Federal Register / Vol. 63, No. 111 /Wednesday, June 10, 1998 / Notices 31817

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

2Rule 19d–1(c)(2) under the Act authorizes

national securities exchanges to adopt minor rule

violation plans for the summary discipline and

abbreviated reporting of minor rule violations by

exchange members and member organizations. See

Securities Exchange Act Release No. 21013 (June 1,

1984), 49 FR 23828 (approving amendments to

paragraph (c)(2) of Rule 19d–1 under the Act). The

CHX’s Plan was approved by the Commission in

1996. See Securities Exchange Act Release No.

37255 (May 30, 1996), 61 FR 28918 (approving File

No. SR–CHX–95–25).

3CHX Article XX, Rule 7 (‘‘CHX Limit Order

Rule’’).

4See 17 CFR 200.11Acl–4 (‘‘Limit Order Display

Rule’’).

5The Exchange notes that the minor rule plan

violation schedule is merely a recommended fine

schedule and that fines of more or less than the

recommended fines can be imposed (up to a $2500

maximum) in appropriate circumstances. Moreover,

the Exchange may proceed with formal disciplinary

action, rather than procedures under the Plan,

whenever it finds that a violation of the limit order

rule was more than inadvertent.

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

7 15 U.S.C. 78f(b)(1).

8 15 U.S.C. 78f(b)(6).

9 15 U.S.C. 78f(b)(7).

10 15 U.S.C. 78f(d)(1).

11 17 CFR 250.11Ac1–4.

12The Commission believes the increased fine of

$1000 for the first violation is appropriate

considering the very serious nature of these

violations.

13See Securities Exchange Act Release 37619A

(September 6, 1996), 61 FR 48290 (September 12,

1996) (‘‘Adopting Release’’).

Rule 17Ad–7 under the Act requires

each registered transfer agent to retain,

in an easily accessible place for a period

of six months to one year, all the records

required to be made and kept current

under the Commission’s rules regarding

registered transfer agents. Rule 17Ad–7

also requires such records to be retained

for a total of two to six years or for one

year after termination of the transfer

agency, depending on the particular

record or document.

These record retention requirements

ensure that all registered transfer agents

are maintaining the records necessary to

monitor and keep adequate control over

their own performance and to examine

registered transfer agents on an

historical basis for compliance with

applicable rules.

It is estimated that approximately

1,248 registered transfer agent will

spend a total of 142,272 hours per year

complying with Rule 17Ad–7. Based on

average cost per hour of $50, the total

cost of compliance with Rule 17Ad–7 is

$7,113,600.

Written comments are invited on: (a)

whether the proposed collection of

information is necessary for the proper

performance of the functions of the

agency, including whether the

information shall have practical utility;

(b) the accuracy of the agency’s

estimates of the burden of the proposed

collection of information; (c) ways to

enhance the quality, utility, and clarity

of the information to be collected; and

(d) ways to minimize the burden of the

collection of information on

respondents, including through the use

of automated collection techniques or

other forms of information technology.

Consideration will be given to

comments and suggestions submitted in

writing within 60 days of this

publication.

Please direct your written comments

to Michael E. Bartell, Associated

Executive Director, Office of

Information Technology, Securities and

Exchange Commission, 450 5th Street,

NW., Washington, D.C. 20549.

Dated: June 2, 1998.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15420 Filed 6–9–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40066; File No. SR–CHX–

97–25]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Chicago Stock Exchange,

Incorporated, Amending the Minor

Rule Violation Plan

June 4, 1998.

I. Introduction

On October 1, 1997, the Chicago Stock

Exchange, Incorporated (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’),1 a proposed rule

change amending the Minor Rule

Violation Plan. The proposed rule

change was published for comment in

Securities Exchange Act Release No.

39723 (March 5, 1998), 63 FR 12123

(March 12, 1998). No comments were

received on the proposal. For the

reasons discussed below, the

Commission is approving the proposed

rule change.

II. Description of the Proposal

On May 30, 1996 the Commission

approved a proposed rule change that

established a CHX Minor Rule Violation

Plan (‘‘Plan’’).2 The Exchange is now

proposing to add the failure to display

a limit order in the quotation 3 to the

section of the Plan relating to Floor

Decorum and Minor Trading Rule

Violations. The Exchange believes that

it is appropriate to add the CHX Limit

Order Rule to the Plan because

violations of the rule are either objective

and technical in nature or easily

verifiable. Moreover, the Exchange

believes that because the CHX Limit

Order Rule is built upon a comparable

Commission Rule,4 violations of such

rule require sanctions that are more

severe than a warning or cautionary

letter. Accordingly, the Exchange is

proposing the recommended fine for

failure to display a limit order in the

quotation (Article XX, Rule 7,

interpretation and policy .05) to be

$1,000 for the first violation and all

subsequent violations.5

III. Discussion

The Commission believes that the

proposed rule change is consistent with

the Act and the rules and regulations

thereunder applicable to a national

securities exchange, and, in particular,

with Section 6(b)(5) which requires that

the rules of an exchange be designed to

promote just and equitable principles of

trade, to remove impediments and to

perfect the mechanism of a free and

open market and a national market

system, and, in general, to protect

investors and the public interest.6

The Exchange’s proposal is also

consistent with the requirements in

Sections 6(b)(1) 7 and 6(b)(6) 8 that the

rules of an exchange enforce compliance

and provide appropriate discipline for

violations of Commission and Exchange

rules. Moreover, because CHX Article

XII, Rule 9 provides procedural rights to

the person fined and permits a

disciplined person to request a full

hearing on the matter, the proposal

provides a fair procedure for the

disciplining of members and persons

associated with members, consistent

with Sections 6(b)(7) 9 and 6(d)(1) 10 of

the Act.

The Exchange’s proposal reinforces

the obligations of an exchange specialist

to immediately display certain customer

limit orders in accordance with the

Commission’s Limit Order Display

Rule 11 and the CHX Limit Order Rule.12

The Commission believes that

displaying customer limit orders

benefits investors by providing

enhanced execution opportunities and

improved transparency.13

The Commission expects that the

Exchange has the appropriate
31818 Federal Register / Vol. 63, No. 111 /Wednesday, June 10, 1998 / Notices

14A specialist is not displaying customer limit

orders immediately if the specialist regularly

executes customer limit orders at, for example, the

27th second after receipt. As stated in the Adopting

Release, the requirement that a limit order be

displayed ‘‘immediately’’ means that the limit order

must be displayed as soon as practicable, but no

later than 30 seconds after receipt under normal

market conditions. This 30 seconds is an outer limit

under normal market conditions and is not to be

interpreted as a 30-second safe harbor.

15For example, the Commission expects that the

Exchange would not issue several cautionary letters

before instituting the fines under the Plan or

aggregate multiple violations of the rules before

instituting abbreviated disciplinary procedures

under the Plan or, if necessary, full disciplinary

procedures.

16 15 U.S.C. 78s(b)(2).

17 17 CFR 250.19d–1(c)(2).

18 17 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 DTC.

3For a complete discussion of the admission

criteria, refer to Securities Exchange Act Release

No. 38600, International Release No. 1078 (May 9,

1997), 62 FR 27086–01 [File No. SR–DTC–96–13]

(order temporarily approving a proposed rule

change relating to the admission of non-U.S.

entities as direct depository participants).

surveillance procedures to easily

identify a specialist who fails to display

a customer limit order immediately or is

relying on an automated system that

does not display limit orders

immediately.14 The Commission,

therefore, believes that because certain

violations of the Limit Order Rule are

amenable to efficient and equitable

enforcement they are appropriate for

inclusion in CHX’s Minor Rule Plan.

The Commission expects, however,

because a violation of the Limit Order

Rule amounts to a violation of a federal

securities law, that the Exchange will

err on the side of caution in disposing

of such violations under the Plan.15 The

Commission expects the Exchange to

continue to resolve more serious

violations of rules through the use of

formal disciplinary procedures, as in the

case of an egregious violation or

habitual offender.

IV. Conclusion

For the foregoing reasons, the

Commission believes that the proposed

rule change is consistent with the Act

and the rules and regulations

thereunder applicable to a national

securities exchange, and, in particular,

with Sections 6(b)(1), 6(b)(5), 6(b)(6),

6(b)(7), 6(d)(1) and 19(d) of the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act 16 and Rule

19d–1(c)(2) thereunder,17 that the

proposed rule change (SR–CHX–97–25)

be, and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.18

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15421 Filed 6–9–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40064; International

Release No. 1138; File No. SR–DTC–98–11]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Order Granting Accelerated

Temporary Approval of a Proposed

Rule Change Relating to the

Admission of Non-U.S. Entities as

Direct Depository Participants

June 3, 1998.

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

Securities Exchange Act of 1934

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

May 29, 1998, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I and II

below, which Items have been prepared

primarily by DTC. The Commission is

publishing this notice and order to

solicit comments from interested

persons and to grant accelerated

temporary approval of the proposed rule

change through May 31, 1999.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to extend the Commission’s

temporary approval of DTC’s criteria for

entities that are organized in a country

other than the United States (‘‘non-U.S.

entity’’) to become direct DTC

participants.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC 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. DTC 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 extend the Commission’s

temporary approval of DTC’s admission

criteria for non-U.S. entities as direct

DTC participants. The Commission

originally granted temporary approval

on May 9, 1997.3 The admission criteria

would permit well-qualified, non-U.S.

entities to obtain direct access to DTC’s

services without requiring the non-U.S.

entities to obtain financial guarantees.

According to DTC, as of May 8, 1998,

it has not admitted any non-U.S. entities

under the non-U.S. entities participation

standards. DTC is currently reviewing

an application from one non-U.S. entity,

has sent an application to another nonU.S. entity, and has received numerous

inquiries from other non-U.S. entities.

DTC expects to admit in 1998 several

non-U.S. entities under these standards.

DTC is seeking an extension of the

temporary approval so it can admit

these non-U.S. entities and can gain

experience with the new admission

standards and with the unique risks

posed by the activities of non-U.S.

entities as direct DTC participants.

DTC believes that the proposed rule

change is consistent with the

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

the Act and the rules and regulations

promulgated because the admissions

criteria takes into account the unique

risks to DTC raised by the admission of

non-U.S. entities while not unfairly

discriminating against foreign entities

seeking admission as participants.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

DTC acknowledges that the additional

admissions criteria applicable to nonU.S. entities may impose some

additional burden. DTC believes that

any such burden is necessary and

appropriate in furtherance of the

purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were not and are

not intended to be solicited with respect

to the proposed rule change, and none

were received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) of the Act

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of