Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23317

15As in the current rule, if no official statement

in final form is being prepared, such dealer would

deliver to the customer by settlement the official

statement in preliminary form, if any, and written

notice to the effect that an official statement in final

form is not being prepared. If neither a final nor a

preliminary official statement is being prepared, the

dealer would only be obligated to deliver by

settlement the written notice to the effect that no

official statement in final form is being prepared.

16Section 15B(b)(2)(C) states that the Board’s

rules 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

transaction 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.

17 17 CFR 200.30–3(a)(12).

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

The Board has determined that,

because the Bond Delivery Period for

Exempt VRDOs is at most one business

day, it is often not possible for dealers

to settle with customers—who expect to

receive delivery of their securities on

the issue date—without causing a

violation of the requirement that they

deliver the official statement in final

form to such customers by settlement.

As a result, the Board is proposing an

amendment to Rule G–32 that would

permit a dealer, selling new issue

Exempt VRDOs, to deliver the official

statement in preliminary form to the

customer by settlement, together with a

written notice that the official statement

in final form will be sent to the

customer within one business day of

receipt. Thereafter, once the dealer

receives the official statement in final

form, it must send a copy to the

customer within one business day of

receipt. If no official statement in

preliminary form is being prepared, the

dealer would only be obligated to

deliver by settlement the written notice

regarding the official statement in final

form and to send the official statement

in final form upon receipt.15 The

proposed amendment offers an

alternative method of compliance with

Rule G–32 in the case of Exempt

VRDOs. Thus, in those limited

circumstances where dealers may in fact

receive the official statement in final

form in sufficient time to deliver it to

customers by settlement (e.g., if an

issuer approves completion of the

official statement in final form prior to

execution of the purchase contract),

dealers would have the option of

complying with the existing provision

of the rule by delivering the official

statement in final form to the customer

by settlement.

2. Statutory Basis

The Board believes the proposed rule

change is consistent with Section

15B(b)(2)(C) of the Act.16 The Board

believes that the proposed rule change

will ensure that the primary market in

municipal securities continues to

experience adequate levels of disclosure

without disruption to the market for

variable rate demand obligations.

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

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 publication of

this notice in the Federal Register or

within such longer period (i) as the

Commission may designated 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 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,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

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 the filing will also be

available for inspection and copying at

the Board’s principal offices. All

submissions should refer to File No.

SR–MSRB–98–4 and should be

submitted by May 19, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.17

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–11209 Filed 4–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39893; File No. SR–NASD–

98–23]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to an

Amendment to the NASD’s Options

Position Limits Rule

April 21, 1998.

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

Securities Exchange Act of 1934

(‘‘Exchange Act’’ or ‘‘Act’’),1 notice is

hereby given that on March 10, 1998,

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 the self-regulatory

organization. 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 is proposing to

amend Rule 2860(b) of the of the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

to: (1) increase the position limits on

conventional equity options to three

times the basic position limits for

standardized equity options on the same

security; (2) disaggregate conventional

equity options from standardized equity

options and FLEX Equity Options for

position limit purposes; and (3) provide

that the OTC Collar Aggregation

Exemption shall be available with

respect to an entire conventional equity

options position, not just that portion of

the position that is established pursuant

to the NASD’s Equity Option Hedge

Exemption. Below is the text of the

proposed rule change. Proposed new
23318 Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices

2The proposed new language assumes that the

proposed rule changes filed with the Commission

in SR–NASD–98–15, on February 13, 1998, and SR–

NASD–98–02, on January 20, 1998, have been

approved. The Commission notes that SR–NASD–

98–15 was approved on March 19, 1998, and SR–

NASD–98–02 was approved on April 14, 1998. See

Exchange Act Release Nos. 39771 (March 19, 1998),

63 FR 14743 (March 26, 1998) (SR–NASD–98–15);

39865 (April 14, 1998) (SR–NASD–98–02).

3The Commission notes that the NASD filed a

proposed rule change requesting that the Equity

Option Hedge Exemption pilot program be

extended until December 31, 1999. An amendment

was later filed, reducing the extension until

December 31, 1998. The Commission approved the

proposed rule change, as amended. See Exchange

Act Release No. 39865 (April 14, 1998) (SR–NASD–

98–02). The NASD will be submitting an

amendment to this filing (SR–NASD–98–23),

clarifying in the proposed rule language that the

Equity Option Hedge Exemption pilot program has

been extended only until December 31, 1998.

language is in italics; proposed

deletions are in brackets.2

Rule 2860. Options

* * * * *

(b) Requirements

(2) Definitions

The following terms shall, unless the

context otherwise requires, have the

stated meanings:

* * * * *

(VV) Standardized Equity Option—

The term ‘‘standardized equity option’’

means any equity options contract

issued, or subject to issuance by, The

Options Clearing Corporation that is not

a FLEX Equity Option.

(WW)—(AAA) Redesignated

accordingly.

* * * * *

(3) Position Limits

(A) Stock Options—Except in highly

unusual circumstances and with the

prior written approval of the

Association in each instance, no

member shall effect for any account in

which such member has an interest, or

for the account of any partner, officer,

director or employee thereof, or for the

account of any customer, an opening

transaction through Nasdaq, the overthe-counter market or on any exchange

in a stock option contract of any class

of stock options if the member has

reason to believe that as a result of such

transaction the member or partner,

officer, director or employee thereof, or

customer would, acting alone or in

concert with others, directly or

indirectly, hold or control or be

obligated in respect of an aggregate

standardized equity options position in

excess of:

(i) 4,500 option contracts of the put

class and the call class on the same side

of the market covering the same

underlying security, combining for

purposes of this position limit long

positions in put options with short

positions in call options, and short

positions in put options with long

positions in call options; or

(ii) 7,500 options contracts of the put

class and the call class on the same side

of the market covering the same

underlying security, providing that the

7,500 contract position limit shall only

be available for option contracts on

securities which underlie or qualify to

underlie Nasdaq or exchange-traded

options qualifying under applicable

rules for a position limit of 7,500 option

contracts; or

(iii) 10,500 option contracts of the put

class and the call class on the same side

of the market covering the same

underlying security providing that the

10,500 contract position limit shall only

be available for option contracts on

securities which underlie or qualify to

underlie Nasdaq or exchange-traded

options qualifying under applicable

rules for a position limit of 10,500

option contracts; or

(iv) 20,000 options contracts of the

put and the call class on the same side

of the market covering the same

underlying security, providing that the

20,000 contract position limit shall only

be available for option contracts on

securities which underlie or qualify to

underlie Nasdaq or exchange-traded

options qualifying under applicable

rules for a position limit of 20,000

option contracts; or

(v) 25,000 options contracts of the put

and the call class on the same side of

the market covering the same

underlying security, providing that the

25,000 contract position limit shall only

be available for option contracts on

securities which underlie or qualify to

underlie Nasdaq or exchange-traded

options qualifying under applicable

rules for a position limit of 25,000

option contracts; or

(vi) such other number stock options

contracts as may be fixed from time to

time by the Association as the position

limit for one or more classes or series of

options provided that reasonable notice

shall be given of each new position limit

fixed by the Association.

(vii) Equity Option Hedge Exemption

a. The following positions, where

each option contract is ‘‘hedged’’ by 100

shares of stock or securities readily

convertible into or economically

equivalent to such stock, or, in the case

of an adjusted option contract, the same

number of shares represented by the

adjusted contract, shall be exempted

from established limits contained in (i)

through (vi) above:

1. long call and short stock;

2. short call and long stock;

3. long put and long stock.

4. short put and short stock

b. Except as provided [under] in

subparagraph (b)(3)(A)(ix) and in the

OTC Collar Exemption contained in

subparagraph (b)(3)(A)(viii), in no event

may the maximum allowable position,

inclusive of options contracts hedged

pursuant to the equity option position

limit hedge exemption in subparagraph

a. above, exceed three times the

applicable position limit established in

subparagraph (b)(3)(A)(i)–(v) with

respect to standardized equity options,

or subparagraph (b)(3)(A)(ix) with

respect to conventional equity options.

c. The Equity Option Hedge

Exemption is a pilot program authorized

by the Commission through December

31, 1999.3

(viii) OTC With Aggregation Exemption

a. For purposes of this paragraph (b),

the term OTC collar shall mean a

conventional equity option position

comprised of short (long) calls and long

(short) puts overlying the same security

that hedge a corresponding long (short)

position in that security.

b. Notwithstanding the aggregation

provisions for short (long) call positions

and long (short) put positions contained

in subparagraphs (i) through (v) above,

the conventional options positions

involved in a particular OTC collar

transaction [established pursuant to the

position limit hedge exemption in

subparagraph (vii)] need not be

aggregated for position limit purposes,

provided the following conditions are

satisfied:

1. the conventional options can only

be exercised if they are in-the-money;

2. neither conventional option can be

sold, assigned, or transferred by the

holder without the prior written consent

of the writer;

3. the conventional options must be

European-style (i.e., only exercisable

upon expiration) and expire on the same

date;

4. The strike price of the short call can

never be less than the strike price of the

long put; and

5. neither side of any particular OTC

collar transaction can be in-the-money

when that particular OTC collar is

established.

6. the size of the conventional options

in excess of the applicable basic

position limit for the options

established pursuant to subparagraph

(b)(3)(A)(ix) [(A)(i)–(v) above] must be

hedged on a one-to-one basis with the

requisite long or short stock position for

the duration of the collar, although the

same long or short stock position can be

used to hedge both legs of the collar.
Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23319

4Position limits impose a ceiling on the number

of option contracts in each class on the same side

of the market (i.e., aggregating long calls and short

puts; or long puts and short calls) that can be held

or written by an investor or group of investors

acting in concert. Exercise limits restrict the

number of options contracts that an investor or

group of investors acting in concert can exercise

within five consecutive business days. Under NASD

Rules, exercise limits correspond to position limits,

such that investors in options classes on the same

side of the market are allowed to exercise, during

any five consecutive business days, only the

number of options contracts set forth as the

applicable position limit for those options classes.

See NASD Rules 2860(b)(3) and (4).

5Currently, the five tiers are for 4,500, 7,500,

10,500, 20,000 and 25,000 contracts. NASD rules do

not specifically govern how a specific equity option

falls within one of the five position limit tiers.

Rather, the NASD’s position limit rule provides that

the position limit established by an options

exchange(s) for a particular equity option is the

applicable position limit for purposes of the

NASD’s rule.

6Standardized options are exchange-traded

options issued by the Options Clearing Corporation

(‘‘OCC’’) that have standard terms with respect to

strike prices, expiration dates, and the amount of

the underlying security. A conventional option is

any other option contract not issued, or subject to

issuance by, OCC.

7See Exchange Act Release No. 39032 (September

9, 1997), 62 FR 48683 (September 16, 1997).

8See SR–NASD–98–15. The Commission notes

that SR–NASD–98–15 was approved on March 19,

1998. See Exchange Act Release No. 39771 (March

19, 1998), 63 FR 14743 (March 26, 1998).

c. For multiple OTC collars on the

same security meeting the conditions set

forth in subparagraph b. above, all of the

short (long) call options that are part of

such collars must be aggregated and all

of the long (short) put options that are

part of such collars must be aggregated,

but the short (long) calls need not be

aggregated with the long (short) puts.

d. Except as provided above in

subparagraphs b. and c., in no event

may a member fail to aggregate any

conventional [or standardized] options

contract of the put class and the call

class overlying the same equity security

on the same side on the market with

conventional option positions

established in connection with an OTC

collar.

e. Nothing in this subparagraph (viii)

changes the applicable position limit for

a particular equity security.

(ix) For purposes of this paragraph

(b), standardized equity options

contracts of the put class and call class

on the same side of the market overlying

the same security shall not be

aggregated with conventional equity

options contracts or FLEX Equity

Options contracts overlying the same

security on the same side of the market.

Conventional equity options contracts of

the put class and call class on the same

side of the market overlying the same

security shall be subject to a basic

position limit equal to three times the

applicable position limit established for

standardized equity options overlying

the security pursuant to subparagraphs

A(i)–(v) above and are eligible for the

OTC Collar Exemption set forth in

subparagraph A(viii) above and the

Equity Option Hedge Exemption set

forth in subparagraph A(vii) above.

(Footnotes omitted. No changes).

* * * * *

IM–2860–1. Position Limits

The following examples illustrate the

operation of position limits established

by Rule 2860(b)(3) (all examples assume

a position limit of 4,500 contracts and

that the options are standardized

options):

(a) Customer A, who is long 4,500

XYZ calls, may at the same time be

short 4,500 XYZ calls, since long and

short positions in the same class of

options (i.e., in calls only, or in puts

only) are on opposite sides of the market

and are not aggregated for purposes of

paragraph (b)(3).

(b) Customer B, who is long 4,500

XYZ calls, may at the same time be long

4,500 XYZ puts. Paragraph (b)(3) does

not require the aggregation of long call

and long put (or short call and short

put) positions, since they are on

opposite sides of the market.

(c) Customer C, who is long 1,700

XYZ calls, may not at the same time be

short more than 2,800 XYZ puts, since

the 4,500 contract limit applies to the

aggregation of long call and short put

positions in options covering the same

underlying security. Similarly, if

Customer C is also short 1,600 XYZ

calls, he may not at the same time be

long more than 2,900 puts, since the

4,500 contract limit applies separately

to the aggregation of short call and long

put positions in options covering the

same underlying security.

(d) Customer D, who is short 900,000

[450,000] shares of XYZ, may be long up

to 13,500 [9,000] XYZ calls, since the

‘‘hedge’’ exemption contained in

paragraph (b)(3)(A)(vii) permits

Customer D to establish an options

position up to 13,500 [9,000] contracts

in size. In this instance, 4,500 of the

13,500 [9,000] contracts are permissible

under the basic position limit contained

in paragraph (b)(3)(A)(i) and the

remaining 9,000 [4,500] contracts are

permissible because they are hedged by

the 900,000 [450,000] short stock

position.

* * * * *

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, 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

NASD Rule 2860(b)(3) provides that

the position limit 4 for each equity

option is determined according to a fivetiered system whereby more actively

traded securities with larger public

floats are subject to higher position

limits and less actively traded stocks are

subject to lower limits.5 Presently,

conventional and standardized equity

options are subject to the same position

limits, and all equity options overlying

a particular equity security on the same

side of the market are aggregated for

position limit purposes, regardless of

whether the option is a conventional,

standardized or FLEX Equity Option.6

On September 9, 1997, the Commission

approved a two-year pilot program

(‘‘Pilot Program’’) to eliminate position

and exercise limits for FLEX Equity

Options, which are traded on the

American Stock Exchange, Inc.

(‘‘AMES’’), the Chicago Board Options

Exchange, Inc. (‘‘CBOE’’), and the

Pacific Exchange, Inc. (‘‘PCX’’)

(collectively ‘‘Options Exchanges’’).7 In

light of the Pilot Program, NASD

Regulation is proposing to amend its

rules governing position and exercise

limits for conventional equity options.

NASD Regulation previously has filed a

proposed rule change to eliminate

position and exercise limits on FLEX

Equity Options to make its rules

consistent with the Pilot Program.8

NASD Regulation believes the proposed

rule change herein is necessary to foster

competition between the over-thecounter (‘‘OTC’’) market and the

Options Exchanges.

FLEX Equity Options are exchangetraded options issued by the Options

Clearing Corporation (‘‘OCC’’) that give

investors the ability, within specified

limits, to designate certain terms of the

option (i.e., the exercise price, exercise

style, expiration date, and option type).

Because they are non-uniform and

individually negotiated, FLEX Equity

Options closely resemble and are
23320 Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices

9Rule 2860(b)(3)(A)(vii).

10Rule 2860(b)(3)(A)(viii).

11While the OTC Collar Aggregation Exemption

is self-effectuating with respect to the hedged

components of conventional options positions,

NASD Regulation has also permitted members to

include non-hedged positions within OTC collars

under the terms of the OTC Collar Aggregation

Exemption on a pre-approval basis. Accordingly,

the instant rule change would turn this preapproval process for non-hedged components of

OTC collars into a self-effectuating process.

12 15 U.S.C. 78o–3(b).

economically equivalent to

conventional equity options.

Accordingly, to more closely align the

NASD’s position limit rules for

conventional equity options with the

rules for FLEX Equity Options, NASD

Regulation proposes to amend Rule

2860(b)(3) to provide that: (1) position

limits on conventional equity options

shall be increased to three times the

basic position limits for standardized

equity options on the same security; (2)

conventional equity options shall be

disaggregated from standardized equity

options and FLEX Equity Options for

position limit purposes; and (3) the OTC

Collar Aggregation Exemption shall be

available with respect to an entire

conventional equity options position,

not just that portion of the position that

is established pursuant to the NASD’s

Equity Option Hedge Exemption.

The NASD’s Equity Option Hedge

Exemption 9 provides for an automatic

exemption from equity option position

limits for accounts that have established

hedged positions on a limited one-forone basis (i.e., 100 shares of stock for

one option contract). Under the Equity

Option Hedge Exemption, the largest

options position that may be established

(combining hedged and unhedged

positions) may not exceed three times

the basic position limit. The OTC Collar

Aggregation Exemption 10 provides that

positions in conventional put and call

options establishing OTC collars need

not be aggregated for position limit

purposes. An OTC collar transaction

involves the purchase (sale) of a put and

the sale (purchase) of a call on the same

underlying security to hedge a long

(short) stock position.

At the present time, NASD Regulation

believes that the prudent regulatory

approach is to increase position limits

on conventional equity options in

conjunction with continued availability

of the Equity Option Hedge Exemption

and OTC Collar Aggregation Exemption.

NASD Regulation proposes an

incremental approach and in this case

believes that increasing position limits

for conventional equity options to three

times the position limits for

standardized equity options is

appropriate. These proposed limits

correspond to the position limits in

effect for FLEX Equity Options prior to

the Pilot Program.

NASD Regulation also believes that

conventional equity options positions

should not be aggregated with

standardized and FLEX Equity Options

on the same securities for position limit

purposes. Disaggregation of

conventional and other options is

necessary to give full effect to the

proposed increase in position limits for

conventional equity options. Without

disaggregation, positions in FLEX

Equity Option or standardized option

positions would reduce or potentially

even eliminate (in the case of FLEX

Equity Options) the available position

limits for conventional equity options.

To illustrate how these proposed

amendments would work, consider the

following example of stock ABCD,

which is subject to a position limit of

25,000 standardized equity option

contracts. In this example, a market

participant could establish a position of

25,000 standardized option contracts on

ABCD and an additional 75,000

conventional option contracts on ABCD

on the same side of the market, since

conventional and standardized option

positions would be disaggregated. In

addition, the market participant also

may have a position of any size in FLEX

Equity Options overlying ABCD, since

such FLEX Equity Options would not be

aggregated with either the conventional

equity options or standardized equity

options overlying ABCD. Further, by

taking advantage of the Equity Option

Hedge Exemption, which permits a

market participant to assume a hedged

options position that is three times the

otherwise applicable position limit, a

market participant could increase the

number of conventional equity options

to 225,000 contracts.

NASD Regulation proposes to modify

the terms of the OTC Collar Aggregation

Exemption to apply to an entire

conventional equity option position, not

just the portion that is established

pursuant to the Equity Option Hedge

Exemption. NASD Regulation believes

such an amendment is consistent with

the economic logic underlying the OTC

Collar Aggregation Exemption, i.e., that

if the terms of the exemption are met,

the segments of an OTC collar will

never both be in-the-money at the same

time or exercised. Under current rules,

assuming that stock ABCD is subject to

a basic position limit of 25,000

contracts, market participant taking

advantage of the Equity Option Hedge

Exemption could establish a hedged

position on ABCD involving a total of

75,000 conventional equity option

contracts (three times the basic limit),

including 50,000 contracts that are

established under the Equity Option

Hedge Exemption. A market participant

using the OTC Collar Aggregation

Exemption could then establish a

conventional position of 50,000 long

(short) calls and 50,000 short (long)

puts, for a total of 125,000 contracts

overlying ABCD. The proposed rule

change to the OTC Collar Aggregation

Exemption would allow a market

participant to establish a collar

consisting of two segments, each of

which involves a position three times

greater than the basic position limit.

Consequently, using the example above,

a market participant could establish an

OTC collar on ABCD involving 75,000

long (short) calls and 75,000 short (long)

puts, for a total of 150,000 contracts.11

If, however, the basic position limits

for conventional options were tripled, as

proposed above, the permissible options

position established under the OTC

Collar Aggregation Exemption would be

correspondingly increased. For

example, if the market participant in the

above example had increased the size of

its conventional options position to

225,000 contracts pursuant to the Equity

Option Hedge Exemption as proposed

above (based upon a limit of three times

the 75,000 conventional equity options

position limit), the market participant

could establish an OTC collar on ABCD

involving 225,000 long (short) calls and

225,000 short (long) puts, for a total of

450,000 contracts.

Finally, in addition to the proposed

rule changes discussed above, the NASD

is proposing to clarify and update the

examples contained in IM–2860–1 so

that they are consistent with the instant

proposal and prior increases in the

hedge exemption.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

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

the Act,12 which requires, among other

things, that the Association’s rules be

designed to prevent fraudulent and

manipulative acts and practices, 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. NASD

Regulation believes that the proposed

rule change, which will increase the

position limits on conventional equity

options, disaggregate conventional

equity options from exchange-traded

equity options for position limit

purposes, and provide that the OTC

Collar Aggregation Exemption may be
Federal Register / Vol. 63, No. 81 /Tuesday, April 28, 1998 / Notices 23321

13 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

utilized with respect to any

conventional equity options position,

not just that portion of the position that

was established pursuant to the NASD’s

Equity Option Hedge Exemption, will

enable market participants to establish

larger positions in conventional equity

options and, thus, will help to ensure

that participants in the OTC options

market are not placed at a competitive

disadvantage vis-a-vis the exchange

markets. In addition, NASD Regulation

believes that increasing the position

limits for conventional equity options

will afford market participants,

particularly portfolio managers, issuers,

and sophisticated institutional

investors, greater flexibility to employ

larger options positions when

effectuating their investment strategies.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Association does not believe that

the proposed rule change will impose

any inappropriate 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 were either

solicited or received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 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,

including whether the proposed rule

change is consistent with the Act.

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 at

the Commission’s Public Reference

Room, located at the above address.

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–NASD–98–23 and should be

submitted by May 19, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–11169 Filed 4–27–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39892; File No. SR–NASD–

98–18]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Qualified

Immunity in Arbitration Proceedings

for Statements Made on Forms U–4

and U–5

April 21, 1998.

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

Securities Exchange Act of 1934

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

April 21, 1998, 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 is proposing to add

a new rule to the Rules of the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), to provide

members of the NASD with qualified

immunity in arbitration proceedings for

statements made in good faith in certain

disclosures filed with the NASD on

Forms U–4 and U–5, the uniform

registration and termination notices for

registered persons. Below is the text of

the proposed rule change.

Proposed new language is in italics.

* * * * *

Rule 1150. Regulatory Form Disclosures

(a) Mandatory Disclosures

A member must make truthful and

accurate statements on the covered

forms required under Article V, Sections

2 and 3 of the By-Laws.

(b) Qualified Immunity

(1) This paragraph shall apply to any

arbitration proceeding between a

member or other party and a covered

person relating to statements made in

response to an information requirement

of a covered form with respect to such

covered person, to the extent that such

statements are contained in a covered

form that has been or, at a subsequent

point in time, is (A) filed with a

regulatory authority or self-regulatory

organization, and (B) disseminated by

reason of such filing, or otherwise

disseminated orally, in writing, or

through any electronic medium to an

appropriate person.

(2) A defending party shall not be

liable in a proceeding to a covered

person for any defamation claim related

to an alleged untrue statement that is

contained in a covered form if the

statement was true at the time that the

statement was made.

(3) A defending party shall not be

liable in a proceeding to a covered

person for any defamation claim related

to an alleged untrue statement that is

contained in a covered form unless the

covered person shows by clear and

convincing evidence that:

(A) the defending party knew at the

time that the statement was made that

it was false in any material respect; or

(B) the defending party acted in

reckless disregard as to the statement’s

truth or falsity.

(c) Definitions

For purposes of this Rule:

(1) The term ‘‘appropriate person’’

means any federal or state governmental

or regulatory authority, and selfregulatory organization, any employer

or prospective employer of a covered

person, or any person who requests or

is required to obtain information

concerning the covered person from the

defending party and as to whom the

defending party has a legal obligation to

provide such information.

(2) The term ‘‘claim’’ means any

claim, counterclaim, third-party claim,

or cross-claim.

(3) The term ‘‘covered form’’ means

any form or notice required under