Federal Register / Vol. 62, No. 68 / Wednesday, April 9, 1997 / Notices 17259

9 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries submitted by GSCC.

3 GSCC has filed a proposed rule change (File No.

SR–GSCC–97–01) that will add a definition of ‘‘offthe-market’’ transactions to its rules. Essentially, an

off-the-market transaction is a trade that has a price

that differs significantly from the prevailing market

price.

III. Discussion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of 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–

DCC–96–12) be, and hereby is, approved

through September 30, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8996 Filed 4–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38472; File No. SR–GSCC–

97–02]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of A

Proposed Rule Change Relating To

Comparison of Transactions Between

Insolvent And Solvent Members

April 2, 1997.

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

Securities Exchange Act of 1934

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

March 11, 1997, the Government

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

the proposed rule change 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

GSCC is proposing that it have the

authority to issue a comparison of a

transaction based solely on data

submitted by one netting member when

the counterparty to the trade becomes

insolvent.

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 prepared

summaries, set forth in sections A, B,

and C below, of the most significant

aspects of such statements.2

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

(i) Under the ordinary application of

its rules, a transaction is not eligible for

netting and guaranteed settlement by

GSCC until and unless it is compared.

Except for purchases made through the

U.S. government’s auction of Treasury

securities, GSCC’s rules provide that a

comparison can only be generated upon

the matching of data provided by two

members. GSCC believes that this poses

a potential problem from a risk

management perspective in a situation

where a netting member becomes

insolvent and does not submit trades it

or an executing firm for which it acts

entered into prior to its insolvency.

Absent the taking by GSCC of

extraordinary action to compare the

trade, such trades will not be netted and

guaranteed. In such situations, GSCC

believes it necessary and appropriate for

it to have the clear authority under its

rules to deem a transaction compared

based solely on the data submitted by

the insolvent member’s counterparty.

However, this needs to be done in a

manner that does not expose GSCC to

liability to a netting member for

fraudulent or collusive activity.

In order to accomplish these goals,

GSCC is proposing that it have the

authority to issue a comparison of a

transaction basedon data submitted by a

solvent netting member, which may be

an interdealer broker, under the

following circumstances: (1) The data

submitted by the solvent member

indicates that the counterparty to the

transaction is either an insolvent

member or an executing firm that uses

the insolvent member as its submitting

member; (2) the solvent member has

submitted in a timely manner all of its

activity with the insolvent member or

executing firm; (3) if GSCC had

announced to its members that it would

cease to act for the insolvent member as

of a specified date and time (and, thus,

not accept any further trades submitted

against such member), the transaction

was executed before such specified date

and time; (4) the transaction is not an

‘‘off-the-market’’ transaction as defined

in GSCC’s rules,3 and (5) GSCC has

made a determination that the

transaction was entered into by the

solvent member or an executing firm

that uses the solvent member as its

submitting member in good faith and

not primarily in order to take advantage

of the insolvent member’s financial

condition.

(ii) The proposed rule change is

consistent with the requirements of

Section 17A the Act and the rules and

regulations thereunder because they

will make clear GSCC’s authority to take

action to compare trades in an

insolvency situation without exposing

GSCC to liability to a netting member

for fraudulent or collusive activity.

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 the 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 submissions
17260 Federal Register / Vol. 62, No. 68 / Wednesday, April 9, 1997 / Notices

4 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 38411

(March 17, 1997) 62 FR 14174.

4There were a few minor differences in the two

Rules related to the fact that the NASD regulates the

over-the-counter market and that certain

requirements in the respective rules relate only to

exchange specialists or dealers.

5The definition of OTC margin bond in

Regulation T, Section 220.2 refers to several types

of debt securities with specifically defined

characteristics, all of which are sold or traded overthe-counter, not on an exchange.

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 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. Copies of such filing will also be

available for inspection and copying at

the principal office of the GSCC. All

submissions should refer to File No.

SR–GSCC–97–02 and should be

submitted by April 30, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.4

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8997 Filed 4–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38463; File No. SR–NASD–

97–14]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Relating to the

Amendment of its Margin Rules

April 1, 1997.

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 February

26, 1997, NASD Regulation, Inc.

(‘‘NASD Regulation’’) 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 NASD Regulation. 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

NASD Regulation proposes to amend

the margin rules, Rule 2520 of the

Conduct Rules, of the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’).

Specifically, NASD Regulation is

proposing to amend Rule 2520 (‘‘old

Rule 2520’’) to: (1) Renumber

paragraphs (a) and (b) as Rules 2521 and

2522, respectively; and renumber

paragraph (c) as Rule 2520 (referred to

herein as ‘‘Rule 2520’’) to facilitate the

use and comparison of the Rule in

relation to the New York Stock

Exchange’s (‘‘NYSE’’) margin rule; (2)

conform Rule 2520 to recent

amendments to Federal Reserve Board

Regulation T; and (3) add margin

requirements for various over-thecounter (‘‘OTC’’) options and interest

rate composite securities. The text of the

proposed rule change is attached to

NASD Regulation’s rule filing as Exhibit

2.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NASD Regulation 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.

NASD Regulation 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

As a result of the Federal Reserve

Board of Governor’s recent amendments

to Regulation T, which governs the

extension of credit by broker/dealers,

and the NYSE’s recent proposed

amendments to its margin rule, NYSE

Rule 431,3 NASD Regulation is

proposing to renumber old Rule 2520 to

permit its members and others to more

easily use and compare the provisions

of the rule to NYSE Rule 431. In

addition, NASD Regulation is proposing

amendments to Rule 2520, the NASD’s

margin rule, to conform the NASD’s

margin requirements to Regulation T

and NYSE Rule 431.

Numbering. At one time, former

Article III, Section 30 of the NASD

Rules of Fair Practice had substantially

the same margin requirements as NYSE

Rule 431.4 Several years ago Section 30

was amended to adopt the same

numbering scheme as NYSE Rule 431 in

order to facilitate the use and

comparison of the two rules. For

example, old Section 30.3(f)(2) relates to

margin requirements for puts, calls and

other options. The same provisions

appear in NYSE Rule 431(f)(2). Thus,

any member could find the provisions

in both the NASD and NYSE’s rules

under the same subsection number

‘‘(f)(2).’’ When the NASD Manual was

reorganized in 1996, new rule

numbering conventions were adopted

that resulted in the renumbering of

Article III, Section 30 as old Rule 2520.

Under the 1996 numbering scheme, old

Section 303.(f)(2), for example, became

old Rule 2520(c)(6)(B). As a result of

these numbering changes, comparison

between old Rule 2520 and NYSE Rule

431 became much more problematic.

NASD Regulation is proposing to

renumber old Rule 2520 by: (1)

Renumbering paragraphs (a) and (b) as

Rules 2521 and 2522, respectively; and

(2) renumbering paragraph (c) as Rule

2520. This renumbering will cause most

of the paragraphs and subparagraphs of

Rule 2520 to have the same numbering

as those of NYSE Rule 431, thereby

facilitating comparison and use of the

two rules. The renumbered Rule 2520 is

set forth in Exhibit 2 to the rule filing;

however, the former numbering of each

subsection is not shown.

Amendments to Conform Rule 2520 to

Regulation T. NASD Regulation is

proposing two technical changes to Rule

2520 (as renumbered) to correct

references to recently-repealed or

renumbered provisions of Regulation T:

1. Definition of OTC margin bond.

Rule 2520 (e)(2)(C), referring to the

definition of OTC margin bond as stated

in Regulation T, Section 220.2(t),5 is

proposed to be amended to eliminate

the ‘‘(t).’’ Section 220.2 has been

amended to eliminate subsection

numbering.

2. Cash equivalent. Rule

2520(f)(2)(H)(iv), referring to cash

equivalents as ‘‘those instruments

referred to in Section 220.8(a)(3)(ii) of

Regulation T,’’ is proposed to be

amended to change the reference to

Section 220.2 of Regulation T. When

Regulation T was amended, Section