Federal Register / Vol. 63, No. 110 /Tuesday, June 9, 1998 / Notices 31539

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

2The complete text of the proposed rule change

is attached as Exhibit A to GSCC’s filing, which is

available for inspection and copying at the

Commission’s public reference room and through

GSCC.

3The Commission has modified the text of the

summaries prepared by GSCC.

4Currently, GSCC’s clearing banks are The Bank

of New York and The Chase Manhattan Bank.

Under the proposed rule change, any clearing bank

that meets GSCC’s operational requirements will be

able to provide GCF Repo settlement services to

GSCC netting members.

5Because GCF Repo trades will be conducted on

a blind-brokered basis, the specific collateral will

not be know at the time of the trade. Brokers will

submit all GCF Repo trades to GSCC using generic

general collateral CUSIPs that denote the

underlying security. GSCC expects that the initial

types of generic CUSIPs that will be used for GCF

Repo activity will denote the following categories

of securities: all Treasury securities, Treasury

securities with a remaining maturity of ten years

and under, all Fedwire-eligible Agency securities,

and all Fedwire-eligible mortgage-backed securities.

GSCC will continuously review with the members

of its Repo Implementation Committee and with

appropriate Bond Market Association committees

the appropriateness of making eligible other types

of generic CUSIPs.

with the New Management Agreements,

after the requisite shareholder approval

of the New Management Agreements is

obtained, or (b) to such Investment

Company in the absence of shareholder

approval.

3. The Investment Companies will

convene special meetings of

shareholders to approve the New

Management Agreements on or before

the 150th day following termination of

the Current Management Agreements

(but in no event later than November 30,

1998).

4. The Investment Companies will not

bear the costs of preparing and filing the

Application, or any costs relating to the

solicitation of approval of each

Investment Company’s shareholders of

the New Management Agreements.

These costs will be borne by MCM and

World.

5. MCM, World, and Framlington will

take all appropriate actions to ensure

that the scope and quality of investment

management services provided to the

Investment Companies during the

Interim Period will be at least

equivalent, in the judgment of the

Boards, including a majority of the noninterested directors/trustees, to the

scope and quality of such services

provided prior to the Interim Period. In

the event of any material change in

personnel providing services pursuant

to the New Management Agreements,

MCM, World, or Framlington

Management, as appropriate, will

apprise and consult with each Board to

assure that the Board, including a

majority of the non-interested directors/

trustees, is satisfied that the services

provided will not be diminished in

scope or quality.

For the SEC, by the Division of Investment

Management, under delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15277 Filed 6–8–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40057; File No. SR–GSCC–

98–02]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of a Proposed

Rule Change Regarding the

Implementation of the GCF Repo

Service

June 2, 1998.

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

Securities Exchange Act of 1934

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

April 10, 1998, the Government

Securities Clearing Corporation

(‘‘GSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

the proposed rule change as described

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

have been prepared primarily by GSCC.

The Commission is publishing this

notice to solicit comments from

interested persons on the proposed rule

change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change will allow

GSCC to implement a new service called

the ‘‘GCF Repo service.’’ The GCF Repo

service will allow GSCC’s dealer

members to trade general collateral

repos involving Government securities

throughout the day without requiring

intraday, trade-for-trade settlement on a

delivery-versus-payment (‘‘DVP’’)

basis.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

GSCC 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. GSCC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.3

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The GCF Repo service has been

developed as part of a collaborative

effort among GSCC, its clearing banks,4

industry representatives service on

GSCC’s Repo Implementation

Committee, and its associated GCF Repo

Working Group.

(1) General

The GCF Repo service will enable

netting members of GSCC that are not

interdealer brokers (‘‘dealers’’) to trade

general collateral repos, based on rate

and term, with interdealer broker

netting members of GSCC (‘‘brokers’’) on

a blind basis throughout each day.

Brokers will be required to submit GCF

Repo trade data to GSCC within five

minutes of trade execution through a

new terminal function. Brokers will not

be able to submit GCF Repo trades in

batch. Upon receipt of the trade data,

GSCC immediately will report

transaction details to dealers through a

terminal dynamic display facility, and

the GCF Repos will receive GSCC’s

settlement guarantee. Standardized,

generic CUSIP numbers established

exclusively for the GCF Repo service

will be used to specify the acceptable

type of underlying Fedwire book-entry

eligible collateral, which will include

Treasuries, Agencies, and mortgagebacked securities.5

Daily submission cutoff for GCF Repo

trades will occur five minutes after a

predetermined trading deadline, which

initially will be 3:30 p.m. GSCC will

reject all trades submitted for same-day

processing that are received after the

cutoff. Dealers initially will have until

3:45 p.m. to affirm or disaffirm trade

data submitted against them by a broker.

If a dealer takes no action either to

affirm or to disaffirm trade data, the

trade automatically will be deemed to

be affirmed. GSCC will then conduct an

afternoon net exclusively for GCF Repo

activity and will establish a single net

receive or deliver obligation for dealer

members in each generic CUSIP.

Each dealer with a net deliver

obligation will allocate acceptable

securities (determined by the generic

CUSIP) and will deliver those securities

on a DVP basis to a GSCC account

within the dealer’s clearing bank using

a modified triparty arrangement. GSCC

will then instruct the clearing bank to

deliver those securities to dealers that

have net receive obligations. All GCF

Repo activity will settle between dealers
31540 Federal Register / Vol. 63, No. 110 /Tuesday, June 9, 1998 / Notices

6 GSCC currently is engaged in discussions with

staff of the Federal Reserve Bank of New York

regarding the appropriateness of GSCC’s proposed

means for accomplishing ‘‘after-hours’’ interbank

securities allocations. Assuming a satisfactory

resolution of the issues involved, which may

require, among other things, the Board of Governors

of the Federal Reserve System to issue for public

comment GSCC’s proposal for the opening of the

securities Fedwire after its normal close, GSCC

expects to expand the GCF Repo product to allow

a participating dealer to engage in GCF Repo trading

with dealers that use different clearing banks.

7 GSCC will consider expanding the GCF Repo

service to allow for direct dealer input of data on

dealer-to-dealer trading at some point in the future

when real time processing capabilities have been

established between dealers and GSCC.

8 GSCC will send a message to participants fifteen

minutes prior to running the automated process that

will affirm all pending trades.

and GSCC within the dealers’ clearing

banks.

GSCC initially will implement the

GCF Repo product offering within each

participating clearing bank separately.

As a result, a participating dealer will be

able to trade GCF Repos only with other

dealers that use the same clearing bank.

This will allow GSCC time to monitor

and review the GCF Repo process as it

operates on a limited basis, to detect

processing inefficiencies before the

service is made more broadly available,

and to determine how best to effect

after-hours interbank securities

allocations.6

(2) Participant Eligibility

To be eligible for the GCF Repo

service, brokers and dealers will be

required to meet the qualifications for

repo netting membership as defined in

GSCC’s rules. In addition, dealer

members will be required to designate

the brokers that are authorized to submit

GCF Repo trades on their behalf. GSCC

members that wish to become eligible to

use the GCF Repo service also will be

required to test with GSCC and to

demonstrate that they are able to submit

data to and to receive output from GSCC

in the communications links, formats,

timeframes, and deadlines established

for the service.

(3) Securities Eligibility

Initially, the securities eligible for the

GCF Repo service will be U.S. Treasury

securities (other than inflation-indexed

securities or STRIPs), Agency securities

that are not mortgage-backed, and bookentry mortgage-backed securities that

are Fedwire-eligible. GSCC will

continuously review with the members

of its Repo Implementation Committee

and appropriate Bond Market

Association committees the

appropriateness of making eligible other

types of securities.

(4) Broker Submission

All GCF Repos will be executed by

dealers as money-fill transactions

through eligible GSCC brokers on a

blind-brokered basis.7 Brokers will be

required to submit GCF Repo trades

within five minutes of trade execution.

Each GCF Repo trade will have a single

dealer on the repo side that is matched

to a single dealer on the reverse side. To

facilitate this prompt submission, GSCC

will implement a new terminal facility

that will provide the following services:

(a) Large Trade Submission. Brokers

will be able to submit GCF Repo trades

to GSCC having a principal values of up

to $2 billion. The current maximum

transaction size is $50 million.

Therefore, for a $2 billion trade, a broker

will be able to make a single entry

instead of the eighty entries that would

currently be required to satisfy both

sides of the trade. GCF Repos will have

a $1 million minimum transaction size

and a $1 million multiple requirement.

(b) Single Screen Entry. Brokers will

be able to submit data simultaneously

for both the repo and reverse sides of

the trade using a single screen.

(c) Data Entry Short-Cuts. The screen

design will require brokers only to enter

critical fields. GSCC automatically will

populate certain fields, such as trade

date and start date, with default values.

Brokers will not have to enter any

information that differs from the default

values. The system also will

automatically calculate the end money

for the repo based on start amount, term

and rate.

In addition to these specific broker

submission services, GSCC will require

that every broker participating in GCF

Repo provide its terminal on GSCC’s

premises, so that GSCC operations staff

can monitor whether the broker is

satisfactorily fulfilling its GCF Repo

trade submission responsibilities.

(5) Trade Recording and Dealer

Notification

GSCC will immediately record, as

compared, all GCF Repos upon receipt

of trade data from the brokers. This type

of ‘‘locked-in’’ trade recording, called

broker-assisted processing, will replace

the traditional matched comparison

process. As a result, both the repo and

reverse sides of the transaction will be

processed solely based upon broker

input without requiring the submission

and matching of corresponding trade

details from the dealer members.

By using input from a single,

approved submission source (i.e.,

brokers) to process GCF Repos, the

intrinsic limitations and processing

delays associated with two-sided

comparison will be avoided. This is

especially important in order to

effectively net each dealer’s GCF Repo

activity on a real time basis, as opposed

to the overnight process that is currently

performed for regular buy/sell and repo

activity.

Upon receipt of trade data from the

brokers, GSCC will immediately provide

dealers with GCF Repo transaction

details by way of a dynamic, real time,

online display. The most recent trades

will be displayed in a window at the

bottom of these screens while current

position information will be displayed

at the top of the screen. Position

information will be available at both the

individual CUSIP level and the

cumulative, overall level.

(6) Dealer Affirmation

Dealers will have an obligation to

promptly review GCF Repo trades and

either affirm or disaffirm them.

Affirming a trade will indicate that the

dealer recognizes the trade and agrees to

its terms. If a dealer disaffirms a trade,

its GCF Repo position automatically

will be adjusted, and a notification will

be sent to the broker for prompt

resolution. During the affirmation

process, dealers will have the ability to

provide their reference number. Entry of

a reference number will result in the

automatic affirmation of the trade.

Any trade that has not been affirmed

or disaffirmed by the close of business

will be affirmed automatically by the

system.8 Because prompt review of

transactions is critical in a same-day

processing environment, GSCC will

assess penalties for late dealer

affirmations.

(7) GCF Repo Netting and Position

Reporting

GSCC will net all GCF Repo trades

intraday for each dealer into a single net

settlement position for each generic

general collateral CUSIP submitted. This

position will represent the aggregate net

dollar amount borrowed by the repo

dealer or ‘‘loaned’’ by the reverse dealer.

Each day, GCF Repo netting will

consist of adding all of the carryover

activity (i.e., previous term and

previously submitted forward-starting

activity that is starting on the current

day) for GCF Repos together with the

current day’s activity. As a result,

positions associated with term repos

will be renetted each day with the

dealer’s current activity. GSCC will

provide netting results to the clearing

banks and its netting dealer members.

Clearing banks participating in GCF

Repo will be responsible for notifying
Federal Register / Vol. 63, No. 110 /Tuesday, June 9, 1998 / Notices 31541

9Because all GCF Repos will be processed using

generic CUSIPs, the underlying collateral will not

be marked by GSCC. However, clearing banks will

be responsible for ensuring that allocated collateral

conforms to the terms of the contract and that the

collateral value is equal to 100% of the principal

value of the repo.

10The rate differential will be equal to the

difference between the contractual repo rate for the

term and the GSCC replacement cost repo rate.

their members regarding the allocation

of collateral and the transfer of funds.

GSCC will carry every GCF Repo trade

in its system and will be responsible for

maintaining a database of all financial

data for the repos that are traded. This

will include tracking all relevant terms

of each transaction and insuring that the

appropriate final settlement amounts are

paid at the conclusion of each repo.

Real time, online output will be

provided to brokers, dealers, and the

clearing banks over GSCC terminals to

provide all transaction and position

information necessary for the intraday

processing of GCF Repo activity.

Brokers and dealers will have the ability

to view real time position information,

both at the individual CUSIP and

overall position levels, on their

terminals throughout the day. The

bottom of each position screen also will

include a revolving dynamic display of

the five most recent transactions

processed against that participant. Each

clearing bank will have the ability to

monitor the positions of its clearing

members using its terminal and also

will be able to monitor projected

interbank position and funds

movements when that service is made

available.

(8) Securities Allocation

Each dealer that is a net lender of

securities through GCF Repo will be

responsible for allocating the

appropriate collateral (as defined by the

generic general collateral CUSIP) to its

clearing banks using whatever

mechanism it mutually agrees upon

with the bank. All such collateral

movements will be made on a DVP basis

to and from a GSCC account. Dealers

will have to give priority to the

allocation of GCF Repo collateral so that

reallocation to the ultimate customer

may occur promptly. To encourage

timely collateral allocation, GSCC will

impose a penalty on collateral

allocations that are made after 4:30 p.m.

Allocations not made by 7:00 p.m. will

be considered fails.

Dealers that receive securities as the

result of reverse GCF Repos will be

required to reallocate them to a location

that is available for reversal before the

opening of the securities wire on the

next day. Examples of these locations

are overnight triparty repos, hold-incustody repos, and bank loans.

(9) Next-Day Return of Collateral

All GCF Repo positions will be

reversed on the morning of the next

business day prior to the opening of the

securities Fedwire. This next day

reversal will occur for all GCF

transactions regardless of the term of the

transaction. The repos themselves will

be fully collateralized intraday by cash.

(10) Risk Management

GCF Repo transactions and resulting

settlement obligations will be subject to

all of GSCC’s existing risk management

processes. GSCC will be able to

appropriately assess its members’

overall, cumulative exposure as a result

of their combined DVP buy/sell and

repo activity and their GCF Repo

activity.

(a) Interest Rate Mark-to-Market.

GSCC employs a forward margin

process to protect GSCC and its

members against market value

fluctuations in securities prices and

repo interest rates for guaranteed trades

from their submission date through to

their settlement date. This process is

required because in the event of a

participant default, GSCC, as transaction

guarantor and counterparty, must

maintain funds sufficient to replace the

defaulting member’s settlement

obligations at their current market

value. Therefore, each day all

outstanding trades are marked from

contract value to market value. For

repos, this mark-to-market includes the

cost of financing from the later of the

start date or the current date to the

scheduled end date. Forward margin

debits and credits are settled each day

through GSCC’s daily funds-only

settlement process.

GSCC will perform a daily interest

rate mark-to-market for all term GCF

Repo activity to bring transactions to

their current replacement value.9 The

mark will result in the daily collection

and pass-through of accrued repo

interest to date plus or minus the repo

rate differential.10 The GCF Repo

interest rate mark will be incorporated

into GSCC’s regular daily funds-only

settlement process. Additionally, there

will be a separate marking process for

forward-starting GCF Repos that will be

the same as the marking process

currently employed for marking

forward-starting DVP repos.

(b) Clearing Fund. GSCC requires its

netting members to maintain deposits in

the GSCC clearing fund account to

provide adequate risk protection and

liquidity in the event of a participant

failure. The clearing fund guards against

potential market exposure that could

occur between the current date and the

liquidation date of an insolvent

participant’s obligations. GSCC

accomplishes this by calculating the net

effect of: (1) Estimated daily changes in

the value of the securities underlying

each participant’s transactions; (2)

estimated daily fluctuations in repo

rates for the participant’s repo activity;

and (3) each participant’s estimated

funds settlement exposure. All of these

estimates of exposure are based on an

extensive analysis of historical rate and

price volatility and cover at least two

standard deviations of all historical

movements. GCF Repo activity will be

included in all three clearing fund

calculations.

(i) Securities Liquidation Component

The risk associated with security

receive and deliver obligations is based

on price volatility. If a participant were

to default, GSCC would ensure that all

of that participant’s obligations settled.

This would expose GSCC to differences

in current market value and liquidation

value. The securities liquidation

component of the clearing fund

accounts for this exposure. In order to

provide appropriate protection for the

market risk associated with the

underlying collateral, for GCF Repo

activity GSCC will calculate the

securities liquidation component based

upon a representative portfolio of

securities as designated by each generic

general collateral CUSIP.

(ii) Repo Volatility Component

Where market exposure related to the

underlying collateral is provided for in

the securities liquidation component of

the clearing fund, the risk pertaining to

the interest amount is accounted for in

the repo volatility component. The repo

volatility component estimates the

amount repo rates might change over

the course of a repo. Calculations for

this component are based on analysis of

historical repo rate volatility.

(iii) Funds Adjustment (‘‘FAD’’)

Component

The FAD portion of the clearing fund

is based on each participant’s average

funds-only settlement amount. The

relevant variable in this calculation is

the size of the settlement amount. It

does not matter whether the funds are

collected or paid. The FAD component

is the average of the absolute value of

the twenty largest funds-only settlement

amounts over the most recent seventyfive business days.

(c) Intraday Risk Protections. GSCC

plans to manage intraday risk by

maintaining the capability to run

clearing fund calculations multiple
31542 Federal Register / Vol. 63, No. 110 /Tuesday, June 9, 1998 / Notices

11 15 U.S.C. 78q–1.

times throughout the day to assess the

impact of significant changes in position

on clearing fund deposit requirements

and by making margin calls as

necessary. Further, the calculation of

net settlement positions arising from

GCF Repo activity will be dynamic

which will allow GSCC and clearing

banks to perform real time position

monitoring.

(d) Loss Allocation Procedure. GSCC

has analyzed the appropriateness of its

current loss allocation procedure in

light of the unique aspects of the GCF

Repo service. GSCC has concluded that

its current loss allocation procedure

remains the most fair and equitable

means of allocating any loss that might

arise from the insolvency of a member

that engaged in GCF Repo activity.

Thus, GSCC’s loss allocation procedure

will remain the same for GCF Repo

activity.

(11) Trade Modification/Cancellation

The rules for GCF Repo trade

modification are: (1) Any data input

field on an unaffirmed trade may be

modified unilaterally by the broker at

any time during the processing day and

(2) dealers may not modify any data on

GCF repos; rather they must cancel (or

request cancellation of) the trade. The

modification of an unaffirmed trade will

result in the immediate replacement of

the original trade and all affected

processing screens will be immediately

updated accordingly.

The submission of a request for

cancellation of an affirmed trade will

result in the generation of a trade

cancellation request to the original

broker or dealer. Upon approval of the

cancel request, the approving dealer

will automatically be replaced by the

broker in the transaction. The broker

will carry the position and incur all

associated responsibilities unless and

until the broker submits a correcting

entry (i.e., an entry where the broker

enters a new single-sided transaction

with the correct dealer to eliminate the

broker’s position).

The two basic rules for canceling GCF

Repos are: (1) An unaffirmed trade may

be unilaterally canceled by either the

broker or the dealer at any time during

the processing day and (2) a trade that

has been affirmed, either by a dealer or

by the system as part of end-of-day

processing, will require bilateral

cancellation. This means that a broker

may cancel a trade unilaterally at any

time during the day if it has not been

affirmed by either the dealer or by the

system. A unilateral cancellation of a

GCF Repo trade by the broker will result

in the cancellation of both sides of the

trade. Trade cancellation by the broker

will result in the cash and collateral

positions being reversed by the amount

of the canceled trade and taken out of

account balances.

A dealer may cancel a GCF Repo trade

unilaterally at any time during the day

if it has not been affirmed either by the

dealer or by the system. Trade

cancellation will result in the dealer’s

cash and collateral position balances

being adjusted by the amount of the

canceled trade, and the automatic

replacement of the dealer by the broker

in the transaction. The broker will carry

the position and incur all associated

responsibilities unless and until the

broker submits a correcting entry (i.e.,

an entry where the broker enters a new

single-sided transaction with the correct

dealer to eliminate the broker’s

position). Cancellation of a trade by the

dealer results in the cancellation of that

dealer’s side only. The other dealer’s

side of the trade will remain intact.

Cancellation of trades that have been

affirmed by the dealer or by the system

will be required to be bilateral (i.e., if

the dealer requests a cancellation, the

broker must approve it and vice-versa).

A dealer or broker request for

cancellation of an affirmed trade that is

not acted upon by the counterparty will

require manual intervention by GSCC

operations to determine whether or not

the trade should be canceled.

(12) Output and Reports

GSCC will establish a separate

reporting stream to produce a full range

of machine-readable output (‘‘MRO’’)

and print image end-of-day reports for

the GCF Repo service, which will be

substantially similar to the output

currently provided to participants in

conjunction with their regular cash and

repo trading activity. In accommodating

the GCF Repo service, GSCC will

attempt to limit the number and

magnitude of changes made to existing

MRO formats in order to minimize the

development effort required by

participating members.

(13) Benefits

GSCC believes that the GCF Repo

service will bring numerous benefits to

the Government securities marketplace,

including the following:

(a) Increased Liquidity. The GCF Repo

service should improve market liquidity

by adding an additional resource to

current borrowing options (i.e., bank

loans and triparty repos). Liquidity

should be further enhanced by

providing to the dealer community open

access to a multitude of funds providers

and by allowing for the bulk movement

of collateral between dealers.

(b) Enhanced Ability to Trade General

Collateral Repos. The GCF Repo service

should enhance the ability to trade

general collateral repos by removing the

current constraints of collateral

allocation and notification imposed on

every transaction. As a result, dealers

will be able to freely trade rate and term

while having only one settlement on a

net basis at the end of the day.

(c) Additional Collateral Source. The

GCF Repo service provides an

alternative vehicle for dealers to buy or

sell collateral, finance positions, or

swap collateral.

(d) Risk Protection. Through netting

and novation, GSCC will become the

legal contraparty to all GCF repos

within minutes of execution and

thereby eliminate counterparty risk. In

addition to GSCC’s current risk

management procedures, dynamic risk

assessment processes will be

implemented to address any intraday

risk associated with the GCF Repo

service.

(e) Open Access. The GCF Repo

service will be available to a broad

spectrum of industry participants. These

will include brokers, dealers, securities

lenders, money borrowers, and any

qualified clearing bank that provides

clearance services to GSCC members.

(14) Statutory Basis for the Proposed

Rule Change

GSCC believes that the proposed rule

change is consistent with the

requirements of the Section 17A of the

Act 11 and the rules and regulations

thereunder because they will allow

GSCC to offer to all of its netting

members on an equal basis a service that

will provide them with enhanced ability

to engage in general collateral trading

activity in a safe and efficient manner.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule change will have an

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

Written comments relating to the

proposed rule change have not yet been

solicited or received. GSCC will notify

the Commission of any written

comments received by GSCC.
Federal Register / Vol. 63, No. 110 /Tuesday, June 9, 1998 / Notices 31543

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Phlx Rule 1101A(b)(iii). Long term options

are also known as LEAPs.

4The Exchange submitted a pre-filing on April

30, 1998 in accordance with the Generic Index

Approval Order. See Generic Index Approval Order,

infra note 7. Since the pre-filing the Exchange has

changed the name of the Index from the ‘‘Over-TheCounter Most Active Index’’ to the ‘‘Over-TheCounter Prime Index’’ and the trading symbols have

changed. However, the Exchange represents that

none of the other contract specifications have been

modified since the pre-filing.

5Since the pre-filing on April 30, 1998, the

Exchange added three stocks to the Index increasing

the number of components in the Index from 12 to

15 in order to alleviate concerns regarding the

concentration of the five highest-weighted

securities.

6Most active is defined as those underlying

securities which had the largest trading volume in

the previous year.

7See Securities Exchange Act Release No. 34157

(June 3, 1994) 59 FR 30062 (June 10, 1994) (order

approving File Nos. SR–Amex–92–35; SR–CBOE–

93–59; SR–NYSE–94–17; SR–PSE–94–07; and SR–

Phlx–94–10). The Generic Index Approval Order

established generic listing standards for options on

narrow-based indexes and adopted streamlined

procedures for introducing trading in options

satisfying the generic listing standards.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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,

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

Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of GSCC. All submissions should

refer to File No. SR–GSCC–98–02 and

should be submitted by June 30, 1998.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–15214 Filed 6–8–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40058; File No. SR–Phlx–

98–21]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to the Listing and Trading of

Options on the Over-The-Counter

Prime Index

June 2, 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 May 15,

1998, the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 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 Phlx. 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 Phlx proposes to list and trade

European style, cash-settled options,

including long term options,3 on the

Over-The-Counter Prime Index 4 (‘‘OTC

Prime Index’’ or ‘‘Index’’), a price

weighted, A.M. settled index composed

of fifteen 5 stocks which are considered

the ‘‘most active’’ 6 stocks traded on the

Nasdaq market.

The Exchange is filing this proposal

pursuant to Phlx 1009A(b) which

provides for the commencement of

trading of options on the Index thirty

(30) days after the date of this filing. The

Exchange believes the proposal is in

compliance with Rule 1009A(b) and the

standards approved in the Generic

Index Option Approval Order (‘‘Generic

Index Approval Order’’).7

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

Phlx 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 Phlx 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

The purpose of the proposed rule

change is to list for trading European

style, cash-settled options on the OTC

Prime Index, a new index developed by

the Exchange pursuant to Rule 1009A(b)

in accordance with the Generic Index

Approval Order for the listing and

trading of narrow-based index options.

Options on this Index will provide a

hedging vehicle for a group of some of

the most active securities traded on the

Nasdaq market. In order to assure that

the Index reflects the most active

securities traded on the Nasdaq market,

the Index will be rebalanced annually to

reflect the previous year’s fifteen most

actively traded issues.

Pursuant to Rule 1009A, (1) the

options on the Index will be A.M.

settled; (2) the Index is price weighted;

(3) no one component security will

represent more than 25% of the weight

of the Index, and the five highest

weighted component securities in the

Index do not in the aggregate account

for more than 60% of the weight of the

Index; (4) each of the component

securities has a minimum market

capitalization of a least $75 million and

has a trading volume in each of last six

months of not less than 1,000,000

shares; (5) all of the components of the

Index meet the current criteria for

standardized options trading set forth in

Exchange Rule 1009 and are currently

the subject of listed options on U.S.