Federal Register / Vol. 63, No. 111 /Wednesday, June 10, 1998 / Notices 31819

4 15 U.S.C. 78q–1(b)(3)(F).

5The staff of the Board of Governors of the

Federal Reserve System has concurred with the

Commission’s granting of accelerated approval.

Telephone conversation between Kirsten Wells,

Senior Analyst, Division of Reserve Bank

Operations, Board of Governors of the Federal

Reserve System, and Jeffrey Mooney, Special

Counsel, Division of Market Regulation,

Commission (June 3, 1998).

6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1) (1994).

2 17 CFR 240.19b–4 (1997).

3Amendment 1 revised the last sentence of

proposed new paragraph (c)(4) of Rule 3020. See

Letter from Elliott R. Curzon, Assistant Chief

Counsel, NASD Regulation, to Lisa Henderson,

Attorney SEC, dated May 27, 1998. 4 17 CFR 240.15c3–1 (1997).

the clearing agency or for which it is

responsible.4 The Commission believes

that the rule change is consistent with

this obligation because the admission

criteria should bind non-U.S. entities to

DTC’s rules and procedures in a manner

similar to U.S. domestic participant and

should lesson or eliminate the negative

effects that jurisdictional issues could

have on DTC’s exercise of its rights and

remedies against a non-U.S. entity.

Therefore, the Commission believes that

the admissions criteria will assist DTC

in assuring the safeguarding of

securities and funds which are in its

custody, control, or for which it is

responsible.

DTC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after

publication of the notice of the filing.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after

publication of the notice of the filing

because accelerated approval will

permit DTC to continue to use its

admission criteria without

interruption.5

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 submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submissions, 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, NW.,

Washington, DC 20549. Copies of such

filings will also be available for

inspection and copying at the principal

office of DTC. All submissions should

refer to the file number SR–DTC–98–11

and should be submitted by July 1,

1998.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

DTC–98–11) be, and hereby is,

temporarily approved through May 31,

1999, on an accelerated basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15417 Filed 6–9–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40065; File No. SR–NASD–

98–33]

Self-Regulatory Organizations; Notice

of Proposed Rule Change and

Amendment 1 Thereto by the National

Association of Securities Dealers, Inc.,

Relating to Exemptions From Fidelity

Bonding Requirements

June 3, 1998.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on April 20,

1998, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’), 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, Inc.

(‘‘NASD Regulation’’). By letter dated

may 27, 1998, the Association filed

Amendment 1 to the proposal with the

Commission.3 The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, 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 3020 of the Conduct Rules

of the NASD to grant to the staff

authority to adjust the fidelity bond

required of a member in certain

circumstances upon a showing of good

cause, either conditionally or

unconditionally. Below is the text of the

proposed rule change. Proposed new

language is in italics.

3020. Fidelity Bonds

* * * * *

(c) Annual Review of Coverage

* * * * *

(4) Any member subject to the

requirements of this paragraph (c) may

apply for an exemption from the

requirements of this paragraph (c). The

application shall be made pursuant to

Rule 9610 of the Code of Procedure. The

exemption may be granted upon a

showing of good cause, including a

substantial change in the circumstances

or nature of the member’s business that

results in a lower net capital

requirement. The NASD may issue an

exemption subject to any condition or

limitation or limitation upon a

member’s bonding coverage that is

deemed necessary to protect the public

and serve the purposes of this Rule.

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

NASD 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

Rule 3020 specifies that members are

required to maintain fidelity bonds to

insure against certain losses and the

potential effect of such losses on firm

capital. The rule applies to all members

with employees who are required to join

the Securities Investor Protection

Corporation and who are not covered by

the requirements of a national securities

exchange. The amount of coverage a

member is required to maintain is

linked to the member’s net capital

requirements under SEC Rule 15c3–1.4

Under paragraph (c) of Rule 3020,

each member is required to make an

annual review of the adequacy of the

member’s fidelity bond coverage and is

required to maintain coverage that is

adequate to cover the member’s highest
31820 Federal Register / Vol. 63, No. 111 /Wednesday, June 10, 1998 / Notices

5 15 U.S.C. 78f(b)(6).

6 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

net capital requirement during the

preceding 12 months. NASD Regulation

staff have received several requests from

members asking for a waiver or

interpretation to relieve the member

from this requirement in certain

circumstances. For example, if a fullservice member changed its business by

divesting itself of clearing

responsibilities so that it no longer

holds customer funds or securities, it

would still be required to maintain bond

coverage that is based on the higher net

capital requirement that applied during

the preceding year. Currently, Rule 3020

does not permit the staff to provide any

relief to the member.

NASD Regulation is proposing to

amend Rule 3020 to permit the staff to

exempt a member from the requirements

of the rule in circumstances similar to

those described above and upon a

showing of good cause. This authority

will permit the staff to adjust the fidelity

bond requirements applicable to a

member to better tailor the requirements

to changes in a member’s business. In

addition, the proposed rule change will

also permit the staff to include

conditions in an exemption to ensure

that any subsequent increase in capital

requirements is accompanied by a

corresponding increase in coverage.

The rule change applies a ‘‘good

cause’’ standard that will require a

member to demonstrate that a

modification from the bonding

requirement is justified by the level of

loss exposure that may be expected from

the member. NASD Regulation notes

that the fidelity bonding premiums are

set for certain net capital thresholds on

the basis of loss experience. The

premiums are changed from time to

time to reflect changes in loss

experience and to ensure that sufficient

funds are available to pay any losses

reported to the insurer. In addition,

generally losses incurred in a prior year

are reported against the firm’s current

year. NASD Regulation intends to apply

this authority only where it is clear that

an exemption will not have any

unintended impact on the insurance

pool, and the modified coverage would

adequately protect the member against

potential losses.

Request for exemption would be

considered under recently adopted

Procedures for Exemption in the 9600

Series of Rules in the Code of

Procedure. Under the procedures, the

staff issues written determinations that

are subject to review by the National

Adjudicatory Council.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

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

the Act,5 in that the proposed

amendments are designed to

accommodate members whose financial

circumstances have changed so that

they could obtain an exemption from

maintaining fidelity bond coverage at

higher previous levels if they can show

that there is no regulatory reason for the

higher coverage required by Rule 3020,

without otherwise compromising

investor protection.

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 Act

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 NASD consents, the

Commission will:

(A) by order approved 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,

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, 450 Fifth Street, NW,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the NASD. All submissions

should refer to File No. SR–NASD–98–

33 and should be submitted by July 1,

1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15418 Filed 6–9–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40069; File No. SR–NASD–

98–38]

Self-Regulatory Organizations; Notice

of Filing and Partial Immediate

Effectiveness of a Proposed Rule

Change by the National Association of

Securities Dealers, Inc., Relating to

NASD Order Audit Trail System and

Record-Keeping Rules

June 4, 1998.

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

Securities Exchange Act of 1935

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on May 22,

1998, the National Association of

Securities Dealers, Inc. (‘‘NASD’’ or

‘‘Association’’) through its whollyowned subsidiary, NASD Regulation,

Inc., (‘‘NASDR’’) 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 NASDR. 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 NASDR is proposing to amend

NASD Books and Records Rule 3110

and NASD Order Audit Trail System

(‘‘OATS’’) Rules 6954 and 6957 to:

require members to record certain

information when an order is

transmitted to a non-member; explicitly

detail the recordkeeping requirements

that will apply to OATS data; require

members to record and maintain