Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8475

4 In approving the rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

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

6 15 U.S.C. 78s(b)(2).

7 17 CFR 200.30–3(a)(12).

and to protect investors and the public

interest.4

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE does not believe that the

proposed rule change will impose any

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Exchange has requested that the

proposed rule change be given

accelerated effectiveness pursuant to

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

the proposal is consistent with Section

6(b) of the Act, in general and, Section

6(b)(5),5 in particular, as it is designed

to facilitate transactions in securities, to

promote just and equitable principles of

trade, and to protect investors and the

public interest.

Specifically, the Commission believes

that, since the CBOE does not and

cannot have a surveillance sharing

agreement with the Milan Exchange, the

CBOE’s adoption of the proposed policy

will enable the Exchange to carry out its

market surveillance and enforcement

functions for derivative products

containing Italian component securities

by seeking the necessary information

about activity on the Italian securities

markets from the SEC per the latter’s

MOU with the CONSOB. The

Commission believes that the

Exchange’s proposed policy adequately

details the circumstances and

conditions under which the Exchange

may obtain access to such information

from the SEC.

The Commission believes that, under

the Exchange’s proposed policy, the

Exchange will advise the SEC of

information it needs regarding activity

on the Italian securities markets for

market surveillance and enforcement

purposes. The Commission, in turn,

may request the CONSOB’s assistance,

pursuant to the MOU, in gaining access

to such information. The Commission

notes that the Exchange will use such

information it may receive from the SEC

only for the purposes of conducting

market surveillance and enforcement

proceedings. The Commission also

notes that the Exchange will limit

distribution of such information to

officers and directors of the Exchange

and other employees directly

responsible for conducting market

surveillance and enforcement

proceedings relating to the matter in

connection with which the SEC

provided the information to the CBOE.

In view of the importance of

maintaining the confidentiality of this

information, the SEC believes that the

officers and/or directors overseeing the

exchange employees conducting the

relevant market surveillance and

enforcement proceedings would be

responsible for ensuring the

confidentiality of the information

provided by the SEC pursuant to the

MOU with the CONSOB and should

take reasonable measures to ensure that

the information does not become

available to unauthorized persons.

Thus, the Commission believes that the

Exchange will undertake to maintain the

confidentiality of such information and

to take appropriate disciplinary action

in the event it learns of a breach of such

confidentiality, including referral to the

SEC for any action the SEC deems

necessary or appropriate.

The Commission believes that the

CBOE, by adopting a policy that

provides access to information on the

underlying securities for market

surveillance and enforcement purposes,

will be in a position to list options and

other derivative products containing

Italian component securities, provided

that all other applicable product listing

standards are met. Therefore, the

Exchange’s proposed rule change could

potentially provide investors with the

opportunity to invest in such products

and hedge their exposure to the Italian

securities market. Accordingly, the

Commission believes that the proposed

rule change is consistent with and

furthers the objectives of Section 6(b)(5)

of the Act, in that it is designed to

perfect the mechanisms of a free and

open market and to protect investors

and the public interest.

The Commission notes that a

substantially identical proposal was

published by the American Stock

Exchange (‘‘AMEX’’) for the full 21 day

comment period without any comments

being received by the Commission. The

Commission therefore believes that

approving the CBOE policy on an

accelerated basis will allow the

Exchange to pursue trading in options

and other derivative products

containing Italian component securities

without further delay. Accordingly, the

Commission finds that, consistent with

Section 6(b)(5) of the Act, good cause

exists to approve CBOE’s proposed rule

change on an accelerated basis prior to

the thirtieth day after the date of

publication thereof in the Federal

Register.

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

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 CBOE. All

submissions should refer to File No.

SR–CBOE–96–77 and should be

submitted by March 18, 1997.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,6 that the

proposed rule change (SR–CBOE–96–

77) is hereby approved on an

accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4605 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38302; File No. SR–GSCC–

96–14]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of

Proposed Rule Change To Eliminate

Grandfather Privileges

February 18, 1997.

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

Securities Exchange Act of 1934
8476 Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices

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

2The Commission has modified the text of the

summaries prepared by GSCC.

3Securities Exchange Act Release No. 32722

(August 5, 1993), 58 FR 42993 (order approving

establishment of new membership categories).

4The grandfather list includes the following

firms:

Aubrey G. Lanston & Co., Inc.

The Nikko Securities Co., Ltd. (Tokyo)

Nikko Europe PLC (London)

Nomura International Inc. (Tokyo)

Nomura Securities Co., Ltd. (Tokyo)

Nomura International PLC (London)

Daiwa Europe Ltd. (London)

5The number of grandfathered firms has

decreased from twelve to seven.

6While the number of trades between IDBs and

grandfathered firms is a relatively small percentage

of the IDB’s trades, they are significant in absolute

terms.

7 15 U.S.C. 78q–1.

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

December 19, 1996, the Government

Securities Clearing Corporation

(‘‘GSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

the proposed rule change (File No SR–

GSCC–96–14) as described in Items, I, II,

and III below, which items have been

prepared primarily by GSCC. 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 purpose of the proposed rule

change is to eliminate the ability of

GSCC’s interdealer broker netting

members (‘‘IDB’’) to trade with certain

nonmembers identified on GSCC’s

grandfather list.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

GSCC 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. GSCC has prepare

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

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organizations’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In May 1993, GSCC established

limitations on the trading activity of

IDBs with firms that are not a members

of GSCC’s netting system.3 GSCC

restricted category 1 IDBs to trading

only with GSCC netting members and

limited the trading activity of category

2 IDBs with nonmember firms to ten

percent. At that time, GSCC decided to

allow IDBS to continue to trade with

certain nonmember firms (‘‘grandfather

nonmembers’’) that historically have

had access to the IDB’s screens and that

GSCC has identified on its grandfather

list.4 GSCC believed that it was unfair to

penalize IDBs for continuing to trade

with firms that GSCC was not yet

successful in bringing into its netting

system membership. Accordingly,

category 1 IDBs can continue to trade

with the grandfathered nonmember

dealers and trading between category 2

IDBs and grandfathered firms does not

count toward category 2 IDBs’ ten

percent limit.

Since 1993, GSCC has made

numerous attempts to encourage each of

the grandfathered firms either to join

GSCC’s netting system or to have their

eligible trades submitted to the net by

an affiliated netting member.5 GSCC

also has established a category of netting

system membership for foreign entities.

Thus, all entities on the grandfather list

are now eligible for direct netting

membership in GSCC.

GSCC believes that trades between an

IDB and a grandfathered firm expose

GSCC to greater risks than trades

between an IDB and a netting member

because trades with a grandfathered

firm are not eligible for netting by

GSCC. As a result, when an IDB has

offsetting trades with a netting member

and a grandfathered firm, only the trade

with the netting member will be netted

thereby leaving the IDB instead of a

grandfathered firm with a position.6

Therefore, GSCC is proposing to

eliminate the grandfather list, effective

June 30, 1997. GSCC believes that the

effective date provides grandfathered

firms with sufficient time to join GSCC’s

netting system or to adjust to

nongrandfathered status. Once the

grandfather list has been eliminated,

category 2 IDBs, which do virtually all

of the brokered transactions with the

current grandfathered firms, will have to

trade with the formerly grandfathered

firms that do not join GSCC’s netting

system under the category 2 IDB’s

authority to engage in ten percent of its

trading activity with nonmember firms.

Category 1 IDBs will be prohibited from

doing any netting eligible activity with

a formerly grandfathered firm that does

not join GSCC’s netting system.

GSCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act 7

and the rules and regulations

thereunder because it would end the

exposure to GSCC that the trading by

the IDBs with grandfathered firms

creates.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule change will have an

impact or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members Participants or Others

Written comments relating to the

proposed rule change have not yet been

solicited or received. Members will be

notified of the rule change filing and

comments will be solicited by an

Important Notice. GSCC will notify the

Commission of any written comments

received by GSCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 GSCC consents, the

Commission will:

(A) by order approve 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 submission

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 in

the Commission’s Public Reference

Room, 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 GSCC. All submissions should
Federal Register / Vol. 62, No. 37 / Tuesday, February 25, 1997 / Notices 8477

8 17 CFR 200.30–3(a)(12)

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

2Securities Exchange Act Release No. 38115

(January 3, 1997), 62 FR 1351.

3Recently, NSCC amended its Procedure II(G) to

provide that failure to respond to a RECAPS

reconfirmation attempt shall result in the

transaction being DK’ed. Treating a failure to

respond to a RECAPS reconfirmation attempt as a

DK under NSCC’s rules extinguishes any rights of

the nonresponding member with respect to the

transaction.

4The word ‘‘promptly’’ in paragraph (b)(1) is

intended to be interpreted in accordance with the

nature and liquidity of the securities.

5 15 U.S.C. 78o–3(b)(6). 6 17 CFR 200.30–3(a)(12).

refer to the file number SR–GSCC–96–

14 and should be submitted by March

18, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4607 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38309; File No. SR–NASD–

96–54]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Granting Approval

of a Proposed Rule Change Relating to

Reconfirmation and Pricing Services

February 19, 1997.

On December 20, 1996, the NASD

Regulation, Inc. (‘‘NASD Regulation’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change (File No. SR–

NASD–96–54) pursuant to Section

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

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on January 9, 1997.2 No comment letters

were received. For the reasons

discussed below, the Commission is

granting approval of the proposed rule

change.

I. Description

Several years ago, the National

Securities Clearing Corporation

(‘‘NSCC’’) began operating its

Reconfirmation and Pricing Service

(‘‘RECAPS’’) that permits NSCC

participants to submit their fail

transactions for reconfirmation and

repricing on a quarterly basis. Rule

11190 (formerly Section 69) of the

Uniform Practice Code (‘‘Code’’) of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’) mandates that a

member which is a participant in a

registered clearing agency participate in

the clearing agency’s fail reconfirmation

and pricing service.

Even after a transaction is compared,

fails can occur for many reasons (e.g.,

because the securities fail to be received

or delivered or payment is not received

or delivered). RECAPS provides a means

for parties with open fails on their books

to send them to NSCC for matching on

a quarterly basis. The RECAPS process

allows members to reconfirm

outstanding fails by establishing a new

settlement date and to reprice such fails

by marking the contract to the current

market price. It also identifies a

submitting member’s fails that may have

been settled or for which the

contraparty has no record.

Prior to this amendment, when one of

the parties did not respond to a RECAPS

submission, the submitting party could

either leave the fail open for three more

months and try again for resolution

through RECAPS or could buy in or sell

out the transaction pursuant to NASD’s

Code. The submitting member was

required by Rule 11810 of NASD’s Code

to send another notification to the

contraparty and wait another two days

prior to effecting a buy in. No prior

notice is or was required before effecting

a sell out pursuant to Rule 11820 of

NASD’s Code.

As amended, Rule 11190(b)(1) permits

a contract that has been submitted to a

reconfirmation and repricing service

and that has been DK’ed by the

contraparty or is otherwise deemed a

DK under the rules of the service 3 to be

closed out by the submitting party

without notice during normal trading

hours promptly after the completion of

the reconfirmation and pricing cycle for

the account and liability of the

nonconfirming member.4 New

paragraph (b)(2) of Rule 11190 requires

that the submitting member notify the

nonresponding member of any

execution to close the contract on the

day of execution and the action of the

member to buy in or sell out in

accordance with the provisions of Rules

11810 and 11820, respectively.

However, if the submitting member

determines not to close out a DK, the

fail continues to remain open on the

submitting member’s books until the

next RECAPS cycle.

II. Discussion

Section 15A(b)(6) provides that the

rules of an association must be designed

to foster cooperation and coordination

with persons engaged in regulating,

clearing, settling, processing

information with respect to, and

facilitating transactions in securities.5

The Commission believes that the

proposed rule change is consistent with

the NASD’s obligations under the Act.

The proposals provides an expedited

mechanism to reduce long outstanding

fails that have been submitted to

RECAPS. When a selling member DKs a

transaction or fails to respond to a

RECAPS advisory, Rule 11190(b) of the

Code allows the buying member to

immediately execute a buy in

transaction and notify the

nonresponding selling member of its

liability for the transaction. The

proposal provides an incentive to

parties to resolve RECAPS transactions

submitted against them in a timely

fashion. By encouraging and assisting

parties to resolve their trade disputes,

the proposal helps foster cooperation

and coordination with persons engaged

in clearing, settling, and facilitating

transactions in securities.

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 Section 15A 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–

NASD–96–54) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–4606 Filed 2–24–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38291; File No. SR–NASD–

97–10]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to the

Distribution of Information Concerning

the Availability of the NASD

Regulation, Inc. Public Disclosure

Program

February 14, 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 February 11, 1997,

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the NASD. The

Commission is publishing this notice to