10450 Federal Register / Vol. 62, No. 45 / Friday, March 7, 1997 / Rules and Regulations

7This proviso is intended to clarify that the

originating member makes reasonable inquiries and

understands prior to the initiation of a trade the

conditions under which its customers’ funds will be

held at all subsequent depositories, so that it may

determine whether a particular intermediary or

clearing house is a good separate account

depository for purposes of this Order or must

alternatively set aside funds in the manner set forth

in paragraph b. The member would be expected to

discuss with its immediate intermediary broker

whether funds would be transferred to any

subsequent depositories and determine the

conditions under which such funds would be

treated. Compliance with this proviso would be

satisfied by the member obtaining relevant

information or assurances from appropriate sources

such as, for example, the immediate intermediary

broker, exchanges or clearinghouses, exchange

regulators, banks, attorneys or other relevant

references, including regulatory sources.

This Supplemental Order is intended to clarify

that funds provided by U.S. customers for foreign

futures and options transactions, whether held at a

U.S. FCM under rule 30.7(c) or a firm exempted

from registration as an FCM under CFTC rule 30.10,

will receive equivalent protection at all

intermediaries and exchange clearing organizations.

Thus, for example, an exchange that does not

segregate customer from firm obligations and firms

which trade on such exchanges and which do not

arrange to comply otherwise with any of the

procedures described herein would not be deemed

an acceptable separate account. Specifically, such

exchange or firms could not provide a valid and

binding acknowledgement to a rule 30.10 exempted

firm.

This provision is not necessarily intended to

create a duty on a rule 30.10 firm that it audit

intermediaries it uses for continued compliance

with the undertakings it has obtained based on

discussions with those relevant intermediaries. It is

intended to make clear that firms seeking the

benefit of the Commission’s 30.10 relief must

undertake a due diligence inquiry before customer

funds are transferred to another intermediary and

must take appropriate action (i.e., set aside funds)

in the event that such firms become aware of facts

leading them to conclude that customer funds are

not being handled consistent with the requirements

of Commission rules or this Order by any

subsequent intermediary or clearing house.

8 Any United Kingdom laws or regulations or

IMRO rules which permit an IMRO member firm to

obtain from its customers a waiver,

acknowledgement or similar document in which

such customer effectively waives the right to

segregation protection would be inconsistent with

compliance with paragraphs a, b, and c.

amount that must be deposited in such

separate account or accounts must be no less

than the greater of (1) the foreign futures and

foreign options secured amount required by

paragraph a–1 above plus the amount that

would be required to be on deposit if all such

customers (including non-U.S. customers)

were subject to such requirement, or (2) the

foreign futures and foreign options secured

amount required by paragraph a–1 above

plus the amount required to be held in a

separate account or accounts for or on behalf

of such non-U.S. customers pursuant to any

applicable law, rule, regulation or order, or

any rule of any self-regulatory organization;

(4) Maintains the separate account or

accounts referred to in paragraph a–1 above

under an account name that clearly identifies

them as such, with any of the following

depositories:

(a) Another person registered with the

Commission as an FCM or a firm exempted

from FCM registration pursuant to CFTC rule

30.10;

(b) The clearing organization of any foreign

board of trade;

(c) Any member and/or clearing member of

such foreign board of trade; or

(d) A bank or trust company which any of

the depositories identified in (a)–(c) above

may use consistent with the applicable laws

and rules of the jurisdiction in which the

depository is located; and

(5) The separate account or accounts

referred to in paragraph a–1 may be deemed

located at a good secured amount depository

only if the member obtains and retains in its

files for the period required by applicable

law and IMRO rules a written

acknowledgement from such separate

account depository that:

(a) It was informed that such money,

securities or property are held for or on

behalf of customers of the member; and

(b) It will ensure that such money,

securities or property will be held and

treated at all times in accordance with the

provisions of this paragraph; and, provided

further, that the member assures itself that

such separate account depository will not

pass on such money, securities or property to

any other depository unless the member has

assured itself that all such other separate

account depositories will treat such funds in

a manner consistent with the procedures

described in paragraph a hereof; 7 or

b. Sets aside funds constituting the entire

secured amount requirement in a separate

account as set forth in Commission rule 30.7,

17 C.F.R. 30.7 (1996), and treats those funds

in the manner described by that rule; or

c. Complies with the terms and procedures

of paragraph a or b, except that the amount

required to be segregated under IMRO rules

and United Kingdom laws may be substituted

for the secured amount requirement as set

forth in such paragraphs.8

The rule 30.10 relief already granted

to IMRO also is contingent upon IMRO

and IMRO members’ continued

compliance with the Original Order and

the enumerated conditions above.

Further, if experience demonstrates

that the continued effectiveness of this

Order in general, or with respect to a

particular member, would be contrary to

public policy or the public interest, or

that the systems in place for the

exchange of information or other

circumstances do not warrant

continuation of the exemptive relief

granted herein, the Commission may

condition, modify, suspend, terminate,

withhold as to a specific member, or

otherwise restrict the exemptive relief

granted in this Order, as appropriate, on

its own motion. If necessary, provisions

will be made for servicing existing

client positions.

List of Subjects in 17 CFR Part 30

Commodity Futures, Commodity

Options, Foreign Futures.

Accordingly, 17 CFR Part 30 is

amended as set forth below:

PART 30—FOREIGN FUTURES AND

OPTIONS TRANSACTIONS

1. The authority citation for Part 30

continues to read as follows:

Authority: secs. 2(a)(1)(A), 4, 4c and 8a of

the Commodity Exchange Act, 7 U.S.C. 2, 6,

6c and 12a.

2. Appendix C to Part 30 is amended

by adding the following citation to the

existing entry for the Investment

Management Regulatory Organisation to

read as follows:

Appendix C—Foreign Petitioners

Granted Relief From the Application of

Certain Part 30 Rules Pursuant to Rule

30.10

* * * * *

FR date and citation, March 7, 1997, 62 FR.

Issued in Washington, D.C. on March 3,

1997.

Jean Webb,

Secretary of the Commission.

[FR Doc. 97–5680 Filed 3–6–97; 8:45 am]

BILLING CODE 6351–01–P

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 300

[Release No. SIPA–163; File No. SIPC–96–

1]

Rules of the Securities Investor

Protection Corporation

AGENCY: Securities and Exchange

Commission.

ACTION: Order approving a proposed

rule change of the Securities Investor

Protection Corporation.

SUMMARY: The Securities and Exchange

Commission (‘‘Commission’’) is

approving a rule change submitted by

the Securities Investor Protection

Corporation (‘‘SIPC’’) as required by

Section 3(e)(2) of the Securities Investor

Protection Act of 1970 (‘‘SIPA’’). SIPC’s

proposed rule change amends two

Series 300 SIPC Rules relating to the

closeout and completion of contracts for

the purchase or sale of securities made

by debtors in liquidation under SIPA.

Because SIPC rules have the force and

effect as if promulgated by the

Commission, those rules are published

in Title 17 of the Code of Federal

Regulations (‘‘CFR’’).

EFFECTIVE DATE: April 7, 1997.

FOR FURTHER INFORMATION CONTACT:

Michael A. Macchiaroli, Associate

Director, 202/942–0131, Peter R.
Federal Register / Vol. 62, No. 45 / Friday, March 7, 1997 / Rules and Regulations 10451

1 15 U.S.C. 78ccc(e)(2) (1995).

2SIPC is a non-profit membership corporation

providing certain protection to customers of

member broker-dealers that experience financial

difficulty.

3 17 CFR 300.300 (1996).

4 17 CFR 300.301 (1996).

5 17 CFR 240.15c6–1 (1996).

6Specifically, Rule 15c6–1 provides, among other

things, that a broker-dealer shall not effect or enter

into a contract for the purchase or sale of a security

that provides for payment of funds and delivery of

securities later than the third business day after the

date of the contract unless otherwise expressly

agreed to by the parties at the time of the

transaction. Rule 15c6–1 does not apply to an

exempted security, municipal security (Municipal

Securities Rulemaking Board rules required

municipal securities to clear three business days

after the date of the contract), commercial paper,

bankers’ acceptance, commercial bill, or

government security. Prior to the effective date of

Rule 15c6–1, the settlement cycle for securities

transactions was five business days. See securities

Exchange Act Release No. 33023 (October 6, 1993),

58 FR 52891 (October 13, 1993).

7 17 CFR 300.300(a) (1996).

8 16 U.S.C. 78lll(8) (1995).

9 15 U.S.C. 78lll(7) (1995).

10See Release No. SIPA–160 (October 25, 1996),

61 FR 56485 (November 1, 1996).

11SIPC consented to an extension of the

Commission’s action date for the proposed rule

change. See Letter from Kevin H. Bell, Assistant

General Counsel, SIPC, to Louis A. Randazzo,

Special Counsel, SEC, dated November 25, 1996.

12 15 U.S.C. 78ccc(e)(2)(D) (1995).

13 15 U.S.C. 78fff–2(e) (1995). 14 17 CFR 300.306 (1996).

Geraghty, Assistant Director 202/942–

0177, or Louis A. Randazzo, Special

Counsel, 202/942–0191, Division of

Market Regulation, Securities and

Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

Pursuant to Section 3(e)(2) of SIPA,1

on October 10, 1996, SIPC2 filed with

the Commission a proposed rule change

(File No. SIPC–96–1). The proposed rule

change amends SIPC Rules 300 3 and

301 4 which relate to the closeout and

completion of contracts for the purchase

or sale of securities made by debtors in

liquidation under SIPA, to make them

consistent with Commission Rule 15c6–

1 5 under the Securities Exchange Act of

1934 (‘‘Act’’), which established three

business days as the standard settlement

cycle for most securities transactions.

II. Proposed Rule Change

SIPC Rules 300 and 301 set forth

SIPC’s requirements and procedures for

closing out or completing open

contractual commitments for the

purchase or sale of securities between a

SIPC member broker-dealer undergoing

liquidation (‘‘debtor’’) and other brokerdealers. Currently, under SIPC Rule 301,

an open contractual commitment made

between a debtor and another brokerdealer in the ordinary course of the

debtor’s business may be closed out or

completed if, among other things, the

open contractual commitment (1) had a

settlement date on or within 30 calendar

days prior to the filing date (i.e., the date

SIPC files an application for a protective

decree) and the respective obligations of

the parties remain outstanding on the

filing date or had a settlement date

which occurs on or within five business

days subsequent to the filing date and

(2) had a trade date on or within five

business days prior to such settlement

date. Rule 300 currently defines open

contractual commitments as a failed to

receive or a failed to deliver which (1)

had a settlement date prior to the filing

date and the respective obligations of

the parties remained outstanding on the

filing date or (2) had a settlement date

which occurs on or within five business

days subsequent to the filing date.

In June of 1995, Commission Rule

15c6–1 became effective, which

established three business days as the

standard settlement timeframe for most

securities transactions.6 Because Rules

300 and 301 currently refer to a five

business day settlement timeframe, SIPC

is amending Rules 300 and 301 by

replacing the five business day

references with three business days.

This will make SIPC Rules 300 and 301

consistent with the three business day

settlement period in Commission Rule

15c6–1. In addition, SIPC is making a

technical amendment to Rule 300(a),7

which will replace the reference to

section 16(8) of SIPA 8 with section

16(7) of SIPA.9 This technical correction

will conform a statutory citation in Rule

300 to the correct section of SIPA.

Notice of the proposed rule change

was published in the Federal Register

on November 1, 1996.10 No comments

were received.11

III. Discussion and Commission Action

For the reasons discussed below, the

Commission believes that the

amendments are consistent with

Sectopms 3(e)(2)(D) 12 and 8(e) 13 of

SIPA. Section 3(e)(2)(D) of SIPA

requires SIPC rule changes to be in the

public interest and consistent with the

purposes of SIPA. Section 8(e) requires

that SIPC adopt rules with respect to the

closeout of contracts with a debtor for

the purchase or sale of securities in the

ordinary course of its business.

Specifically, the commission believes

that the proposed amendments make

SIPC Rules 300 and 301 consistent with

Commission Rule 15c6–1. In addition,

the Commission believes that the

amendments will ensure that SIPC’s

rules close off stale transactions from

being completed, other than as a

possible claim against the debtor’s

estate, while at the same time ensuring

that current securities transactions with

the standard three business day

settlement period are completed.

Finally, SIPC would retain the ability to

closeout open contractual commitments

that are not covered by SIPC rules. For

example, pursuant to SIPC Rule 306,14

SIPC has discretion, after consulting

with the Commission, to direct the

closeout or completion of an open

contractual commitment, irrespective of

whether it is covered by Rules 300 or

301.

Accordingly, the Commission finds

that the proposed SIPC rule

amendments are in the public interest

and are consistent with the purposes of

the SIPA.

It is therefore ordered by the

Commission, pursuant to Section 3(e)(2)

of SIPA, that the above mentioned

proposed rule change is approved. In

accordance with Section 3(e)(2) of SIPA,

the approved rule change shall be given

force and effect as if promulgated by the

Commission.

IV. List of Subjects in 17 CFR Part 300

Brokers, Securities, Securities

Investor Protection Corporation.

In accordance with the foregoing,

Title 17 Chapter II of the Code of

Federal Regulations is amended as

follows:

PART 300—RULES OF THE

SECURITIES INVESTOR PROTECTION

CORPORATION

1. The authority citation for Part 300

continues to read as follows:

Authority: Section 3, 84 Stat. 1636, as

amended; 15 U.S.C. 78ccc.

§ 300.300 [Amended]

2. Section 300.300(a) is amended by

removing the reference to ‘‘section

16(8)’’ and in its place adding ‘‘section

16(7),’’ and in § 300.300(c) removing the

reference to ‘‘five business days’’ and in

its place adding ‘‘three business days’’.

§ 300.301 [Amended]

3. Sections 300.301 (a)(2)(i) and

(a)(2)(ii) are amended by removing the

references to ‘‘five business days’’ and

in their place adding ‘‘three business

days’’.

By the Commission.

Dated: March 3, 1997.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–5670 Filed 3–6–97; 8:45 am]

BILLING CODE 8010–01–M