Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices 66789

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

2 17 CFR 240.19b–4.

3On August 17, 2000, Nasdaq minor, technical

changes to the proposed rule change, none of which

were substantive in nature, and none which

required the filing of a formal amendment.

Telephone conversation among Mary N. Revell,

Associate General Counsel, Office of General

Counsel, Nasdaq, and Katherine A. England,

Assistant Director, Division of Market Regulation

(‘‘Division’’), SEC and Joseph P. Morra, Special

Counsel, Division, SEC.

assets to a corresponding series of The

Victory Portfolios based on net asset

value. Expenses of approximately

$658,050, $593,457, $57,930, and

$61,926, respectively, incurred in

connection with each reorganization

were paid by BISYS Fund Services Ohio

Inc., Key Corp and The Victory

Portfolios.

Filing Dates: Each application was

filed on September 23, 1999, and

amended on August 18, 2000.

Applicant’s Address: 580 Walnut

Street, Cincinnati, Ohio 45202.

American Diversified Funds, Inc. [File

No. 811–3434]

Summary: Applicant seeks an order

declaring that it has ceased to be an

investment company. On September 17,

1999, applicant transferred its assets to

Orbitex Growth Fund, a series of the

Orbitex Group of Funds, based on net

asset value. Expenses of $36,663

incurred in connection with the

reorganization were paid by Orbitex

Management, Inc., investment adviser to

the acquiring fund.

Filing Dates: The application was

filed on August 28, 2000, and amended

on October 10, 2000.

Application’s address: c/o Orbitex

Group of Funds, 410 Park Avenue, New

York, New York 10022.

USAllianz Funds [File No. 811–9489]

Summary: Applicant seeks an order

declaring that it has ceased to be an

investment company. Applicant has not

made a public offering of its securities,

is not now engaged, or intending to

engage, in any business activities other

than those necessary for winding up its

affairs.

Filing Dates: The application was

filed on September 18, 2000, and

amended on October 5, 2000.

Applicant’s Address: 3435 Stelzer

Road, Columbus, Ohio 43219.

CrestFunds, Inc. [File No. 811–4620]

Summary: Applicant seeks an order

declaring that it has ceased to be an

investment company. By May 24, 1999,

applicant had transferred its assets to

STI Classic Funds based on net asset

value. Expenses of $580,272 incurred in

connection with the organization were

paid by applicant and the acquiring

fund.

Filing Date: The application was filed

on October 13, 2000.

Applicant’s Address: 300 East

Lombard Street, Baltimore, Maryland

21202.

Global Small Cap Fund Inc. [File No.

811–7814]

Summary: Applicant, a closed-end

investment company, seeks an order

declaring that it has ceased to be an

investment company. On January 27,

2000, applicant transferred its assets to

PaineWebber Global Equity Fund, a

series of PaineWebber Investment Trust,

based on net asset value. Expenses of

$256,900 incurred in connection with

the reorganization were paid by

applicant.

Filing Date: The application was filed

on October 19, 2000.

Applicant’s Address: 51 West 52nd

Street, New York, New York 10019–

6114.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–28506 Filed 11–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

FEDERAL REGISTER CITATION OF PREVIOUS

ANNOUNCEMENT: 65 FR 65034, October

31, 2000.

STATUS: Closed meeting.

PLACE: 450 Fifth Street, NW.,

Washington, DC.

DATE PREVIOUSLY ANNOUNCED: October

25, 2000.

CHANGE IN THE MEETING: Cancellation of

meeting.

The closed meeting scheduled for

Thursday, November 2, 2000 at 11:00

a.m. has been cancelled.

Dated: November 2, 2000.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–28581 Filed 11–2–00; 4:16 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

FEDERAL REGISTER CITATION OF PREVIOUS

ANNOUNCEMENT: [to be published]

STATUS: Closed meeting.

PLACE: 450 Fifth Street, NW,

Washington, DC.

DATE PREVIOUSLY ANNOUNCED: November

1, 2000.

CHANGE IN THE MEETING: Cancellation of

Meeting.

The closed meeting scheduled for

Wednesday, November 8, 2000 at 11

a.m. has been cancelled.

Dated: November 2, 2000.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–28625 Filed 11–3–00; 12:49 pm]

BILLING CODE 81010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43501; File No. SR–NASD–

00–45]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to an

Interpretation Regarding ACT Risk

Management Charges, and to Clarify

the ACt Risk Management Function

October 31, 2000.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on July 31,

2000, the National Association of

Securities Dealers (‘‘NASD’’), through

its wholly owned subsidiary, The

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),

filed with the Securities and Exchange

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

the proposed rule change as described

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

have been prepared by Nasdaq.3 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

Nasdaq is filing a proposed rule

change to NASD Rules 7010 and 6150.

The purpose of the proposal is to issue

an interpretation regarding Automated

Confirmation Transaction Service

(‘‘ACT’’) risk management charges and a

clarification regarding the ACT risk

management function. Below is the text

of the proposed rule change. Proposed

new language is in italics.

Rule 7010. System Services

(a)–(f) No change.

(g) Automated Confirmation Transaction

Service

The following charges shall be paid by the

participant for use of the Automated

Confirmation Transaction Service (ACT):

66790 Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices

4See NASD Rule 6150.

5See Securities Exchange Act Release No. 42984

(June 27, 2000), 65 FR 41119 (July 3, 2000) (SR–

NASD–00–35).

6See Securities Exchange Act Release No. 27229

(Sept. 8, 1989), 54 FR 38484 (Sept. 18, 1989) (SR–

NASD–89–25).

7See Securities Exchange Act Release No. 28583

(Oct. 26, 1990), 55 FR 46120 (Nov. 1, 1990) (SR–

NASD–89–25).

8See Securities Exchange Act Release No. 28595

(Nov. 5, 1990), 55 FR 47161 (Nov. 9, 1990) (SR–

NASD–90–57).

Transaction Related Charges:

No change.

Risk Management Charges: $0.035/side and

$17.25/month per correspondent firm

(maximum $10,000/month per correspondent

firm)

IM–7010–1; Risk Management Charges

All clearing brokers are provided access to

the ACT risk management function for which

they are assessed the charges detailed above,

unless exempted under the provision

detailed below.

Self-clearing brokers are not required to

pay risk management charges.

Clearing brokers that are effectively selfclearing with respect to certain

correspondents may seek relief from the

requirement to pay ACT risk management

charges for trades cleared on behalf of these

correspondents. A firm is ‘‘effectively selfclearing’’ if it clears for affiliated

correspondents that are wholly or majority

owned by a common corporate parent, which

will be solely liable for any credit problems

encountered by the affiliates. Such a firm

may choose not to utilize the ACT risk

management function for trades cleared on

behalf of affiliated correspondents and may

seek relief from ACT risk management

charges by submitting a letter to Nasdaq

containing the following:

(1) a detailed description of the firm’s

corporate structure showing that all affiliates

are wholly or majority owned by a common

corporate parent;

(2) a statement that the firm will use an

internal risk management capability to

monitor the trading activities and risk

exposure of its affiliated correspondents and

meet its financial and operational obligations

under the federal securities laws and NASD

rules that provides risk management

functions comparable to those provided by

ACT as described in Rule 6150;

(3) an acknowledgment that the firm will

no longer utilize the ACT risk management

function for trades cleared for these affiliated

correspondents; and

(4) a request for relief from ACT risk

management charges. After reviewing the

letter to ensure that it addresses all the above

elements, Nasdaq will:

(1) instruct the NASD Finance Department

to cease assessing ACT risk management

charges on trades cleared by the firm on

behalf of its affiliated correspondents;

(2) notify ACT that the firm will no longer

utilize the ACT risk management function for

the affiliated correspondents’ trades; and

(3) inform NASD Regulation of this new

arrangement.

* * * * *

Rule 6150. ACT Risk Management Functions

Self-clearing brokers, corresponding

clearing brokers, and executing brokers,

whether they utilize the ACT risk

management function or not, are required to

report all clearing-eligible transactions to

ACT for ACT risk management functions.

The ACT system will provide the following

risk management capabilities to clearing

brokers that have executed an ACT

Participants Risk Management Agreement:

(a)–(g) No change.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Nasdaq including 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. Nasdaq 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

ACT is an automated trade reporting

and reconciliation service that speeds

the post-execution steps of price and

volume reporting, comparison, and

clearing of pre-negotiated trades

completed in Nasdaq, OTC Bulletin

Board, and other over-the-counter

securities. ACT handles transactions

negotiated over the phone or executed

through any of Nasdaq’s automated

trading services. It also manages postexecution procedures for transactions in

exchange-listed securities that are

traded off-board in the Nasdaq

InterMarket. Participation in ACT is

mandatory for NASD members that are

members of a clearing agency registered

with the SEC, that have a clearing

arrangement with such a member, or

that participate in any of Nasdaq’s

trading services. An integral part of ACT

is the risk management function.

The ACT risk management function

provides firms that clear for other firms

with the capability to establish

acceptable levels of credit for their

introducing firms. ACT risk

management also enables clearing

brokers to monitor buy/sell trading

activity of their introducing firms,

establish trading thresholds, allow/

inhibit large trades, add/delete clearing

relationships, and access a real-time

database of correspondent trading

activity.4 Clearing brokers providing

clearing services to correspondent firms

are assessed risk management charges of

$0.035 per trade and $17.25 per month

per correspondent firm. Nasdaq recently

adopted a new rule, limiting this charge

to a maximum of $10,000 per month per

correspondent.5 Self-clearing brokers

without correspondents have no reason

to utilize the ACT risk management

function, given their lack of exposure,

and are not assessed risk management

charges.

The ACT service was implemented for

self-clearing firms in March 1990.6 The

ACT service for clearing firms and their

executing correspondents, including the

risk management function, was

implemented in October 1990;7 the ACT

risk management service charge was

implemented in November 1990.8

Recently, Nasdaq received two

inquiries from clearing brokers seeking

relief from the ACT risk management

charges for trades cleared for affiliated

correspondents. These clearing firms

have entered into new relationships

with previously unaffiliated brokerdealer firms. As a result, all of the

affiliated firms, including the clearing

firm and the correspondent firm(s), are

wholly or majority owned by a common

corporate parent, which will be solely

liable for any credit problems

encountered by the affiliated firms. The

clearing firm in such an arrangement

has an internal risk management system

that allows it to monitor the capital

exposure of the consolidated entities.

These clearing firms have represented to

Nasdaq that they believe they are

effectively self-clearing firms, and

should be treated as such for purposes

of application of the requirement to pay

ACT risk management charges.

Nasdaq believes there is merit to this

position, and proposes to issue a

responsive interpretation regarding ACT

risk management charges. The proposed

interpretation would reiterate Nasdaq’s

long-standing position that clearing

brokers are required to pay ACT risk

management charges and that selfclearing brokers are not required to pay

these charges. The interpretation would

further state that firms that are

effectively self-clearing are not required

to pay ACT risk management charges,

subject to the provisions set forth in the

interpretation. Nasdaq supports the

view that a firm that clears for affiliated

correspondents that are wholly or

majority owned by a common corporate

parent, which will be solely liable for

any credit problems encountered by the

affiliates, should be effectively

considered self-clearing. Nasdaq

believes that such a firm should be able

Federal Register / Vol. 65, No. 216 / Tuesday, November 7, 2000 / Notices 66791

9 15 U.S.C. 78o–3(b)(6).

10 15 U.S.C. 78o–3(b)(5). 11 17 CFR 200.30–3(a)(12).

to choose whether or not to participate

in the ACT risk management function

with respect to trades cleared on behalf

of the affiliates, as long as it has an

effective internal risk management

system.

Under the interpretation, a firm that

chooses not to participate in the ACT

risk management function will be able

to seek an exemption from the ACT risk

management charge for trades cleared

on behalf of affiliated correspondents by

submitting a letter to Nasdaq. The letter

must describe in detail the clearing

firm’s ownership structure, state that the

firm will use an internal risk

management capability to monitor the

trading activities and risk exposure of

its affiliated correspondents and meet

its financial and operational obligations

under the federal securities laws and

NASD rules that provides risk

management functions comparable to

those provided by ACT, acknowledge

that it will no longer utilize the ACT

risk management function for trades

cleared for its affiliates, and request an

exemption from the ACT risk

management charge. After reviewing the

letter to ensure that it addresses all of

the above, Nasdaq will instruct the

NASD Finance Department that it

should no longer assess ACT risk

management charges on trades cleared

by the firm on behalf of its affiliates,

notify ACT that the firm will no longer

utilize the ACT risk management

function for the affiliated

correspondents’ trades, and inform

NASD Regulation of this new

arrangement.

Nasdaq proposes to make the

interpretation effective immediately

after SEC approval. Firms that submit a

satisfactory letter to Nasdaq requesting

relief from ACT risk management

charges within 90 days of the effective

date of the interpretation will no longer

be assessed future ACT risk

management charges and will receive a

credit for any such fees paid for ACT

risk management services after April 1,

2000. Firms that request relief from ACT

risk management charges 90 days or

more after the effective date of the

interpretation will not be assessed ACT

risk management charges beginning on

the first day of the first month after a

satisfactory letter is received by Nasdaq.

Nasdaq also proposes to revise NASD

Rule 6150, ACT Risk Management

Functions, to explicitly state that

clearing brokers and executing brokers

must report all clearing-eligible

transactions to ACT for risk

management functions. This transaction

information is included in Nasdaq’s

real-time database of correspondent

trading activity. Submission of complete

clearing information to ACT is essential

in order for Nasdaq to be able to

generate accurate ACT risk management

function reports and alerts.

Nasdaq is proposing this revision to

respond to arguments that have been

made by member firms that

participation in ACT risk management

is optional. Nasdaq believes those

member firms have based their position

on an erroneous interpretation of a

sentence in a Notice to Members

(‘‘NTM’’) issued in 1990 announcing

SEC approval of the ACT risk

management functions. In pertinent

part, NTM 90–80 states:

Using ACT Risk Management, clearing

firms can choose to monitor purchase and

sale activity, establish dollar thresholds for

the trading day, examine large trades,

establish and delete clearing relationships,

and develop an internal database through a

real-time data feed of correspondent activity.

(Emphasis added.)

This sentence establishes that clearing

firms can choose to use any of the

available ACT risk management

functions to monitor correspondent

activity; it does not mean that

participation in ACT risk management

is optional. Nasdaq’s long-standing

position is that clearing firm

participation in ACT risk management

is mandatory. However, to resolve any

ambiguities, Nasdaq is proposing to

revise NASD Rule 6150, ACT Risk

Management Functions, to make this

requirement explicit.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(6) of the

Act 9 in that the proposal is designed to

promote just and equitable principles of

trade and to remove impediments to and

perfect the mechanism of a national

market system and, in general, to protect

investors and the public interest. The

proposed rule change also is consistent

with Section 15A(b)(5) of the Act 10 in

that it provides for the equitable

allocation of reasonable dues, fees and

other charges among members and

issuers and other persons using any

facility or system which the Association

operates or controls.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq does not believe that the

proposed rule change will result in any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing For

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period

(9) 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 NASD 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,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, DC 20549–0609. 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. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to file number

SR–NASD–00–45 and should be

submitted by November 28, 2000.

For the Commission by the Division

of Market Regulation, pursuant to

delegated authority.11

Margaret H. McFarland

Deputy Secretary.

[FR Doc. 00–28507 Filed 11–6–00; 8:45 am]

BILLING CODE 8010–01–M