3010 Federal Register / Vol. 63, No. 12 / Tuesday, January 20, 1998 / Notices

7 15 U.S.C. 78f(b).

8 15 U.S.C. 78f(b)(5).

9 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

10For example, with a required minimum size of

250 contracts to open a transaction in a new series,

FLEX equity options are designed to appeal to

institutional investors. See Exchange Act Release

No. 36841 (February 14, 1996), 61 FR 6666, 6669

(February 21, 1996); see also Exchange Act Release

No. 37336 (June 19, 1996), 61 FR 33558, 33560,

(June 27, 1996).

11Position and exercise limits for FLEX equity

options have recently been eliminated. See

Exchange Act Release No. 39032 (Sept. 9, 1997), 62

FR 48683 (Sept. 16, 1997). In eliminating these

limits, the Exchange adopted several important

safeguards to monitor large positions in order to

identify instances of potential risk and to assess

additional margin and/or capital charges, if

necessary. These safeguards also continue to apply

to large positions in FLEX equity options regardless

of the term of the option.

12As to any future proposal to permit options

instruments with terms longer than five years, the

Commission would need to re-evaluate several

issues including margin requirements, disclosure,

sales practices, and other legal and regulatory

issues.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3On November 13, 1997, the Board filed the same

proposal under Section 19(b)(3)(A) of the Act,

which renders the proposal effective upon receipt

of filing by the Commission. See Securities

Exchange Act Release No. 39391 (December 3,

1997), 62 FR 65114 (December 10, 1997). The

Commission received four comment letters on the

filing. See infra note 12. In order to provide

additional time to fully air the concerns of

commenters, the Board agreed to withdraw this

filing and resubmit it, pursuant to Section 19(b)(2).

See letter from Diane G. Klinke, General Counsel,

Municipal Securities Rulemaking Board, to

Katherine A. England, Assistant Director, Division

of Market Regulation, dated January 9, 1998.

Official determined that sufficient

liquidity existed among Equity FLEX

Qualified Market Makers. The CBOE

believes that by allowing for the

extension of the maturity of FLEX

equity options to five years in situations

where there is demand for a longer term

expiration and where there is sufficient

liquidity among Exchange qualified

market-makers to support the request,

the proposed rule change will better

serve the needs of CBOE’s customers

and the Exchange members who make a

market for such customers.

III. Discussion

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, with the

requirements of Section 6(b) of the Act.7

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) 8 requirement that the

rules of an exchange be 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 to protect investors and the

public interest.9

The Commission believes it is

appropriate to extend the maximum

permissible maturity term of FLEX

equity options to five years for several

reasons. First, FLEX equity options with

a maturity term of up to five years

should benefit investors by allowing

them to hedge positions on a longer

term basis through investment in one

options series, rather than having to roll

shorter term expirations into new series

to remain hedged on a longer basis. In

this regard, the Commission notes that

the FLEX equity options market is

characterized by large, sophisticated

institutional investors (or extremely

high net worth individuals) who have

the experience, ability and, in many

cases, need to engage in negotiated,

customized transactions.10 The longerterm FLEX equity options will allow

investors to customize their portfolios

further over an extended period of time.

Second, the extension of the permissible

maturity term for FLEX equity options

to five years potentially could expand

the depth and liquidity of the FLEX

equity market without significantly

increasing concerns regarding

intermarket manipulations or

disruptions of the options or the

underlying securities.11 Third, under

the rule, FLEX equity options with

maturity terms between three and five

years could only be issued if a FLEX

Post Official determines that there is

sufficient liquidity among Equity FLEX

Qualified Market Makers. This will help

to ensure that there is not a proliferation

of longer term FLEX equity options

series where no interest in trading such

options exist. Finally, as with all

exhange-traded options, the Options

Clearing Corporation will act as the

counter-party guarantor, thereby

ensuring that obligations will be met

over the long-term.12

For the foregoing reasons, the

Commission finds that CBOE’s proposal

to extend the permissible maturity term

of certain FLEX equity options, as

described above, is consistent with the

requirements of the Act and the rules

and regulations thereunder.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CBOE–97–

57) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–1180 Filed 1–16–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39541; File No. SR–MSRB–

98–1]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board Relating to Interpretation of

Rule G–38 on Consultants

January 12, 1998.

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 January 9,

1998,3 the Municipal Securities

Rulemaking Board (‘‘Board’’ or

‘‘MSRB’’) filed with the Securities and

Exchange Commission (‘‘Commission’’

or ‘‘SEC’’) the proposed rule change,

(File No. SR–MSRB–98–1), as described

in Items I, II, and III below, which Items

have been prepared by the Board. 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 Board is filing herewith a notice

of interpretation concerning Rule G–38

on consultants (hereafter referred to as

‘‘the proposed rule change’’). The

proposed rule change is as follows:

Rule G–38 Questions and Answer Bank

Affiliates and Definition of Payment

Q: A bank and its employees communicate

with an issuer on behalf of an affiliated

dealer to obtain municipal securities

business for that dealer. In return, the bank

and its employees receive certain ‘‘credits’’

from the dealer. These credits, which do not

involve any direct or indirect cash payments

from the dealer to the bank or its employees,

are used for internal purposes to identify the

source of business referrals. Are the credits

considered a ‘‘payment’’ under rule G–38

thereby requiring the dealer to designate the

bank or its employees as consultant and

comply with the requirements of rule G–38?

A: Rule G–38 defines a consultant as any

person used by a dealer to obtain or retain
Federal Register / Vol. 63, No. 12 / Tuesday, January 20, 1998 / Notices 3011

4Municipal finance professionals and any person

whose sole basis of compensation is the actual

provision of legal, accounting or engineering

advice, services or assistance are excepted from the

definition of consultant.

5The Securities Exchange Act of 1934 (the ‘‘Act’’)

defines the term ‘‘person’’ as a ‘‘natural person,

company, government, or political subdivision,

agency, or instrumentality of a government.’’ Board

rule D–1 provides that unless the context otherwise

specifically requires, the terms used in Board rules

shall have the same meanings as set forth in the Act.

6Securities Exchange Act Release No. 36727 (Jan.

17, 1996); 61 FR 1955 (Jan. 24, 1996). The rule

became effective on March 18, 1996. See also MSRB

Manual, General Rules, Rule G–38 (CCH) ¶3686.

7 MSRB Manual, General Rules, Rule G–37 (CCH)

¶3681.

8 MSRB Manual, General Rules, Rule G–20 (CCH)

¶3596.

9 MSRB Manual, General Rules, Rule G–17 (CCH)

¶3581.

10See Securities Exchange Act Release No. 36950

(March 11, 1996); 61 FR 10828 (March 15, 1996)

and Securities Exchange Act Release No. 37997

(Nov. 29, 1996); 61 FR 64781 (Dec. 6, 1996). See

also MSRB Reports Vol. 16, No. 2 (June 1996) at 3–

5; and Vol. 17, No. 1 (Jan. 1997) at 15.

11Section 15B(b)(2)(C) states in pertinent part that

the rules of the Board ‘‘shall be 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 municipal securities, to remove

impediments to and perfect the mechanism of a free

and open market in municipal securities, and, in

general, to protect investors and the public

interest.’’

12See letter from Sarah A. Miller, Senior

Government Relations Counsel, Trust and

Securities, American Bankers Association, to

Jonathan G. Katz, Secretary, SEC, dated December

30, 1997; letter from Alan R. Leach, Senior Vice

President and Manager, Dealer Bank Department,

Deposit Guaranty National Bank, to Jonathan G.

Katz, Secretary, SEC, dated January 5, 1998; letter

from Robert J. Nagy, Senior Counsel, NationsBank,

to Jonathan G. Katz, Secretary, SEC, dated

December 31, 1997; and letter from Victor M.

DiBattista, Chief Regional Counsel, PNC Bank, N.A.,

to Jonathan G. Katz, Secretary, SEC, dated January

2, 1998.

13See supra note 3.

municipal securities business through direct

or indirect communication by such person

with an issuer on behalf of the dealer where

the communication is undertaken by the

person in exchange for, or with the

understanding of receiving, payment from

the dealer or any other person.4 The term

payment, as used in rule G–38, means any

gift, subscription, loan, advance, or deposit of

money or anything of value. The absence of

an immediate transfer of funds or anything of

value to an affiliate or individual employed

by the affiliate would not exclude the credits

from the definition of payment if such credits

eventually (e.g., at the end of the fiscal year)

result in compensation to the affiliate or

individual employed by the affiliate for

referring municipal securities business to the

dealer. In this regard, the compensation may

be in the form of cash (e.g., a bonus) or noncash. In either case, if the dealer or any other

person 5 eventually gives anything of value

(i.e., makes a ‘‘payment’’) to the affiliate or

individual based, even in part, on the

referral, then the affiliate or individual is a

consultant for purposes of rule G–38 and the

dealer must comply with the various

requirements of the rule. For additional

guidance in this area, you may wish to

review Q&A numbers 6 and 7 (dated

February 28, 1996) in the MSRB Manual

following Rule G–38, as well as Q&A number

4 (dated December 7, 1994) in the MSRB

Manual following Rule G–37.

* * * * *

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

Board 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 texts of these

statements may be examined at the

places specified in Item IV below. The

Board 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

On January 17, 1996, the Commission

approved Board Rule G–38 on

consultants.6 The Board adopted the

rule because it was concerned about

dealers’ increasing use of consultants to

obtain or retain municipal securities

business, notwithstanding the

requirements of Rule G–37 7 on political

contributions and prohibitions on

municipal securities business, Rule G–

20 8 on gifts and gratuities, and Rule G–

17 9 on fair dealing. Rule G–38 requires

dealers to disclose information about

their consultant arrangements to issuers

and the public. Recently, the Board has

received inquiries from market

participants concerning the definition of

payment, as used in Rule G–38, and

whether bank affiliates and their

employees may, under certain

circumstances, be deemed consultants

for purposes of the rule. In order to

assist the municipal securities industry

and, in particular, brokers, dealers and

municipal securities dealers in

understanding and complying with Rule

G–38, the Board has determined to

publish this third notice of

interpretation which sets forth, in

question-and-answer format, general

guidance on Rule G–38.10 The Board

will continue to monitor the application

of Rule G–38, and, from time to time,

will publish additional notices of

interpretations, as necessary.

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act.11

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in furtherance of the

purposes of the Act, because it would

apply equally to all brokers, dealers and

municipal securities dealers.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Commission received four

comment letters from banking industry

participants, opposing this

interpretation of Rule G–38.12 As a

result of these comments, the Board

resubmitted the proposed rule change

pursuant to Section 19(b)(2).13

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 the filing will also be

available for inspection and copying at
3012 Federal Register / Vol. 63, No. 12 / Tuesday, January 20, 1998 / Notices

14 17 CFR 200.30–3(a)(12).

the Board’s principal offices. All

submissions should refer to File No.

SR–MSRB–98–1 and should be

submitted by February 10, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret J. McFarland,

Deputy Secretary.

[FR Doc. 98–1181 Filed 1–16–98; 8:45 am]

BILLING CODE 8010–01–M

SMALL BUSINESS ADMINISTRATION

[License No. 02/72–0578]

Hudson Venture Partners, L.P.; Notice

of Issuance of a Small Business

Investment Company License

On June 4, 1997, an application was

filed by Hudson Venture Partners, L.P.,

at 660 Madison Avenue, 14th Floor,

New York, New York 10022, with the

Small Business Administration (SBA)

pursuant to Section 107.300 of the

Regulations governing small business

investment companies (13 CFR 107.300

(1996)) for a license to operate as a small

business investment company.

Notice is hereby given that, pursuant

to Section 301(c) of the Small Business

Investment Act of 1958, as amended,

after having considered the application

and all other pertinent information, SBA

issued License No. 02/72–0578 on

December 31, 1997, to Hudson Venture

Partners, L.P. to operate as a small

business investment company.

(Catalog of Federal Domestic Assistance

Program No. 59.011, Small Business

Investment Companies)

Dated: January 9, 1998.

Don A. Christensen,

Associate Administrator for Investment.

[FR Doc. 98–1178 Filed 1–16–98; 8:45 am]

BILLING CODE 8025–01–P

SOCIAL SECURITY ADMINISTRATION

Privacy Act of 1974, as Amended;

Computer Matching Program SSA/

Office of Personnel Management

(OPM)—SSA Consolidated Match

Numbers 1005, 1019, 1020, 1021

AGENCY: Social Security Administration.

ACTION: Notice of Computer Matching

Program.

SUMMARY: In accordance with the

provisions of the Privacy Act, as

amended, this notice announces a

computer matching program that SSA

plans to conduct with OPM.

DATES: SSA will file a report of the

subject matching program with the

Committee on Governmental Affairs of

the Senate, the Committee on

Government Reform and Oversight of

the House of Representatives and the

Office of Information and Regulatory

Affairs, Office of Management and

Budget (OMB). The matching program

will be effective as indicated below.

ADDRESSES: Interested parties may

comment on this notice by either telefax

to (410) 966–2935 or writing to the

Associate Commissioner for Program

Support, 4400 West High Rise Building,

6401 Security Boulevard, Baltimore, MD

21235. All comments received will be

available for public inspection at this

address.

FOR FURTHER INFORMATION CONTACT: The

Associate Commissioner for Program

Support at the address shown above.

SUPPLEMENTARY INFORMATION:

A. General

The Computer Matching and Privacy

Protection Act of 1988 (Public Law

(Pub. L.) 100–503), amended the Privacy

Act (5 U.S.C. 552a) by establishing the

conditions under which computer

matching involving the Federal

government could be performed and

adding certain protections for

individuals applying for and receiving

Federal benefits. Section 7201 of the

Omnibus Budget Reconciliation Act of

1990 (Pub. L. 101–508) further amended

the Privacy Act regarding protections for

such individuals.

The Privacy Act, as amended,

regulates the use of computer matching

by Federal agencies when records in a

system of records are matched with

other Federal, State, or local government

records. Among other things, it requires

Federal agencies involved in computer

matching programs to:

(1) Negotiate written agreements with

the other agency or agencies

participating in the matching programs;

(2) Obtain the approval of the match

agreement by the Data Integrity Boards

(DIB) of the participating Federal

Agencies;

(3) Furnish detailed reports about

matching programs to Congress and

OMB;

(4) Notify applicants and beneficiaries

that their records are subject to

matching; and

(5) Verify match findings before

reducing, suspending, terminating or

denying an individual’s benefits or

payments.

B. SSA Computer Matches Subject to

the Privacy Act

We have taken action to ensure that

all of SSA’s computer matching

programs comply with the requirements

of the Privacy Act, as amended.

Dated: December 19, 1997.

Kenneth S. Apfel,

Commissioner of Social Security.

Notice of Computer Matching Program,

Social Security Administration (SSA)

With the Office of Personnel

Management (OPM)

A. Participating Agencies

SSA and OPM.

B. Purpose of the Matching Program

This matching program will have four

separate components. The purposes of

each of these parts are as follows.

SSA Match 1021: SSA will match

OPM’s civil service benefit and payment

data with SSA’s records of beneficiaries

receiving Social Security spouse’s

benefits which are subject to reduction

under the Social Security Act when the

beneficiary is also receiving a

government pension based on

employment not covered under that Act.

SSA will match the OPM data to verify

information provided (or identify

information that should have been

provided) by the SSA beneficiary at the

time of initially applying for Social

Security benefits and on a continuing

basis to ensure that any reduction in

Social Security benefits is based on the

current pension amount.

SSA Match 1020: OPM records will be

used in a matching program wherein

SSA will match OPM’s benefit data with

SSA’s records for disabled and retired

annuitants. These annuitants may be

subject to the use of a modified benefit

computation formula used by SSA

under the Social Security Act for certain

persons who receive both a civil service

benefit and a Social Security retirement

or disability benefit. SSA will use the

OPM data to verify the pension or

annuity information provided (or to

identify such information that should

have been provided) directly to SSA by

the retirees/annuitants.

SSA Match 1005: OPM records will be

used in a matching program where SSA

will match OPM’s data with SSA’s

records to verify the accuracy of

information furnished by applicants and

recipients concerning eligibility factors

for the SSI program as authorized by

section 1631(e)(1)(B) and (f) of the

Social Security Act (42 U.S.C.

1383(e)(1)(B) and (f)). The SSI program

provides payments to individuals who

have income and resources below levels

established by law and regulations.