Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 / Notices 30277

4 Distributors using per-quote and usage based

reporting will have their monitoring fees

determined by having their monthly payment totals

divided by the professional subscriber fee rate,

resulting in a terminal equivalent. For example, a

distributor or vendor that is being charged $1,000

a month for its per-quote usage of Nasdaq Level 1

Service will have that $1,000 fee divided by the

existing $20 monthly Level 1 per-terminal fee

which results in a terminal equivalent of 50 with

an annual monitoring fee of $500.

For 1998 billing purposes only, Nasdaq will not

impose these administrative fees on any firm that

incurs costs and submits a certified usage report in

1998 prior to the effective date of Nasdaq’s new fee

schedule. See Amendment No 2, supra note 1.

5Similarly, the submission of an unrequested,

accountant-certified usage list will not preclude

Nasdaq from conducting its own OSR nor will it

exempt a distributor or vendor from payment of the

administrative fee.

6Nasdaq notes that it does not currently require

delayed distributors to meet audit requirements or

pay an OSR fee. Nasdaq believes that the imposition

of new minimal charges on delayed distributors is

justified to reimburses Nasdaq for the cost of

application processing and product monitoring.

Nasdaq also advises that those vendors who receive

both delayed and real-time data, will not be billed

separately for each type of data but will only pay

for the highest level of service received. This

practice will continue for Nasdaq’s proposed

administrative fees as well. See Amendment No. 1,

supra note 1.

7 17 CFR 200.30–3(a)(12).

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

site review (‘‘OSR’’) conducted by

Nasdaq staff. The purpose of both the

accountant certification and the OSR is

to provide Nasdaq with independent

confirmation of Nasdaq data

consumption. Nasdaq proposes to

eliminate the certified-list requirement

and OSR alternative, and thus their

attendant costs, and replace them with

the annual scaled administrative fees

proposed in this filing.4 Nasdaq will

retain the right to demand a certified

usage report, paid for by the distributor

or vendor, in cases involving

discrepancies in distributor or vendor

reporting.5

Nasdaq believes that a scaled, annual

administrative fee will more closely

align data usage monitoring costs with

Nasdaq expenditures. In addition, the

new structure, will allow Nasdaq staff to

directly and uniformly apply its

expertise in data usage monitoring as

well as provide a more efficient means

of fee collection than its current

practices. Moreover, a scaled fee based

on the scope of a distributor or vendor’s

dissemination of Nasdaq data will also

permit those date distributors or

vendors to estimate their costs more

effectively. Once the proposed

administrative fee is approved, Nasdaq

will suspend indefinitely its costly and

burdensome annual certification

requirement and instead use the new

administrative fee revenue to conduct

Nasdaq-initiated OSRs, manage

distributor applications, monitor vendor

services, and perform other compliance

activities.

Finally, Nasdaq notes that its

proposed fee structure is priced at levels

similar to its current OSR fees which,

being consistently less expensive than

the cost of obtaining an independent

verification of data usage from a

certified public accountant, are used by

the majority of Nasdq realtime market

data distributors or vendors. As such

Nasdaq believes its proposal will not

result in a material increase in overall

monitoring fee burdens on most Nasdaq

data distributors or vendors.6

Nasdaq believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(5) of the

Act which requires that the rules of the

NASD provide for the equitable

allocations of reasonable, dues, fees and

other charges among members and

issuers and other persons using any

facility or system which the NASD

operates or controls.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq 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 purpose 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 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 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 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,

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 such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to the file

number in the caption above and should

be submitted by June 24, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14622 Filed 6–2–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40034; File No. SR–NSCC–

98–3)

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Notice of Filing and Order

Granting Temporary Accelerated

Approval of a Proposed Rule Change

That Establishes Additional

Procedures for Class A Surveillance of

Certain Settling Members and Permits

the Collection of Clearing Fund and

Other Collateral Deposits From These

Settling Members

May 27, 1998.

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

Securities Exchange Act of 1934

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

April 23, 1998, the National Securities

Clearing Corporation (‘‘NSCC’’) filed

with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change (File No. SR–

NSCC–98–3) as described in Items I and

II below, which items have been

prepared primarily by NSCC. The

Commission is publishing this notice

and order to solicit comments from

interested persons and to extend on an

accelerated basis temporary approval of

the proposed rule change through May

31, 1998.
30278 Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 / Notices

2The Commission has modified the text of the

summaries prepared by NSCC.

3For a complete discussion of NSCC’s Class A

surveillance procedures and collateralization

requirements, refer to Securities Exchange Act

Release Nos. 37202 (May 10, 1996), 61 FR 24993

[File No. SR–NSCC–95–17] (temporary approval of

proposed rule change) and 38622 (May 19, 1997),

62 FR 27285 [File No. SR–NSCC–97–04] (temporary

approval of proposed rule change).

4The temporary rule change also grants NSCC the

discretion to compute the continuous net settlement

component of the clearing fund requirements for

any settling member on Class A surveillance

according to an alternative formula based upon

close-out risk.

5 15 U.S.C. 78q–1(b)(3)(F).

6 Id.

7As noted in the May 1996 approval order, prior

to filing a proposed rule change seeking permanent

approval of the procedures set forth in this

temporary approval order, NSCC shall present to

the Commission a more detailed report on its

findings regarding the adequacy of the controls and

discussing any changes to be made to the

procedures.

8 17 CFR 200.30–3(a)(12).

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change seeks to

extend the temporary approval of

additional procedures which govern the

placement of NSCC members on Class A

surveillance and the clearing fund

deposit and other collateral

requirements for such members.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NSCC 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. NSCC 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

NSCC seeks to extend the temporary

approval of a rule change governing the

application of Class A surveillance

procedures and the additional

collateralization requirements to settling

members that engage in certain over-thecounter (‘‘OTC’’) market making

activities.3 To decrease the risks

associated with OTC market makers,

NSCC has added Addendum O to its

rules and procedures. Addendum O

permits NSCC to place settling members

on Class A surveillance under certain

conditions.

NSCC has also adopted an interim

collateralization policy which permits

NSCC in its discretion to require settling

members that clear for or are themselves

OTC market makers and that are placed

on Class A surveillance to deposit

special collateral in amounts based

upon the settling member’s OTC

activities relative to its amount of excess

net capital.4

NSCC believes that the proposed rule

change is consistent with the

requirements of Section 17A(b)(3)(F) 5 of

the Act and the rules and regulations

thereunder because the surveillance

procedures and additional

collateralization will facilitate the

prompt and accurate clearance and

settlement of securities transactions

and, in general, will protect investors

and the public interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will impact 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 have been

solicited or received. NSCC will notify

the Commission of any written

comments received by NSCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) 6 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

the clearing agency and generally to

protect investors and the public interest.

As the Commission previously stated, it

believes that the proposed rule change

is consistent with NSCC’s obligations

under the Act because it will help NSCC

protect itself, its members, and investors

from members that pose an increased

risk because of their involvement in

OTC market making. Supra, note 3.

Under the proposal, NSCC will

continue to have the authority with

respect to settling members which

participate in OTC market making

activities or clear for correspondents

that engage in such activity (1) to place

such members on Class A surveillance,

(2) to require such members to post

additional collateral with NSCC, and (3)

to calculate an alternative clearing fund

requirement for such members when

additional risk factors are present.

Collectively, the higher level of

surveillance, the additional level of

collateralization, and the alternative

clearing fund requirements should help

ameliorate NSCC’s exposure which in

turn should assist NSCC in fulfilling its

obligations under the Act to safeguard

securities and funds for which it has

control of or is responsible for and to

protect investors and the public

interest.7

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of filing because

accelerated approval will allow NSCC to

continue to utilize its Class A

surveillance procedures, the interim

collateralization policy, and the

alternative clearing fund formula

without interruption until it makes a

filing requesting permanent approval of

the rule change, and therefore will allow

NSCC to continue to protect itself and

its participants from the potential risks

of OTC market making activities.

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 in

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of NSCC. All submissions should

refer to File No. SR–NSCC–98–3 and

should be submitted by June 24, 1998.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NSCC–98–3) be, and hereby is,

approved through May 31, 1999.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8
Federal Register / Vol. 63, No. 106 /Wednesday, June 3, 1998 / Notices 30279

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 39903

(April 22, 1998), 63 FR 23324.

4 In Amendment No. 1, the Exchange corrected

typographical errors in the proposed rule change.

See Letter from James E. Buck, Senior Vice

President and Secretary, Exchange, to Michael

Walinskas, Deputy Associate Director, Division of

Market Regulation, Commission, dated April 29,

1998 (‘‘Amendment No. 1’’).

5On March 13, 1998, the Exchange submitted a

proposed rule change, which became effective

immediately upon filing pursuant to Section

19(b)(3)(A) of the Act, that interpreted Exchange

Rule 85 to make convertible bonds eligible for

trading in the ABS. See Securities Exchange Act

Release No. 39808 (March 26, 1998), 63 FR 15908

(April 1, 1998).

6New Rule 86 specifies that these bond trading

procedures apply only to bonds ‘‘traded through

ABS.’’ The Exchange trades certain bonds, such as

equity-linked securities, on its stock floor. These

securities are traded pursuant to NYSE equitytrading procedures and are not subject to Rule 86.

See Securities Exchange Act Release No. 32650

(July 16, 1993), 58 FR 39586 (July 23, 1993).

7See Amendment No. 1.

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

9See supra Note 5.

10See Letter from Fred Siesel, Director, Fixed

Income Markets, Exchange, to Kenneth M. Rosen,

Attorney, Division of Market Regulation,

Commission, dated May 21, 1998.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–14675 Filed 6–2–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40036; File No. SR–NYSE–

98–13]

Self-Regulatory Organizations; Order

Granting Approval of Proposed Rule

Change and Notice of Filing and Order

Granting Accelerated Approval to

Amendment No. 1 to Proposed Rule

Change by the New York Stock

Exchange, Inc., Relating to the Trading

of Bonds

May 28, 1998.

I. Introduction

On April 15, 1998, the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

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

of 1934 (‘‘Act’’)1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend its rules and procedures

governing the trading of bonds. The

proposed rule change was published for

comment in the Federal Register on

April 28, 1998.3 No comments were

received regarding the proposal. On

April 30, 1998, the NYSE filed

Amendment No. 1 to the proposed rule

change.4 This order approves the

proposed rule change. In addition, the

Commission is publishing this notice to

solicit comments on Amendment No. 1

to the proposed rule change and is

simultaneously approving Amendment

No. 1 on an accelerated basis.

II. Description of the Proposal

The NYSE proposes to amend its rules

and procedures governing the trading of

bonds. The Exchange seeks to delete

obsolete provisions of its bond trading

rules, to streamline those rules, and to

consolidate the bond trading rules in a

new Exchange Rule 86. In addition, the

proposal would amend Exchange Rule

13, Exchange Rule 61, Exchange Rule

70, Exchange Rule 72, Exchange Rule

76, Exchange Rule 79A, and Exchange

Rule 85.

The Exchange currently trades nonconvertible bonds in its Automated

Bond System (‘‘ABS’’) and convertible

bonds on its bond floor. Later this year,

the Exchange intends to move all bond

trading into the ABS.5 Currently,

various Exchange rules govern the

trading of bonds, particularly Rule 85,

governing the trading of ‘‘cabinet’’

securities. The proposed rule change

provides for uniform bond trading

procedures and consolidates those

procedures in new Rule 86.6 The rule

change: (i) incorporates into new Rule

86 the same price/time priority

matching procedures as Rule 85; (ii)

establishes appropriate cross references

to new Rule 86 in other NYSE rules; and

(iii) eliminates the rules governing

trading on the bond floor, which will no

longer be necessary.

The proposed rule change also alters

the procedure for the crossing of bonds.

Currently, Rule 85 requires that a

member hold a proposed cross for a

‘‘reasonable’’ period of time before

effecting the cross, and that the member

announce the intention to effect the

cross on the bond floor. For the

purposes of the ABS, the Exchange has

interpreted this as requiring a member

to display a proposed cross in the ABS

for two minutes prior to effecting the

trade. Based on its experience, the

Exchange represents that these crossing

procedures are no longer necessary.

Another change to the bond trading

rules moves the rules governing

transactions at wide variations from

Rule 79A.40 to new Rule 86(g). For nonconvertible bonds, the Exchange would

retain the requirement that a Floor

Official approve all sales made two

points away from the last sale or more

than 30 days after the last transaction.

The Exchange would not apply this

requirement in all instances to

convertible bonds, noting such bonds

generally are priced in relation to the

underlying equity security. However,

new Rule 86(g) allows a Floor Governor

to impose the same requirement on the

trading of convertible bonds if market

conditions warrant.

Finally, Amendment No. 1 to the

proposed rule change corrects

typographical errors in the original

submission.7

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirement of

Section 6 of the Act. In particular, the

Commission believes the proposal is

consistent with Section 6(b)(5) of the

Act.8 Section 6(b)(5) requires, among

other things, that the rules of the

Exchange ‘‘foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities’’

and ‘‘protect investors and the public

interest.’’

The proposed rule change is part of a

large effort to move bond trading from

the bond floor, where trading activity

has declined, to the ABS which should

allow for the more economic and

efficient trading of bonds.9 Moreover, by

consolidating bond trading procedures

in a new Rule 86 and more clearly

defining aspects of the ABS in that rule,

bond trading at the Exchange should

become more transparent for investors

and market participants.

As for the proposed changes to the

crossing procedures under the ABS, the

Commission is satisfied that safeguards

will prevent crosses from occurring in

the ABS, under new Rule 86, at quotes

outside of the spread reflecting the best

bid and best offer in the ABS. The ABS

will not allow for trading below and

above the highest bid and lowest offer

prices in the ABS without first

completing orders at better prices.10

And although new Rule 86 will no

longer require that a member hold a

proposed bond cross for a ‘‘reasonable’’

period of time before effecting that

cross, the Commission accepts that the

infrequency and small size of crosses for

bonds,—a distinct type of security

traded at the Exchange,—makes this

permissible. The Commission also notes

the character of bond crosses on the

Exchange, with most crosses involving

bond brokers receiving matching buy

and sell orders from two different