2202 Federal Register / Vol. 62, No. 10 / Wednesday, January 15, 1997 / Notices

13As noted above, only a natural person who is

a registered representative, securities trader or

securities lending representative may assert

independent contractor status. Telephone

conversation between Claudia Crowley, Special

Counsel, Legal and Regulatory Policy, Amex, and

Yvonne Fraticelli, Attorney, OMS, Division,

Commission, on December 6, 1996. Persons with

supervisory functions may not assert independent

contractor status. In addition, Amex Rule 341B does

not permit the incorporation of registered persons.

14Registered persons submit to the authority of

the organizations to which they apply for

registration on the Uniform Application for

Securities Industry Registration or Transfer (‘‘Form

U–4’’). Accordingly, the independent contractors

discussed in the proposal become subject to the

Amex’s jurisdiction when they apply for

registration with the Exchange.

15See note 7, supra.

16Registered representatives, securities traders,

and securities lending representatives apply for

registration with the Exchange through the Form U–

4. To approve a registered representative, securities

trader, securities lending representative, or his or

her direct supervisor, the Amex reviews the Form

U–4, which contains a registered person’s

disciplinary history and information concerning

whether he or she is subject to a statutory

disqualification as defined in Section 3(a)(39) of the

Act. The Amex also reviews the Form U–4 to

determine whether another exchange has approved

or rejected the registered person’s application to

register with that exchange. Telephone conversation

between Robert Klein, Managing Director,

Membership Services, Amex, and Yvonne Fraticelli,

Attorney, OMS, Division, Commission, on

December 6, 1996.

17See Securities Exchange Act Release No. 25312

(February 4, 1988), 53 FR 4089 (February 11, 1988)

(order approving File No. SR–NYSE–86–22).

18As noted above, there currently is no

qualification examination for securities lending

representatives. The provision relating to securities

lending representatives will apply if a qualification

examination for securities lending representatives is

developed.

19 15 U.S.C. 78s(b)(2) (1988).

20 17 CFR 200.30–3(a)(12) (1996).

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

2 17 CFR 240.19b–4.

3See Letter from Karen A. Aluise, Assistant Vice

President, BSE, to Holly Smith, Associate Director,

natural person who is a (i) registered

representative, (ii) securities lending

representative, or (iii) securities trader if

such status will not preclude his or her

characterization and treatment as an

employee for purposes of the

Constitution and rules of the Amex.13

The independent contractor and the

member must agree that the

independent contractor is subject to the

member’s direct, detailed supervision,

control and discipline. In addition,

Amex Rule 341B requires a member to

assure the Exchange in writing that it

will supervise and control all activities

of the independent contractor effected

on the member’s behalf to the same

degree and extent that it regulates the

activities of all other registered persons

and in a manner consistent with Amex

Rule 320.

Amex Rule 341B further provides for

supervision of independent contractors

by requiring the member to submit to

the Amex a copy of a written agreement

between the member and the

independent contractor which provides

that: (1) The independent contractor

will engage in securities related

activities solely on the member’s behalf

(except as otherwise permitted by the

member); (2) the independent

contractor’s securities related activities

will be subject to the direct, detailed

supervision, control and discipline of

the member; and (3) the independent

contractor is not subject to a statutory

disqualification, as defined in Section

3(a)(39) of the Act. In addition, the

proposal requires a member to assure

the Exchange that, if required by Amex

Rule 330, the individual is covered by

the organization’s fidelity insurance and

has complied with applicable state Blue

Sky provisions. Amex Rule 341B also

requires an independent contractor to

subject himself to the Amex’s

jurisdiction.14

The Commission believes that these

requirements should help to ensure that

members employ qualified persons as

independent contractors and provide

adequate supervision of their securities

related activities, as required by the Act.

In addition, Amex Rule 341B will make

clear to independent contractors that

they are subject to the Amex’s

jurisdiction and, accordingly, are

subject to disciplinary proceedings by

the Amex for violations of the

Exchange’s rules. The Commission also

believes that the provision requiring an

independent contractor to be covered by

the member’s fidelity insurance, if

required under Amex Rule 330, will

help to protect the member against

losses resulting from dishonesty by an

independent contractor and is

consistent with the proposal’s general

requirement that independent

contractors be treated as employees for

purposes of the Exchange’s Constitution

and rules. The Commission notes that

the provisions of Amex Rule 341B are

similar to the NYSE’s requirements for

independent contractors.15

The Commission finds that the

proposed amendments to Amex Rules

340 and 341 are appropriate and

consistent with the Act. Specifically, the

Commission believes that the proposed

amendments to Amex Rule 341

requiring securities lending

representatives and securities traders, as

well as direct supervisors of registered

representatives, securities lending

representatives, or securities traders, to

register with and be qualified and

approved by the Amex will protect

investors and the public interest by

allowing the Amex to evaluate persons

who seek to perform these functions.16

The Commission believes, as it has

concluded previously, that it is

consistent with the Amex’s regulatory

responsibility to monitor the activities

of securities traders and securities

lending representatives.17 In addition,

the Commission continues to believe

that requiring securities lenders and

securities traders to register with the

Amex and assuring that they have

adequate qualifications ultimately will

protect investors and the public interest.

The Commission believes that the

proposal also protects investors by

applying Amex Rule 341 to an

independent contractor who performs

the duties normally performed by a

registered representative, securities

lending representative, or a securities

trader.

Finally, the Commission believes that

the examination requirements contained

in Amex Rule 340, Commentary .03,

will help to ensure that only a person

with an understanding of the applicable

rules acts as a securities trader,

securities lending representative, or as a

direct supervisor of a securities trader or

securities lending representative.18

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,19 that the

proposed rule change (SR–Amex–96–

34), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–902 Filed 1–14–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38138; File No. SR–BSE–

96–12]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Boston Stock Exchange, Inc.

Relating to Amendments to Chapter

11, Section 34A (‘‘Trading Halts Due to

Extraordinary Market Volatility’’)

January 8, 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 December

31, 1996, the Boston Stock Exchange,

Inc. (‘‘BSE’’ or ‘‘Exchange’’) 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 the selfregulatory organization. The Exchange

submitted to the Commission

Amendment No. 1 to its proposal on

January 7, 1997,3 The Commission is
Federal Register / Vol. 62, No. 10 / Wednesday, January 15, 1997 / Notices 2203

Division of Market Regulation, SEC, dated January

7, 1997 (‘‘Amendment No. 1’’). For a description of

Amendment No. 1, see infra note 5 and

accompanying text.

4 ‘‘Dow Jones Industrial Average’’ is a service

mark of Dow Jones & Company, Inc.

5 In Amendment No. 1, the BSE corrected a

typographical error which would have left the

existing second circuit breaker level at 400 points.

Amendment No. 1 clarifies the BSE’s proposal that,

if the DJIA declines by 550 or more points from its

previous trading day’s closing value, trading on the

Exchange will halt for one hour.

6 ‘‘Dow Jones Industrial Average’’ is a service

mark of Dow Jones and Company, Inc.

7See Securities Exchange Act Release No. 26357

(December 14, 1988), 53 FR 51182.

8See Securities Exchange Act Release No. 27370

(October 23, 1989), 54 FR 43881.

9See Securities Exchange Act Release No. 29868

(October 28, 1991), 56 FR 56535.

10See Securities Exchange Act Release No. 33120

(October 29, 1993), 58 FR 59503.

11See Securities Exchange Act Release No. 36414

(October 25, 1995), 60 FR 55630.

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

The Exchange proposes to amend its

Rule—Chapter 11, Section 34A (Trading

Halts Due to Extraordinary Market

Volatility ‘‘circuit breakers’’)—to

increase the trigger levels for its circuit

breakers. The existing circuit breakers

would be triggered if the Dow Jones

Industrial Average (‘‘DJIA’’) 4 declines

by 250 and 400 points, respectively,

from its previous day’s close. The

Exchange proposes establishing new

thresholds of 350 and 550 points

decline in the DJIA before the respective

one-half hour and one hour circuit

breakers are triggered.5

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization 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.

The self-regulatory organization has

prepared summaries of the most

significant aspects of such statements

set forth in Sections A, B, and C below.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to raise the circuit breaker

levels from 250 points to 350 points and

from 400 points to 550 points to account

for the overall rise in market values

since the rules were first adopted on a

pilot basis. These levels have not been

changed since the inception of the pilot

program in 1988. At that time, a 250

point drop in the Dow Jones Industrial

Average (‘‘DJIA’’) 6 represented

approximately a 12% decline, and a 400

point drop represented a decline of

about 19%. Today, these values

represent roughly a 3.8% and 6.2%

decline respectively. The proposed 350

and 550 points trigger levels would

respectively represent around a 5.4%

and 8.5% decline in the DJIA.

Chapter II, Section 34A currently

provide that if the DJIA falls 250 or

more points below its previous trading

day’s closing value, trading in all stocks

on the Exchange will halt for one-half

hour. It further provides that, if on the

same day the DJIA drops 400 or more

points from its previous trading day’s

close, trading on the Exchange will halt

for one hour. The Exchange seeks to

amend this section to provide that if the

DJIA falls 350 points or more below its

previous trading day’s closing value,

trading in all stocks on the Exchange

will halt for one-half hour; and, if on

that same day, the DJIA drops 550

points or more from its previous trading

day’s close, trading on the Exchange

will halt for one hour.

The circuit breaker rules are a

coordinated effort by the equities and

futures markets to halt trading in all

stocks, stock options, stock index

options, stock futures, and options on

stock futures when the DJIA reaches

certain established trigger values. As

such, these changes are intended to

mirror the rules of the New York Stock

Exchange (‘‘NYSE’’) that would become

applicable during periods of

extraordinary market conditions.

The Exchanges’s circuit breaker rules

were originally approved by the

Commission for a one-year pilot on

December 14, 1988,7 and were extended

for a two year pilot on October 23,

1989,8 October 28, 1991,9 October 29,

1993,10 and October 25, 1995.11 The

1995 pilot program is due to expire on

October 31, 1997, and the Exchange

seeks to adopt these amendments to

coincide with the current pilot program.

2. Statutory Basis

The statutory basis for the proposed

rule change is the requirement under

Section 6(b)(5) that an exchange have

rules that are designed to promote just

and equitable principles of trade, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest. The Exchange believes

that the proposed amendments to

Chapter II, Section 34A are consistent

with these objectives in that the

proposed trading halt requirement

during periods of significant market

stress can be expected to provide market

participants with a reasonable

opportunity to become aware of and

respond to significant price movements,

thereby facilitating in an orderly manner

the maintenance of an equilibrium

between buying and selling interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition that is not

necessary or appropriate in furtherance

of the purpose of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither solicited

nor received any comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing of

Commission Action

Within 35 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

90 days of such date if it finds such

longer period to be appropriate and

publishes it reasons for so finding or (ii)

as to which the self-regulatory

organization consents, the Commission

will:

(A) By order approve the 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

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 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
2204 Federal Register / Vol. 62, No. 10 / Wednesday, January 15, 1997 / Notices

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 37131

(Apr. 19, 1996), 61 FR 18452.

4See letter from James Frith, Jr., President,

Chicago Partnership Board, Inc. (‘‘CPB’’), to

Jonathan G. Katz, Secretary, SEC, dated May 14,

1996 (‘‘CPB Letter No. 1’’); letter from James F.

Fotenos, Attorney, Fotenos & Suttle, P.C., to

Jonathan G. Katz, Secretary, SEC, dated May 22,

1996 (‘‘Fotenos & Suttle Letter’’); letter from James

Frith, Jr., President, CPB, to Jonathan G. Katz,

Secretary, SEC, dated June 10, 1996 (‘‘CPB Letter

No. 2) (concentrating primarily on the Qualified

Matching Service Safe Harbor); letter from James

Frith, Jr., President, CPB, to Jonathan G. Katz,

Secretary, SEC, also dated June 10, 1996 (‘‘CPB

Letter No. 3) (focusing on the NASD’s standardized

Distribution Allocation Agreement form); letter

from George E. Hamilton, President, NAPEX, to

Jonathan G. Katz, Secretary, SEC, dated June 10,

1996 (‘‘NAPEX Letter’’); letter from Gregory S. Paul,

President, American Partnership Services (‘‘APS’’),

to Jonathan G. Katz, Secretary, SEC, dated June 10,

1996 (‘‘APS Letter’’); letter from Laura J. Lacey,

President, Nationwide Partnership Marketplace Inc.

(‘‘NPM’’), to Jonathan G. Katz, Secretary, SEC, dated

June 26, 1996 (‘‘NPM Letter’’).

5See letter from Joan Conley, Corporate Secretary,

NASD, to Katherine A. England, Assistant Director,

Division of Market Regulation, SEC, dated October

16, 1996 (‘‘NASD Response’’).

6See letter from Joan Conley, Corporate Secretary,

NASD, to Katherine A. England, Assistant Director,

Division of Market Regulation, SEC, dated

November 26, 1996 (‘‘Amendment No. 1’’).

Amendment No. 1 explained when a DPP trade

needs to be reported, made technical corrections to

the proposal so that it now conforms with the

NASD Manual’s new format, clarified the

implementation schedule for these new rules, and

extended the time period for Commission action.

7The NASD defines a DPP as a program that

provides for flow-through tax consequences

regardless of the structure of the legal entity or

vehicle for distribution including, but not limited

to, oil and gas programs, real estate programs,

agriculture programs, condominium securities,

Subchapter S corporate offerings and all other

programs similar in nature, regardless of the

industry represented by the program, or any

combination thereof. Excluded from the definition

are real estate investment trusts, tax qualified

pension and profit sharing plans pursuant to

Sections 401 and 403(a) of the Internal Revenue

Code and individual retirement plans under Section

408 of that code, tax sheltered annuities pursuant

to Section 403(b) of the Internal Revenue Code, and

any company including separate accounts,

registered pursuant to the Investment Company Act

of 1940. Proposed NASD Rule 6910(a); NASD Rule

2810(a)(4).

8 Dennis C. Hensley, A Study of the NASD

‘‘Electronic Bulletin Board’’ for Limited

Partnerships in American Bar Association, Section

of Corporation, Banking and Business Law,

Committee on Partnerships and Unincorporated

Business Organizations, Publicly Traded Limited

Partnerships IV–25 (Aug. 2, 1983). Nearly 20% of

the NASD membership responded. Id. of those

members, 68% favored the development of such a

system. Id. Among those members who dealt in

DPPs, the percentage of those in favor of the idea

rose to be over 80%. Id.

9NASD Notice to Members 82–13.

10Although most of the concerns raised by the

commenters were specific to that proposal, some of

the comments focused on issues that are pertinent

to the current rule proposal (e.g., potential tax law

implications, appropriate level of general partner

involvement, and costs). See File No. SR–NASD–

83–1 (comment letters attached as Exhibit 2 to the

Form 19b–4).

11File No. SR–NASD–83–1.

12Securities Exchange Act Release No. 19675A

(May, 9, 1983), 48 FR 21693 (publishing notice of

File No. SR–NASD–83–1).

13Letter from Frank J. Wilson, then-Executive

Vice President, Legal and Compliance, NASD, to

Stuart J. Kaswell, then-Branch Chief, Over-theCounter Regulation, SEC, dated August 20, 1985.

14See NASD Notice to Members 91–69 (‘‘NTM–

91–69’’) (publishing the Committee’s findings and

noting that the primary concern of the study was

to determine how the market currently operates,

whether it functions efficiently, and whether NASD

members are in compliance with the applicable

securities laws and rules).

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–BSE–96–12

and the submitted by February 5, 1997.

For the Commission, by the Divisions of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–901 Filed 1–14–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38132; File No. SR–NASD–

96–08]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Granting Approval

to Proposed Rule Change and Notice

of Filing of, and Order Granting

Accelerated Approval to, Amendment

No. 1 to the Proposed Rule Change

Relating to Quotation and Reporting

Requirements of Direct Participation

Programs

January 7, 1997.

I. Introduction

On March 12, 1996, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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

permit the quotation of Direct

Participation Programs (‘‘DPPs’’) on the

OTC Bulletin Board Service (‘‘OTCBB’’

or ‘‘OTC Bulletin Board’’) and require

all transactions in DPPs to be reported

through the Automated Confirmation

Transaction Service (‘‘ACT’’).

The proposed rule change was

published for comment in the Federal

Register on April 25, 1996.3 The

Commission received seven comment

letters concerning this proposal.4 The

NASD initially responded to these

comments in a letter dated October 16,

1996.5 On November 26, the NASD

submitted Amendment No. 1 to the

proposed rule change.6 After careful

consideration of all of the comments,

the Commission has decided to approve

the proposal, including Amendment No.

1 on an accelerated basis.

II. Background

In response to findings by the NASD’s

Direct Participation Programs

Committee (‘‘DPP Committee’’ or

‘‘Committee’’) and recently issued

Internal Revenue Service (‘‘IRS’’)

regulations, the NASD submitted a

proposed rule change to permit the

quotation of DPPs 7 on the OTCBB by

NASD members and, subject to a few

exceptions, require that all transactions

in DPPs be reported through ACT.

A. NASD Study of DPPs

The NASD has contemplated the

implementation of a system that

facilitates the dissemination of

information concerning DPPs for quite

some time. In fact, the NASD began

examining this issue as early as 1980

when it solicited its members’ opinions

on this topic in the form of a voluntary

questionnaire mailed to all of its

members.8 The positive reaction to the

questionnaire prompted the NASD to

design the ‘‘Electronic Bulletin Board’’

system, draft the necessary rules, and

solicit comments from its members

regarding these rules and ‘‘the overall

concept of such a system.’’ 9 The NASD

received eighteen comment letters, most

of which supported the concept.10 After

considering these comments, the NASD

filed a proposed rule change with the

Commission on January 20, 1983.11

After notice of this proposed rule

change was published by the

Commission, additional comment letters

were received.12 Subsequently, the

NASD decided to further analyze the

issues raised in the comment letters and

withdrew the proposal on August 21,

1985.13

The NASD revisited this issue in

1990. At the direction of the DPP

Committee, NASD staff undertook a

study of the nature and operation of the

secondary market for limited

partnership securities.14 This study

indicated that approximately $90 billion

was invested in public DPPs in the

1970s and 1980s by more than ten

million investors. The programs were

organized to invest in a variety of