16634 Federal Register / Vol. 62, No. 66 / Monday, April 7, 1997 / Notices

9See letter from Jeffrey L. Steel, Special Counsel,

Division of Market Regulation, SEC to Arne R.

Rode, Associate General Counsel, Chicago Board

Options Exchange, dated January 2, 1980.

10 15 U.S.C. 78s(b)(2).

11 15 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by MBSCC.

appropriate in furtherance of the

purposes of the Act.

Section 6(b)(5) requires the rules of an

exchange to be designed to remove

impediments and to perfect the

mechanism of a free and open market.

This proposal seeks to remove those

barriers to exchange membership

imposed by both the cost of an equity

interest on the Exchange and the current

availability of seats for purchase. The

proposal further removes impediments

to the mechanism of a free and open

market by providing members with

more alternatives in how they will

structure their membership affiliations.

Further, Section 6(b)(8) states that the

rules of an exchange may not impose

any burden on competition not

necessary or appropriate in furtherance

of the purposes of the Act. The CHX

proposal would remove a burden on

competition in that broker-dealers who

are unable to purchase a seat on the

CHX may enter into a leasing agreement

and thus enhance their ability to

compete with other CHX broker-dealers.

The Commission also believes that the

proposed rule change is consistent with

previous no action positions taken by

the Commission construing the

requirements of Section 6(c)(1) (A) and

(B) of the Act and the definition of

‘‘member’’ under Section 3(a)(3)(A) of

the Act.9 We have interpreted those

provisions to allow an exchange to

permit a natural person to own an

exchange membership, under

circumstances like those required under

the proposed CHX rule change, where

that person has either inherited the

membership or purchased it solely for

the purpose of leasing that membership,

where that person is not an associated

person of the lessee, and where that

person is not and has not been engaged

in securities activities for which brokerdealer registration is required.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (SR–CHX–96–30)

is approved.

For the Commission, by the Division of

Market Regulation, Pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8793 Filed 4–4–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38461; File No. SR–

MBSCC–97–03]

Self-Regulatory Organizations; MBS

Clearing Corporation; Notice of Filing

of a Proposed Rule Change Relating to

the Establishment of the Comparison

Only System

April 1, 1997.

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

Securities Exchange Act of 1934

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

February 18, 1997, the MBS Clearing

Corporation (‘‘MBSCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–MBSCC–97–03) as

described in Items I, II, and III below,

which items have been prepared

primarily by MBSCC. 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

The proposed rule change modifies

MBSCC’s rules to establish the

Comparison Only System (‘‘COS’’) and

to create a new category of participant,

a ‘‘limited purpose participant’’, eligible

to use this system.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

MBSCC 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. MBSCC 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

The purpose of the proposed rule

change is to modify MBSCC’s rules to

establish the COS and to create a new

category of participant, a limited

purpose participant, eligible to use this

system.

As a result of interest expressed by

the Federal National Mortgage

Association and other organizations, the

proposed COS, which will be a limited

system for principals to compare trade

data, was developed by MBSCC. The

mortgage-backed securities marketplace

has unique characteristics that affect

how trades are compared and how

industry participants communicate with

each other. For example, the average

time between a mortgage-backed

securities trade and settlement date is

much longer than that in the

government bond and equity markets,

forty-five to ninety days compared to

one and three days, respectively. The

objective of MBSCC’s proposed system

is to improve market communications

for the comparison of trade data by

providing qualified entities with an

automated alternative to manually

initiating verbal confirmations and then

exchanging hardcopy trade

confirmations and/or contract letters.

Under current MBSCC rules, MBSCC

processes securities through the

Comparison and Clearing System

(‘‘CCS’’) for qualified participants. CCS

provides a centralized process to

compare and confirm trades

electronically, risk management services

to continually assess the current value

of each underlying trade and to ensure

that all participants meet their margin

requirements, and a netting facility that

provides a multilateral netting service

which creates netted receive and deliver

obligations.

The proposed COS is a more limited

system than the CCS in that it will only

provide a centralized process to

compare and confirm trades

electronically. COS will be a system

restricted to those that trade in a

principal capacity where specified trade

data must exactly and promptly

compare between like contra-sides.

Because the COS is limited to

comparison, participants will not be

required to put up margin or meet

specific net worth financial

requirements.

COS will require a limited purpose

participant to submit financial

information to demonstrate its financial

ability to meet its cash balance debit

obligations to MBSCC, which are

limited to the fees for using the COS and

any late fees imposed. It is expected that

these fees will be significantly lower

than those imposed on participants in

the CCS; therefore, no basic deposit fee

will be required of COS participants.

MBSCC will bill the limited purpose

participant on a monthly basis. The bill

will be payable to MBSCC via the

federal funds wire.

Each limited purpose participant will

be required to maintain specified data

processing and communications
Federal Register / Vol. 62, No. 66 / Monday, April 7, 1997 / Notices 16635

3Specifically, the trade data will be buyer versus

seller, buyer account, seller account, class code or

CUSIP/pool number, price, trade type, trade date,

settlement date, and par value.

4 15 U.S.C. 78q–1(b)(3)(F). 5 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2Securities Exchange Act Release No. 30766

(June 1, 1992), 57 FR 24281.

3Securities Exchange Act Release No. 34956

(November 9, 1994), 59 FR 59808. The amendments

would have narrowed the universe of securities

eligible for quotation on the Service. Specifically,

the NASD proposed to narrow the subset of foreign

equity securities, including those represented by

American Depositary Receipts, that would have

been OTCBB-eligible to those securities registered

with the Commission pursuant to Section 12 of the

Act. This requirement would have become effective

on July 5, 1994. Any foreign equity security quoted

in the OTCBB as of the close of business on July

1, 1994 that was not registered pursuant to Section

12 of the Act could remain OTCBB-eligible

provided that the issuer maintained an exemption

from Section 12 registration pursuant to Rule 12g3–

2(b) under the Act.

4The NASD submitted a technical amendment on

March 27, 1997, stating that the change to

Paragraph 6540(b)(1)(c) would not be implemented

until April 1, 1998. See Note 7 infra.

equipment to be able to process

transactions through the facilities of

MBSCC and be able to receive reports,

notices, and other communications

relating to transactions prepared by

MBSCC. Any current MBSCC

participant trading a COS eligible

security in a principal capacity will be

able to participate in COS if the

counterparty is a limited purpose

participant or the security traded is not

eligible in CCS.

Under COS, a trade will be negotiated

by the parties. Trade terms will then be

submitted electronically by the parties

to MBSCC for comparison. The

submitted trade terms will then be

compared in MBSCC’s AM or PM

processing pass. For a trade to compare

in COS, certain trade data will have to

match exactly.3 If a trade compares,

MBSCC will issue a purchase and sale

report go each side of the trade. The

purchase and sale report will serve as

the sole binding confirmation of the

trade. The trade will then be settled

outside of the MBSCC system. Trade

terms that do not compare will be

reported as unmatched on a transaction

summary report sent to the parties.

Individually or jointly, the parties must

then resolve or delete the unmatched

trade by taking one or more of the

following on-line actions: deletes, DK’s

(don’t know), affirms, and new input.

Unmatched trades will remain on a

transaction summary report until

resolved. MBSCC’s current rule on CCS

unmatched items will similarly be

applied to COS unmatched items.

Specifically, until the unmatched item

is resolved or deleted, the participant(s)

will be subject to the imposition of late

fees by MBSCC. For purposes of

computing the late fees, each missed

processing pass after a two pass grace

period will result in a separate

assessment against the participant(s). If

the unmatched trade is resolved,

MBSCC will compare and confirm it

with a purchase and sale report as

described above.

MBSCC believes that the proposed

rule change is consistent with the

requirements of Section 17A(3)(F) of the

Act 4 and the rules and regulations

thereunder because it will facilitate the

prompt and accurate clearance and

settlement of securities transactions.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

MBSCC does not believe that the

proposed rule change will have an

impact on 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

No written comments relating to the

proposed rule change have been

solicited or received. MBSCC will notify

the Commission of any written

comments received by MBSCC.

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 MBSCC 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, 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 MBSCC.

All submissions should refer to the

file number SR–MBSCC–97–03 and

should be submitted by April 28, 1997.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8791 Filed 4–4–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38456; File No. SR–NASD–

92–7]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Approving and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

Nos. 3 and 4 to Proposed Rule Change

Relating to the OTC Bulletin Board

Service

March 31, 1997.

I. Introduction

On March 12, 1992, the National

Association of Securities dealers, Inc.

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

Exchange Commission (‘‘Commission’’),

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

Securities Exchange Act of 1934

(‘‘Act’’), 1 a proposal to obtain

permanent approval of the OTC Bulletin

Board Service (‘‘OTCBB Service,’’

‘‘OTCBB’’ or ‘‘Service’’). The

Commission noticed and solicited

comments regarding the proposal in the

Federal Register.2 On October 6, 1994

and on November 8, 1994, the NASD

filed Amendment Nos. 1 and 2 to the

proposal. The Commission noticed and

solicited comment regarding

Amendments 1 and 2.3 On March 14,

1997, the NASD filed Amendment No.

3 to the proposed rule change.

Amendment No. 3 supersedes

Amendment Nos. 1 and 2. On March 21,

1997, the NASD filed Amendment No.

4 to the proposal.4 This Order approves

the proposed rule change as amended

by Amendment Nos. 3 and 4 on an

accelerated basis.

II. Background

On June 1, 1990, the NASD, through

Nasdaq, initiated operation of the OTC