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
Federal Register / Vol. 62, No. 68 / Wednesday, April 9, 1997 / Notices 17261

6See supra note 3.

7The text of the rule filing indicates that the

initial and/or maintenance margin for U.S.

Government or U.S. Government Agency debt

securities other than those exempted by Rule 3a12–

7 under the Act is 5%.

8 Id.

9There is currently no margin requirement for

interest rate contracts in the Rule. The NYSE added

the requirement to Rule 431 in order to be

consistent with other exchanges.

10See supra note 3.

11 15 U.S.C. 78o–3. 12 17 CFR 200.30–3(a)(12).

220.8(a)(3)(ii) was amended to eliminate

conditions relating to cash equivalents

and Section 220.2 was amended by

adding a definition of cash equivalents.

Amendments to Conform Rule 2520 to

Recent Amendments to NYSE Rule 431.

Option Products and Interest Rate

Composites. The NYSE recently

proposed amending its Rule 431 to

establish new margin requirements for

various OTC option products and

interest rate campsite securities.6 Rule

2520, paragraphs (f)(2)(D) and (F),

which currently requires customer

margin for short OTC stock and index

options of 100% of the option premium

plus 45% of the current market value of

the underlying security, are proposed to

be amended by adding specific margin

requirements for OTC options equal to

a specific percentage of the current

value of the underlying component to

conform these paragraphs with the

corresponding paragraphs of NYSE Rule

431. In addition, a new definition of the

term ‘‘underlying component’’ is being

added as paragraph 2522(a)(66) to

replace more complex references to

‘‘underlying security or the product of

the current index group value of the

underlying index stock group.’’

The principal amendments to Rule

2520, paragraphs (f)(2)(D) and (F)

include new initial and maintenance

margin requirements (including

provisions for reduced margin

requirements under certain

circumstances) for:

—OTC options on stock and convertible

corporate debt (30%), industry index

stock groups (30%) and broad index

stock groups (20%).

—OTC options on 30-year U.S. Treasury

bonds and non-mortgage backed U.S.

Government agency debt securities

that qualify for exemption pursuant to

SEC Rule 3a12–7 (3%).7

—OTC options on all other U.S.

Government securities including

agency debt (5%),8 and marginable

corporate debt securities (15%). OTC

options on all other securities

including CMO’s remain subject to

the current 45% general OTC option

margin requirement.

—Interest rate contracts (10%) to be

consistent with other exchanges.9

In addition, the proposed

amendments recognize certain spread

and straddle positions for margin

purposes between listed and OTC

options when a customer’s long and

short positions are controlled by the

same broker-dealer.

Specialist and Market Maker Options

Margin. The amendments to Regulation

T that are scheduled to take effect on

July 1, 1997, eliminate margin

requirements for options transactions

for customers and market markers/

specialists and shift responsibility for

setting such margin requirements to the

self-regulatory organizations. The NYSE

has proposed adding new provisions

establishing such margin requirements

to Rule 431,10 and NASD Regulation is

proposing to make substantially

identical changes to subparagraph

(f)(2)(J) of Rule 2520.

2. Statutory Basis

The basis under the Act for this

proposed rule change is the requirement

under Section 15A(b)(6) 11 that an

association have rules that are designed

to prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade, to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, to remove impediments to

protect and perfect the mechanism of

free and open market and a national

market system, and in general, to protect

investors and the public interest.

NASD Regulation believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) of

the Act in that conforming the margin

rules of the self-regulatory organizations

will prevent inconsistent requirements

from being imposed upon broker/

dealers who are members of more than

one self-regulatory organization.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation does not believe

that the proposed rule change will result

in any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act, as amended.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

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 its reasons for so finding or

(ii) as to which the self-regulatory

organization 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

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

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 NASD

Regulation. All submissions should

refer to the file number SR–NASD–97–

14 and should be submitted by April 30,

1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8998 Filed 4–8–97; 8:45 am]

BILLING CODE 8010–01–M