33424 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices

3 In 1994, the CBOE established a monthly $350

fee for the basic ILX news package to members with

ILX/WDN PC terminals at their floor booth

locations. See Securities Exchange Act Release No.

33983 (April 29, 1994), 59 FR 23756 (May 6, 1994).

In 1995, the CBOE established monthly fees for

optional ILX news, market data and informational

features available on terminals at member firm

booth locations. See Securities Exchange Act

Release No. 36349 (October 6, 1995), 60 FR 53651

(October 16, 1995).

4The Regulatory Circular will list all currently

available ILX optional features and current fees,

although some fees have not changed since the 1995

filing referenced in note 3 above.

5 In April 1998, the CBOE filed with the

Commission a proposed rule change to revise the

same ILX fees. See SR–CBOE–98–18. In May 1998,

the CBOE withdrew that filing and replaced it with

this filing, SR–CBOE–98–24, to make technical

corrections to the fees. Based on SR–CBOE–98–18

becoming effective on filing, the CBOE began

charging the revised ILX fees (as those fees were

stated in SR–CBOE–98–24) to members as of May

1, 1998.

6 15 U.S.C. 78f(b)(4).

7 15 U.S.C. 78s(b)(3)(A).

8 17 CFR 204.19b–4(e)(2).

9 17 CFR 200.30–3)a)(12).

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

2Securities Exchange Act Release No. 40042 (May

28, 1998), 63 FR 30544 (June 4, 1998).

3For a complete description of the hedge

program, refer to Securities Exchange Act Release

No. 32638 (July 15, 1993), 58 FR 39264 (July 22,

1993) [File No. SR–OCC–92–34] (order approving

proposed rule change).

4For a detailed section-by-section discussion of

the specific changes to OCC’s By-Laws and Rules

refer to Securities Exchange Act Release No. 40042,

supra note 2. The rule change adds a new Rule 2201

to OCC’s rules. As a result, Rules 2201–2210 have

been renumbered 2202–2211 and they are referred

to in this order by their revised numbers.

5Clearing members that are approved to

participate in the hedge program are referred to as

‘‘hedge clearing members.’’ A clearing member that

lends stock through the hedge program is referred

to as a ‘‘lending clearing member,’’ and a clearing

member that borrows stock through the hedge

program is referred to as a ‘‘borrowing clearing

member.’’

In the past, the Commission approved

the basic ILX package fee and optional

ILX news and information service fees

for member firms accessing the services

from terminals located in trading floor

booths.3 Members can now more readily

access optional ILX services from

numerous CBOE-owned kiosk terminals

located throughout the trading floor, as

well as from firm booth terminals.

The revised ILX fees will be outlined

in detail in a Regulatory Circular which

will be issued to the Exchange’s

membership.4 An individual member

can request optional ILX features to be

displayed on a CBOE-owned kiosk

terminal by submitting to the Exchange

an Entitlement Request form, and

entering an ILX user identification

number of the kiosk terminal. ILX will

then switch on the chose feature(s) or

‘‘entitlement(s)’’ from a remote location

to enable that terminal to receive the

data.

The revised ILX optional fees will be

effective retroactive to May 1, 1998.5

2. Statutory Basis

The CBOE believes that the proposed

rule change is consistent with Section

6(b)(4) of the Act,6 in that it is designed

to provide for the equitable allocation of

reasonable dues, fees, and other charges

among CBOE members, issuers, and

other persons using CBOE facilities.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE 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 solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change establishes

or changes a due, fee, or other charge

imposed by the Exchange and, therefore,

has become effective pursuant to

Section 19(b)(3)(A) of the Act 7 and

subparagraph (e)(2) of Rule 19b–4

thereunder.8 At any time within 60 days

of the filing of the proposed rule change,

the Commission may summarily

abrogate such rule change if it appears

to the Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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, 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, N.W.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of CBOE. All submissions should

refer to File No. SR–CBOE–98–24 and

should be submitted by July 9, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 98–16260 Filed 6–17–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40083; File No. SR–OCC–

98–03]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Granting Accelerated Approval of a

Proposed Rule Change Relating to the

Stock Loan/Hedge Program

June 11, 1998.

On April 13, 1998, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–98–03) pursuant to Section

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

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on June 4, 1998.2 No comment letters

were received. For the reasons

discussed below, the Commission is

granting accelerated approval of the

proposed rule change.

I. Description

OCC’s stock loan/hedge program

(‘‘hedge program’’) is a clearing system

for stock loans between OCC clearing

members.3 The rule change amends

OCC’s By-Laws and Rules governing the

hedge program.4

A. Stock Loan Initiation and Mark-toMarket Payments

Currently under the hedge program, a

stock loan is initiated when two hedge

clearing members agree on the terms of

the loan.5 Next, the lending clearing

member transfers the stock to OCC’s

account at a ‘‘correspondent depository’’
Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices 33425

6OCC rule 602 describes the calculation of

margin requirements for securities which are

neither equity securities nor based on equity

securities. This margin system is sometimes

referred to as OCC’s ‘‘NEO’’ or ‘‘non-equity option’’

margin system.

7OCC’s authority to determine haircuts is set

forth in OCC Rule 602(c)(1)(ii)(C)(1).

(i.e., a clearing agency which is

registered with the Commission, which

acts as a securities depository and at

which OCC has an account). OCC then

directs the correspondent depository to

redeliver the stock to the borrowing

clearing member against payment of the

required collateral amount. OCC then

pays the required collateral amount to

the lending clearing members.

Under the rule change, OCC will not

participate in a stock loan transaction

until after the hedge clearing members

that are parties to the stock loan have

transferred the securities and required

collateral between themselves through

the facilities of The Depository Trust

Company (‘‘DTC’’). Upon receiving

notice of the stock loan from DTC, OCC

will verify the accuracy of the clearing

members’ account numbers and the

information supplied to OCC with

respect to the transaction. If this

information is verified, OCC will accept

the loan into the hedge program. Upon

OCC’s acceptance of the loan, the stock

loan contract will be replaced by two

parallel contracts with congruent terms:

one between the lending clearing

member and OCC as stock borrower and

one between the borrowing clearing

member and OCC as stock lender. If

OCC rejects a stock loan transaction, the

transaction will remain in effect

between the lending clearing member

and the borrowing clearing member but

will be outside the hedge program.

B. Eligible Stock

Currently, the only stocks that are

eligible for the hedge program are stocks

that are the underlying stocks for stock

option contracts. Under the rule change,

all equity securities that are eligible for

deposit at DTC will be eligible for the

hedge program (other than any stock as

to which OCC has made a determination

pursuant to Article XXI, Section 2(c) of

its By-Laws to terminate all outstanding

stock loans relating to that stock).

C. Collection of Margin on Stock Loan

and Borrow Positions

Currently a hedge clearing member is

required to deposit margin with OCC to

cover OCC’s risk that the market will

move against the member’s stock loan

and borrow positions during a day and

that the member will fail before making

the required mark-to-market payment on

the next business day. All stock loan

and stock borrow positions are taken

into account in calculating each clearing

member’s obligation to deposit

‘‘additional margin’’ with OCC and may

generate either an increased additional

margin requirement (if the stock loan or

borrow positions do not hedge other

positions of the clearing member) or a

reduced additional margin requirement

(if the stock loan or borrow positions do

hedge other positions of the clearing

member).

Under the rule change, a clearing

member will be able to designate one or

more of its accounts with OCC as

‘‘margin-ineligible.’’ If an account is

designated as margin-ineligible, OCC

will not include any stock loan and

stock borrow positions carried in that

account in the calculation of the

clearing member’s additional margin

obligations. However, margin-ineligible

accounts will be subject of the other

elements of OCC’s protection and backup systems (such as OCC’s clearing fund

and its concentration monitoring

surveillance system) to mitigate OCC’s

risk with respect to the positions carried

in those accounts.

Rule 601 currently provides that

additional margin calculations are based

in part on the ‘‘gross’’ stock loan and

borrow positions of a hedge clearing

member (i.e., without regard to whether

a position on the other side of the

market is carried in the account). The

rule change amends Rule 601(c) to state

that additional margin on margineligible stock loan and borrow positions

will be based only on the ‘‘net’’ stock

loan or borrow position in an account in

a manner analogous to the method that

OCC uses for options.

D. Stock Loan and Borrow Baskets

Under the rule change, a clearing

member will be able to instruct OCC to

treat specified stock loan positions in an

account as constituting a ‘‘stock loan

basket’’ and may instruct OCC to treat

specified stock borrow positions in an

account as constituting a ‘‘stock borrow

basket.’’ All stock loan baskets and all

stock borrow baskets will be subject to

margin under OCC’s Rule 602.6

Currently, the hedge program has no

provisions for stock loan and borrow

baskets.

The rule change amends the

definition of ‘‘class group’’ in Rule

602(b)(2) to state that OCC will treat any

stock loan basket or stock borrow basket

defined by a clearing member as within

the class group identified by the

clearing member even if the stock loan

or borrow positions the basket do not

replicate the composition or weighting

of the index group for the class group

and even if the stocks underlying the

identified stock loan or borrow

positions are not even included in the

index group. However, a stock loan or

borrow basket that does not

meaningfully replicate the composition

and weighting of the index group for a

class group will be subject to a large

haircut when OCC takes the basket into

account in determining the additional

margin requirement for the class group.7

In addition, the rule change amends

Rule 602(c)(1)(ii)(A) to state that if a

clearing member defines two or more

stock loan baskets or two or more stock

borrow baskets in an account as within

the same class group, OCC will take

each basket into account separately and

calculate a ‘‘haircut’’ for each separately

in determining additional margin for the

class group.

The rule change also adds Rule

602(f)(8) which sets forth OCC’s

procedures if a hedge clearing member

modifies a stock loan or borrow position

that is completely or partly included in

a stock loan basket or stock borrow

basket. Rule 602(f)(8) states that if a

hedge clearing member reduces or

terminates one or more of the stock loan

or borrow positions that are included in

a stock loan or borrow basket OCC will

regard any stock loan or borrow

positions remaining in the basket as a

new basket in the same class group as

the previous basket unless the hedge

clearing member instructs OCC

otherwise. In addition, Rule 602(f)(8)

states that if a hedge clearing member

reduces a stock loan or borrow position

that is partially included in a stock loan

or borrow basket OCC will regard the

entire remaining stock loan or borrow

position as having been withdrawn from

the basket unless the hedge clearing

member instructs OCC otherwise

through standing instructions or timely

instructions after the reduction of the

position.

E. Stock Loan Termination and Hedge

Member Suspension

Under the current hedge program, the

termination of a stock loan begins when

the borrowing clearing member transfers

the stock to OCC’s account at the

corresponding depository. Next, OCC

directs the correspondent depository to

redeliver the stock to the lending

clearing member against payment of the

collateral amount to OCC. OCC then

pays the collateral amount to the

borrowing clearing member. Under the

rule change, a stock loan will be

terminated when the borrowing clearing

member transfers the stock to the

lending clearing member’s account at

DTC against payment by the lending
33426 Federal Register / Vol. 63, No. 117 /Thursday, June 18, 1998 / Notices

8 In such cases, OCC will instruct the hedge

clearing member that has not been suspended to

terminate the stock loan contract through the

process set forth in revised Rules 2210(b) and 2211,

as described above.

9 15 U.S.C. 78q–1(b)(3)(F).

10 15 U.S.C. 78q–1.

11 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3On June 12, 1998, the Exchange filed

Amendment No. 1 to the proposed rule filing, the

substance of which is incorporated into the notice.

See letter from Edith Hallahan, Associate General

Counsel, Phlx, to Michael Walinskas, Deputy

Associate Director, Market Regulation, Commission,

dated June 11, 1998.

clearing member of the collateral

amount.

The rule change adds an

interpretation to section 2 of Article XXI

of the By-Laws to address situations in

which the termination of a stock loan is

reported to OCC at a settlement price

(i.e., the amount of collateral that the

lending clearing member must return to

the borrowing clearing member) that is

not consistent with OCC’s records. A

similar interpretation is added to Rule

2209 to address situations in which

OCC receives a report of the termination

either of a purported stock loan that

does not exist on OCC’s records or of a

stock loan on OCC’s records in a

quantity that does not match the

quantity in the termination report. In

each case, the interpretation states that

OCC’s records will be dispositive in

both of these situations and that OCC

will not accept any responsibility for

reconciling the discrepancy between its

record and those of the affected clearing

members.

The rule change also provides for an

alternative termination process if OCC

has suspended a hedge clearing

member. Under the rule change, Rules

2202(c) and 2208(c) are amended to give

OCC the express authority to instruct

each hedge clearing member on the

other side of a suspended clearing

member’s stock loans to terminate the

stock loan in a manner other than the

standard terminated described above.

The rule change amends Rules 2210(b)

and 2211 to allow OCC to direct the

hedge clearing member that has not

been suspended to use the collateral to

buy in the loaned stock (if the

suspended clearing member is the

borrowing clearing member) or to sell

out the loaned stock and apply the

proceeds to the repayment of the

collateral (if the suspended clearing

member is the lending clearing

member).

The rule changes amends Rule

2210(a) to state that if DTC suspends

one of the parties to a stock loan prior

to the time at which OCC would have

otherwise accepted the stock loan into

the hedge program, OCC will not accept

the stock loan. Rule 2210(a) is also

amended to state that OCC will accept

any stock loan that complies with the

completeness and accuracy

requirements of Rule 2202(b) even if

OCC suspends one of the hedge clearing

members which is a party to the stock

loan prior to the time at which OCC

accepts the stock loan.8

II. Discussion

Section 17A(b)(3)(F) of the Act 9

requires that the rules of a clearing

agency by designed to remove

impediments to and perfect the

mechanism of the national system for

the prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that the rule

change is consistent with OCC’s

obligation under Section 17A(b)(3)(F)

because it should increase the use of

OCC’s hedge program which should in

turn help to improve the efficiency and

safety of stock lending transactions.

Specifically, the Commission believes

that increased use of the hedge program

should reduce exposure to counterparty

default, increase payment netting,

reduce collateral requirements, and

apply advanced clearing and risk

management practices to the stock loan

market. Accordingly, the Commission

believes that the rule change should

enable OCC to remove impediments to

and help perfect the mechanism of the

national system for the prompt and

accurate clearance and settlement of

securities transactions.

OCC requested that the Commission

approve the proposed rule change prior

to the thirtieth day after the publication

of notice of the filing. The Commission

finds good cause for approving the

proposed rule change prior to the

thirtieth day after publication of notice

because such approval should allow

OCC to provide needed assurances to

clearing members that the hedge

program will be implemented, should

OCC to institute changes to the hedge

program to make it more attractive to

clearing members and should allow

OCC to train hedge clearing members on

the new system interfaces. These

changes should result in increased

efficiency in the clearance and

settlement process for OCC’s clearing

members that use the hedge program.

The Commission also notes that the use

of the hedge program is not mandated

by OCC.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and in

particular with Section 17A of the Act 10

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

OCC–98–03) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Jonathan G. Katz,

Secretary.

[FR Doc. 98–16262 Filed 6–17–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40088; File No. SR–Phlx–

98–25]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc. Regarding the

Temporary Relocation of Phlx Dell

Options to the American Stock

Exchange, Inc. Trading Floor

June 12, 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 June 12,

1998,3 the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) 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 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

Phlx is proposing to rent facilities

from the American Stock Exchange Inc.

(‘‘Amex’’) for the trading of options on

Dell Computer Inc. (‘‘Dell’’) on the

Amex for up to six months to address

the exigency of extraordinary contract

and trade volume, unique to Phlx-traded

Dell options (‘‘Phlx Dell options’’).

Specifically, Phlx proposes to utilize the

options floor trading space and

facilities, including the quotation, order

entry, processing, execution, trade

reporting and comparison functions, of

Amex for Phlx member trades in Phlx

Dell options. Thus, Amex would rent to

Phlx a facility on Amex’s New York