Federal Register / Vol. 62, No. 56 / Monday, March 24, 1997 / Notices 13931

115 15 U.S.C. 78s(b)(2).

116 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 38188

(January 21, 1997), 62 FR 4089.

3Securities Exchange Act Release No. 37616

(August 28, 1996), 61 FR 46887 [File Nos. SR–

MBSCC–96–02, SR–GSCC–96–03, and SR–ISCC–

96–04] (order approving proposed rule changes

seeking authority to enter into limited crossguaranty agreements).

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

Section, 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 the Exchange. All submissions

should refer to File No. SR–NYSE–96–

36 and should be submitted by April 14,

1997.

VII. Conclusion

For the foregoing reasons, 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 and, in

particular, the requirements of Sections

6(b)(4), 6(b)(5), and 6(b)(8) and the rules

and regulations thereunder.

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,115 that the

proposed rule change (SR–NYSE–96–

36) is approved on a pilot basis ending

May 13, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.116

Jonathan G. Katz,

Secretary.

[FR Doc. 97–7280 Filed 3–21–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38410; File No. SR–OCC–

96–18]

Self-Regulatory Organizations: The

Option Clearing Corporation Order

Granting Approval of a Proposed Rule

Change To Revise Rules To Include

Limited Cross-Guarantee Agreement

March 17, 1997.

On December 9, 1996, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–96–18) 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 28, 1997.2 No comment

letters were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

The rule change revises OCC’s bylaws and rules to authorize OCC to

execute ‘‘Limited cross-guarantee

agreements’’ with other clearing

agencies. A limited cross-guarantee

agreement is an agreement between two

or more clearing agencies that provides

that if the parties to the agreement must

liquidate the assets of an entity that is

a member of two or more of the agencies

(‘‘common member’’) and at least one of

the clearing agencies liquidates the

assets of the common member in its

control to a loss and at least one

liquidates the assets of the common

member to a gain, each clearing agency

liquidating to a gain will make the

excess assets of the common member in

its control available to each clearing

agency liquidating to a loss up to the

amount of the loss. If all of the parties

to a limited cross-guarantee agreement

liquidate the assets of a common

member in their respective control to a

gain or if all liquidate to a loss, the

agreement provides that no assets will

be made available by any party to the

agreement to any other party. The crossguaranties established in a limited

cross-guarantee agreement are limited in

the sense that each part to the agreement

guarantees funds to the other parties

only if it liquidates the assets of a

common member in its control to a net

gain and only up to the amount of the

net gain.

The effect of a limited cross-guarantee

agreement is to enable each part to the

agreement to have recourse to the assets

of a defaulting common member in the

control of the other parties to the

agreement. Therefore, a limited crossguarantee agreement should reduce the

risk of each of the clearing agencies

which is a party to such an agreement

because a defaulting common member

may have positions spread across

markets in such a manner that its net

asset position at one clearing agency is

positive even though its net asset

position at another clearing agency is

negative.

OCC is currently pursuing discussion

of the terms of a limited cross-guarantee

agreement with other clearing agencies.

OCC anticipates that it will be filing

with the Commission one or more

limited cross-guarantee agreements to

which it has become a party following

the conclusion of those discussions.

The Commission has generally stated

its support of the use of limited crossguarantee agreements as a mean of

reducing the exposure of clearing

agencies to loss as a result of the default

of common members.3

As part of its rules revision to provide

for limited cross-guarantee agreements,

OCC will add definitions of ‘‘common

member,’’ ‘‘cross guarantee party,’’ and

‘‘limited cross-guarantee agreement’’ to

Article I of its by-laws. OCC will add

new paragraph (i) to Section 5 of Article

VIII of its by-laws to provide explicitly

that OCC may use the clearing fund

contributions of a clearing member to

satisfy its limited cross-guarantee

obligations to other clearing agencies

with respect to that clearing member.

New paragraph (i) provides that the

amount charged against a clearing

member’s contributions to the stock

clearing fund and non-equity securities

clearing fund will be in proportion to

the clearing member’s contributions to

the stock clearing fund and the nonequity securities clearing fund as fixed

at the time of the suspension of the

clearing member. New paragraph (i)

does not provide OCC with any

authority to use the clearing fund

contributions of other clearing members

(i.e., other than the defaulting clearing

member) to satisfy any limited crossguarantee obligation that OCC has to

another clearing agency because OCC

will not have any obligation pursuant to

a limited cross-guarantee agreement

which could require recourse to the

clearing fund contributions of other

clearing members.

OCC also will add new paragraph (j)

to Section 5 of Article VIII of its by-laws

to establish a rule for allocating funds

received by OCC pursuant to a limited

cross-guarantee agreement where OCC

has charged, or will charge, the stock

clearing fund and the non-equity

securities clearing fund. The new

paragraph provides that the funds will

be credited to the stock clearing fund

and the non-equity securities clearing

fund in proportion to the computed

contributions of the suspended clearing

member to the two clearing funds as

fixed at the time of the suspension of

the clearing member. If one of the two

clearing funds is made whole then the

remainder of the funds will be credited

entirely to the other clearing fund.

OCC will add three new

interpretations to Article VIII, Section 5

of its by-laws. New interpretation .03

states explicitly that if OCC has a

deficiency after the application of all

available funds of a suspended clearing

member and if OCC cannot determine
13932 Federal Register / Vol. 62, No. 56 / Monday, March 24, 1997 / Notices

4 15 U.S.C. 78q–1(b)(3)(F).

5Securities Exchange Act Release Nos. 36431

(October 27, 1995), 60 FR 55749 [File No. SR–

GSCC–95–03] and 36597 (December 15, 1995), 60

FR 66570 [File No. SR–MBSCC–95–05] (orders

approving proposed rule changes authorizing the

release of clearing data relating to participants).

6 17 CFR 200.30–3(a)(12).

whether or in what amount it will be

entitled to receive funds from a crossguarantee party or when it will receive

such funds, with respect to the clearing

member, OCC may, in its discretion,

make a charge against other clearing

members’ contributions to the stock

clearing fund and/or the non-equity

securities clearing fund. New

interpretation .04 states explicitly that if

OCC determines that it is likely to

receive funds from a cross-guarantee

party with respect to the clearing

member, OCC may in anticipation of

receipt of the funds from the crossguarantee party, forego making a charge,

or make a reduced charge against other

clearing members’ contributions to the

stock clearing fund and/or the nonequity securities clearing fund. If OCC

does not receive the anticipated funds

or receives funds in a smaller amount

than anticipated, OCC may make a

charge or an additional charge against

other clearing members’ contributions to

the stock clearing fund and/or the nonequity securities clearing fund. New

interpretation .05 states explicitly that if

OCC were ever to be required to refund

funds which it had received from a

cross-guarantee party back to the crossguarantee party, OCC could make a

charge or an additional charge against

other clearing members’ contributions to

the stock clearing fund and/or the nonequity securities clearing fund to make

itself whole. The charge would be based

on the other clearing members’

computed contributions as fixed at the

time of the refund and not at the time

of the suspension of the clearing

member.

OCC also will add new paragraph (d)

to its Rule 1104 to state explicitly that

OCC may use any positive balance

remaining in a clearing member’s

liquidating settlement account to satisfy

any obligation with respect to that

clearing member which OCC may have

to any other clearing agency pursuant to

a limited cross-guarantee agreement.

The new paragraph is needed to assure

that OCC’s use of the assets of a clearing

member in this manner is authorized by

OCC’s rules because Rule 1104(a) states

that funds of a suspended clearing

member subject to OCC’s control shall

be placed in the clearing member’s

liquidating settlement account and used

‘‘for the purposes hereinafter specified.’’

II. Discussion

Seciton 17A(b)(3)(F) of the Act 4

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds in

the custody or control of the clearing

agency or for which it is responsible and

to foster cooperation and coordination

with persons engaged in the clearance

and settlement of securities

transactions. The Commission believes

the rule change is consistent with OCC’s

obligation to assure the safeguarding of

securities and funds in the custody or

control of the clearing agency or for

which it is responsible because crossguarantee agreements among clearing

agencies are a method of reducing

clearing agencies’ risk of loss due to a

common member’s default.

Furthermore, the Commission has

encouraged the use of cross-guarantee

agreements and other similar

arrangements among clearing agencies.5

Consequently, cross-guarantee

agreements should assist clearing

agencies in assuring the safeguarding of

securities and funds in their custody or

control.

The Commission also believes the

rule change is consistent with OCC’s

obligation to foster cooperation and

coordination with persons engaged in

the clearance and settlement of

securities transactions. The Commission

believes that by entering into such

cross-guarantee agreements, clearing

agencies can mitigate the systemic risks

posed to an individual clearing

corporation and to the national

clearance and settlement system arising

from the default of a common member.

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 17A 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–

OCC–96–18) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Jonathan G. Katz,

Secretary.

[FR Doc. 97–7341 Filed 3–21–97; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

Office of Defense Trade Controls

[Public Notice 2521]

Statutory Debarment Under the

International Traffic in Arms

Regulations

AGENCY: Department of State.

ACTION: Notice.

SUMMARY: Notice is hereby given that

the Department of State has imposed

statutory debarment pursuant to Section

127.7(c) of the International Traffic in

Arms Regulations (22 CFR Parts 120–

130) (ITAR) for all export license

applications and other requests for

approval involving the Armaments

Corporation of South Africa, Ltd.

(Armscor); Kentron (Pty) Ltd. (Kentron);

the Denel Group (Pty) Ltd. (Denel); and,

any divisions, subsidiaries, associated

companies, affiliated persons, and

successor entities.

EFFECTIVE DATE: February 27, 1997.

FOR FURTHER INFORMATION CONTACT:

Philip S. Rhoads, Chief, Compliance

and Enforcement Branch, Office of

Defense Trade Controls, Department of

State (703–875–6644).

SUPPLEMENTARY INFORMATION: Section

38(g)(4) of the Arms Export Control Act

(22 U.S.C. 2778) (AECA) prohibits

licenses and other requests for approval

for the export of defense articles and the

furnishing of defense services to be

issued to a person, or any party to the

export, convicted of violating or

conspiring to violate the AECA. This

notice is provided in order to make the

public aware that the following entities

are prohibited from participating

directly or indirectly in the export from

the United States of defense articles,

related technical data, or defense

services for which a license or other

approval is required from the

Department of State under the AECA:

1. The Armaments Corporation of South

Africa, Ltd., (Armscor), Private Bag

X337, 0001 Pretoria, South Africa

2. The Denel Group (Pty) Ltd. (Denel),

P.O. Box 8322, 0046 Hennopsmeer,

South Africa

3. Kentron (Pty) Ltd., P.O. Box 7412,

0046 Hennopsmeer, South Africa.

Effective June 8, 1994, the Department

of State implemented a policy of denial

pursuant to Sections 38 and 42 of the

AECA and Sections 126.7(a) (1) and

(a)(2) of the ITAR for Armscor, Denel,

Kentron, and, any divisions,

subsidiaries, associated companies,

affiliated persons, and successor entities

in response to an indictment returned in

the U.S. District Court for the Eastern