75324 Federal Register / Vol. 65, No. 232 / Friday, December 1, 2000 / Notices

5 15 U.S.C. 78k–1(a)(1)(C)(ii).

6 15 U.S.C. 78k–1(a)(1)(D).

7 17 CFR 240.11Aa3–2(c)(2).

8See Securities Exchange Act Release No. 42914

(June 8, 2000), 65 FR 38010 (June 19, 2000).

9 15 U.S.C. 78k–1(a)(1)(C)(ii) and (D).

10 17 CFR 240.11Aa3–2(c)(2).

11 15 U.S.C. 78k–1(a)(3)(B).

12 17 CFR 200.30–3(a)(29).

1MGT-Brussels presently operates the Euroclear

System pursuant to an operating agreement with

Euroclear Bank.

2 15 U.S.C. 78q–1.

3 17 CFR 240.17Ab2–1.

4Copies of the application for exemption are

available for inspection and copying at the

Commission’s Public Reference Room.

5Securities Exchange Act Release No. 39643

(February 11, 1998), 63 FR 8232.

to reduce the pre-opening price change

parameter for certain securities from 1⁄8

point ($0.125) to $0.10, as well as

change pricing references to decimal

pricing. Finally, the proposal expands

the pre-opening price change

parameters for certain stocks, which are

reported on Network B of the

Consolidated Tape Association, similar

to those stocks reported on Network A.

The Commission finds that the

proposed amendment is consistent with

the Act in general, and in particular,

with section 11A(a)(1)(C)(ii),5 which

provides for fair competition among the

Participants and their members, and

section 11A(a)(1)(D),6 which provides

for linking of markets for qualified

securities through communications and

data processing facilities that 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. The Commission also finds that

the amendment is consistent with Rule

11Aa3–2(c)(2),7 which requires the

Commission to determine that the

amendment is necessary and

appropriate in the public interest, for

the protection of investors and the

maintenance of fair and orderly markets,

to remove impediments to, and perfect

the mechanisms of, a national market

system or otherwise in furtherance of

the purposes of the Act.

On June 8, 2000, the Commission

ordered the self-regulatory organizations

(‘‘SROs’’) to submit a plan that would

begin phasing in decimal pricing in

equity securities and options on or

before September 5, 2000, and complete

this phase-in no later than April 9,

2001.8 On July 24, 2000, the SROs

submitted a phase-in plan to the

Commission. On August 7, 2000, the

SROs filed proposed rule changes

necessary to implement decimal pricing.

The Commission believes that the

proposed amendment to the ITS Plan is

another required adjustment in the

process of the market-wide conversion

to decimal pricing that may improve the

efficiency and reliability of ITS. Lastly,

the proposed amendment is necessary to

accommodate decimal pricing, the new

method of pricing for equity securities

among the Participants, and therefore is

consistent with ITS’s purpose: to

facilitate intermarket trading in listed

equity securities.

For the foregoing reasons, the

Commission finds that the proposed

amendment is consistent with Act and

the rules and regulations thereunder

applicable to the ITS and, in particular,

sections 11A(a)(1)(C)(ii) and (D) of the

Act 9 and Rule 11Aa3–2(c)(2)

thereunder.10

It is Therefore Ordered, pursuant to

section 11A(a)(3)(B) of the Act,11 that

the proposed amendment be, and

hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30668 Filed 11–30–00; 8:45 am]

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Sunshine Act Meeting

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

closed meeting scheduled for Thursday,

November 30, 2000 at 11:00 a.m. time

has been changed to Thursday,

November 30, 2000 at 10:30 a.m.

Commissioner Carey, as duty officer,

determined that no earlier notice thereof

was possible.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

At times, changes in Commission

priorities require alterations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact:

The Office of the Secretary at (202)

942–7070.

Dated: November 28, 2000.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–30763 Filed 11–29–00; 11:17

am]

BILLING CODE 8010–01–M

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[Release No. 34–43592; International Series

Release No. 1235; File No. 601–01]

Self-Regulatory Organizations; Morgan

Guaranty Trust Company, Brussels

Office, as Operator of the Euroclear

System and Euroclear Bank, S.A.;

Notice of Filing of Application To

Modify an Existing Exemption From

Clearing Agency Registration

November 17, 2000.

I. Introduction

On September 21, 2000, Morgan

Guaranty Trust Company of New York,

Brussels office (‘‘MGT-Brussels’’), as

operator of the Euroclear System,1 and

Euroclear Bank, S.A., (‘‘Euroclear

Bank’’) filed pursuant to Section 17A of

the Securities Exchange Act of 1934

(‘‘Exchange Act’’) 2 and Rule 17Ab2–1

thereunder 3 with the Securities and

Exchange Commission (‘‘Commission’’)

an application on Form CA–1 4 to

modify MGT-Brussels’ existing

exemption from clearing agency

registration (‘‘Modification

Application’’). MGT-Brussels’ current

exemption allows it to perform, with

certain limits, the functions of a clearing

agency with respect to U.S. government

and agency securities for its U.S.

participants without registering as a

clearing agency. The purpose of the

Modification Application is to have

Euroclear Bank substituted for MGTBrussels as operator of the Euroclear

System with respect to the

Commission’s exemption. The

Commission is publishing this notice to

solicit comment from interested

persons.

II. Background

A. 1998 Exemption Order

On February 11, 1998, the

Commission granted MGT-Brussels an

exemption from registration as a

clearing agency, subject to certain

conditions, to the extent MGT-Brussels

performs the functions of a clearing

agency with respect to transactions

involving U.S. government and agency

securities for its U.S. participants

(‘‘1998 Exemption Order’’).5

Specifically, the 1998 Exemption Order

Federal Register / Vol. 65, No. 232 / Friday, December 1, 2000 / Notices 75325

6As described in footnote 64 of the 1998

Exemption Order, U.S. government securities

means ‘‘U.S. government securities’’ as defined in

Section 3(a)(42) of the Exchange Act, 15 U.S.C.

78c(a)(42), except that it shall not include any (i)

foreign-targeted U.S. government or agency

securities or (ii) securities issued or guaranteed by

the International Bank for Reconstruction and

Development (i.e., the ‘‘World Bank’’) or any other

similar international organization.

7The conditions in the 1998 Exemption Order

reflected the Commission’s determination to take a

gradual approach toward permitting an

international, unregistered clearing organization to

perform clearing agency functions for transactions

involving U.S. government and agency securities for

U.S. participants. 1998 Exemption Order at 63 FR

8239.

8The scope of the 1998 Exemption Order is

limited to U.S. eligible government securities and

does not apply to other U.S. debt or equity

securities. For a more complete description of the

volume limit, refer to Section IV.C.2. of the 1998

Exemption Order at 63 FR 8239.

9For a more complete description of the

Commission’s access to information refer to Section

IV.C.3. of the 1998 Exemption Order at 63 FR 8240. 10 1998 Exemption Order at 63 FR 8240.

11 1998 Exemption Order at 63 FR 8237.

12Euroclear Bank is subject to regulation by the

CBF.

13Euroclear Bank also continues to agree to

provide information to the Commission as

described in the 1998 Exemption Order.

14 15 U.S.C. 78q–1(b)(1).

permitted MGT-Brussels to provide

clearance, settlement, and collateral

management services for its U.S.

participants’ transactions in ‘‘eligible

U.S. government securities’’ which was

defined as: (1) Fedwire-eligible U.S.

government securities,6 (2) mortgagebacked pass through securities that are

guaranteed by the Government National

Mortgage Association (‘‘GNMAs’’), and

(3) any collateralized mortgage

obligation whose securities are Fedwireeligible U.S. government securities or

GNMA guaranteed mortgage-backed

pass through securities and which are

depository eligible securities.

The 1998 Exemption Order imposed

two conditions on MGT-Brussels’ ability

to provide clearance and settlement

services.7 First, the average daily

volume of eligible U.S. government

securities that can be settled through

MGT-Brussels for U.S. participants is

limited to five percent of the total

average daily dollar volume of the

aggregate volume in eligible U.S.

government securities.8 Second, the

1998 Exemption Order allows the

Commission access to a variety of

information related to MGT-Brussels’

role as operator of the Euroclear

System.9

B. Changeover From MGT-Brussels to

Euroclear Bank

On January 1, 2000, owners and

operators decided that MGT-Brussels

should be replaced by Euroclear Bank as

operator of the Euroclear System. In

May 2000, Euroclear Bank was created.

On July 27, 2000 the Belgian Banking

and Finance Commission (‘‘CBF’’)

granted Euroclear Bank a Belgian

banking license. MGT-Brussels will

continue to operate the Euroclear

System until the changeover, which is

scheduled to occur on December 31,

2000. At the changeover, the business

and related assets and liabilities of the

Euroclear System will vest in and

virtually all of the MGT-Brussels staff

will be transferred to Euroclear Bank.

As a result of the changeover,

Euroclear Clearance System Public

Limited Company (‘‘Euroclear PLC’’ ), a

limited liability company organized

under the laws of the United Kingdom,

will own 59.5% of Euroclear Bank.

Calar Investments, a wholly-owned

subsidiary of Euroclear PLC, will own

35.5% of Euroclear Bank. The remaining

five percent of Euroclear Bank will be

owned by the former members of

Euroclear Clearance System Societe

Cooperative, the predecessor of

Euroclear Bank.

III. Proposed Modification of the 1998

Exemption Order

Euroclear Bank has requested

modification of the 1998 Exemption

Order by replacing MGT-Brussels with

Euroclear Bank as operator of the

Euroclear System. The 1998 Exemption

Order provides that ‘‘the Commission

may modify by order the terms, scope,

or conditions of MGT-Brussels’

exemption from registration as a

clearing agency if the Commission

determines that such modification is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Exchange Act’’ 10

Euroclear Bank will operate the

Euroclear System in the manner that

MGT-Brussels currently operates the

Euroclear System. Euroclear Bank will

use the same personnel, operating

systems, procedures, and risk

management as MGT-Brussels currently

uses. Euroclear Bank represents that it

will substantially satisfy, just as MGTBrussels currently does, each of the

conditions for registration set forth in

Section 17A(b)(3) of the Exchange Act,

that relate to ‘‘safe and sound clearance

and settlement’’ in the U.S., which the

Commission has identified in the 1998

Exemption Order as the fundamental

goal of Section 17A. Accordingly,

Euroclear Bank requests the identical

exemption granted to MGT-Brussels.

Therefore, the Modification Application

does not seek to have any changes made

to the ‘‘Scope of the Exemption,’’ as

described in Section IV.C. of 1998

Exemption Order with respect to the

conditions and limitations of the 1998

Exemption Order.

As described in the 1998 Exemption

Order, MGT-Brussels is a division of the

foreign branch of a U.S. bank and

accordingly is subject to the

comprehensive supervision and

regulation of the Federal Reserve Bank

of New York.11 The Federal Reserve

Bank of New York conducts annual onsite examinations in Brussels and

otherwise regulates MGT-Brussels’

operations, including its operation of

the Euroclear System. Because there

will be no similar U.S. regulation of

Euroclear Bank, the Commission will

require the execution of a satisfactory

Memorandum of Understanding

(‘‘MOU’’) with the CBF 12 to facilitate

the provision of information by

Euroclear Bank to the Commission and

to continue to facilitate the

Commission’s monitoring of the impact

of Euroclear Bank’s operation under this

exemption.13

Section 17A(b)(1) of the Exchange Act

authorizes the Commission to exempt

applicants from some or all of the

requirements of Section 17A if it finds

such exemptions are consistent with the

public interest, the protection of

investors, and the purposes of Section

17A, including the prompt and accurate

clearance and settlement of securities

transactions and the safeguarding of

securities and funds.14 Therefore, the

Commission invites commenters to

address whether modifying the 1998

Exemption Order as requested by

Euroclear Bank and as described above,

subject to the continuation of the

conditions and limitations set forth in

that order, would further the goals of

Section 17A.

IV. Solicitation of Comment

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing

application by December 22, 2000,

including whether the exemption is

consistent with the Exchange Act. Such

written data, views, and arguments will

be considered by the Commission in

deciding whether to grant the

Modification Application. Persons

desiring to make written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Reference

should be made to File No. [601–01].

Copies of the application and all written

comments will be available for

inspection and copying at the

Commission’s Public Reference Room,

75326 Federal Register / Vol. 65, No. 232 / Friday, December 1, 2000 / Notices

15 17 CFR 200.30–3(a)(16).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 41376

(May 6, 1999), 64 FR 25937.

4Amendment No. 1 elaborates upon the rationale

for the proposal and how liquidity may be insured

when the current, 400-holder requirement is

deleted. See Letter from Stephanie C. Mullins,

Attorney, the CBOE, to Mandy Cohen, Special

Counsel, Division of Market Regulation

(‘‘Division’’), the Commission, dated July 29, 1999.

Amendment No. 2 clarifies the intent of the CBOE

to apply the proposed rule change to apply to

narrow-based index warrants, in addition to broadbased index warrants. See Letter from Angelo

Evangelou, Attorney, the CBOE, to Ira Brandriss,

Attorney, Division of Market Regulation, the

Commission, dated September 19, 2000. See also

Section III below.

5 15 U.S.C. 78f(b)(5). Section 6(b)(5) requires that

the rules of a national securities exchange be

designed, among other things, to promote just and

equitable principles of trade and protect investors

and the public interest.

6 In approving this proposal, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

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

7The Commission notes that for new narrowbased stock index warrants that it lists for trading,

the CBOE may be able to file a Form 19b–4(e)

pursuant to the provisions of Rule 19b–4(e) under

the Act, 17 CFR 240.19b–4(e), in fulfillment of its

rule change filing requirements. See CBOE Rule

24.2(b), which has been made applicable to narrowbased index warrants by CBOE Rule 31.5E,

Interpretation .01.

450 Fifth Street, NW., Washington, DC

20549.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority. 15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–30666 Filed 11–30–00; 8:45 am]

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[Release No. 34–43611; File No. SR–CBOE–

99–14]

Self Regulatory Organizations;

Chicago Board Options Exchange,

Inc.; Order Approving a Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval to

Amendment Nos. 1 and 2 to the

Proposed Rule Change Relating to

Listing Criteria for Index Warrants

November 22, 2000.

I. Introduction

On April 6, 1999, the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘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

amend its Rule 31.5.E to add an

alternative set of distribution criteria for

stock index warrants. Notice of the

proposed rule change was published in

the Federal Register on May 13, 1999.3

On August 2, 1999, and September 20,

2000, the CBOE filed Amendment Nos.

1 and 2 to the proposal, respectively.4

The Commission received no comments

on the proposal. This order approves the

proposed rule change, accelerates

approval of Amendments Nos. 1 and 2,

and solicits comments from interested

persons on the amendments.

II. Description of the Proposal

Currently, before a stock index

warrant may be listed for trading on the

CBOE, certain public distribution

requirements must be met. These

criteria are enumerated in CBOE Rule

31.5.E(2):

1. The issue must include at least one

million warrants outstanding.

2. The principal amount/aggregate

market value must be at least

$4,000,000.

3. There must be at least 400 public

holders.

In addition, according to the CBOE,

industry practice has been to discourage

the listing of instruments of this kind

that are priced below $4 per unit. The

CBOE states that it finds this practice

appropriate, although Rule 31.5E does

not specifically impose this restriction.

The proposed rule change would

establish an alternative set of

distribution criteria, eliminating the

minimum public holder requirement.

To list a stock index warrant under this

alternative, the following requirements

would need to be satisfied:

1. The issue would need to include at

least two million warrants

outstanding—double the current

requirement.

2. The principal amount/aggregate

market value would need to be at least

$12,000,000—triple the current

requirement.

3. The minimum initial price would

need to be set at $6 per warrant—one

and one-half times the minimum initial

price as would be required under

current informal guidelines.

4. A minimum number of public

holders would be required as

determined on a case by case basis.

The CBOE states that it is seeking to

eliminate the 400-holder requirement so

that it can be more competitive with the

overseas and over-the-counter (OTC)

derivatives markets in the listing of

index warrants.

As explained by the Exchange,

offerings of stock index warrants—

unlike offerings of common stock and

common stock warrants—are limited to

options-approved accounts and are

primarily directed to institutional and

high net worth clients. Finding 400

initial holders thus may entail an

extensive and time-consuming

marketing effort. As a result, member

firms have told the Exchange that they

often find it considerably more cost

effective to offer stock index warrants

either offshore or in the OTC derivatives

market.

The proposed rule change would

create an alternative set of public

distribution criteria under which no

minimum number of public holders

would be defined, but would be

determined by the Exchange on a caseby-case basis. At the same time, this

alternative set of criteria would require

the issue to be significantly larger in

terms of number of warrants

outstanding and their aggregate market

value, besides imposing a minimum

initial price for each warrant that

reflects a substantial increase from the

minimum initial price currently

required for listing on the CBOE.

III. Discussion

After careful review, the Commission

finds the proposed rule change to be

consistent with the provisions of the Act

applicable to a national securities

exchange, particularly those of section

6(b)(5) 5 of the Act, and with the rules

and regulations thereunder.6 The

Commission believes that the proposal

is reasonably designed to enable the

CBOE to better compete with the

overseas and OTC derivatives markets

for the trading of stock index warrants,

while raising no significant investor

protection issues.

In lieu of the requirement that there

be 400 public holders, the Exchange

proposes to double to two million the

minimum number of warrants that must

be outstanding for the CBOE to list and

trade a stock index warrant. In addition,

the Exchange proposes to triple to $12

million the principal amount/aggregate

market value of the warrants and

increase to $6 the minimum initial price

for listing the warrant. In addition, the

Exchange on a case by case basis will

specify a minimum number of public

holders of the warrant.

These additional protections should

serve to assure that there are adequate

thresholds for the Exchange to list and

trade a particular stock index warrant

that does not otherwise satisfy the

requirement of 400 public holders.

Thus, the Commission believes the

ability of market makers to maintain

markets in such instruments should not

be impaired.7