DTC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to establish a surcharge of 3.5

percent on all service fees DTC charges

to its participants and users beginning

on January 1, 1997. According to DTC,

the surcharge is necessary to recover the

costs of upgrading its systems to

recognize data fields containing dates

incorporating the year 2000 and the

years thereafter (‘‘Year 2000 Project’’).

DTC estimates that the total cost of its

compliance initiatives will range from

$25 million to $35 million over the

duration of the Year 2000 Projects.

These costs reflect new staff to be hired

for year 2000 conversion efforts, the cost

associated with diverting present DTC

staff from service-related development,

other staff related costs, and the cost of

consulting assistance. The cost of the

Year 2000 Project for 1996 has been

charged against DTC’s excess revenues

for the year.

DTC will list the surcharge as a

separate line item on its monthly bill to

its participants and users and will

continue the surcharge indefinitely until

all compliance costs have been