39320 Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices

3 15 U.S.C. 78f.

4 15 U.S.C. 78f(b)(5).

5 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 39860

(April 14, 1998), 63 FR 19774.

3 GSCC is required to pay FOS obligations to

members by 10:00 a.m. eastern time (‘‘ET’’).

Members must satisfy clearing fund deficiencies by

the later of two hours after the receipt of GSCC’s

call or 10:00 a.m. ET. However, if the notification

is not made earlier then two hours before the close

of the cash FedWire, members may satisfy the calls

on the next business day.

4 GSCC does not plan to exercise the offset right

unless it has a significant FOS obligation to a

member (i.e., $5 million or more), and the member

has a significant clearing fund deficiency (i.e., $5

million or more).

5 GSCC plans to set the preestablished time at

fifteen minutes before GSCC’s deadline to make it

own FOS payments to members.

6Pursuant to GSCC’s existing rules, a member has

the right to substitute eligible collateral for any cash

that GSCC applies to its clearing fund deposit as a

result of an offset.

7 15 U.S.C. 78q–1(b)(3)(F).

Rule 23 contains a section on the

relationship between company officials

and Specialists designed to ensure that

the relationship is appropriate.

Consistent with that goal, the Exchange

seeks to impose a broad restriction that

Specialists cannot pay listing fees for

any issuer, whether the issue is

exclusive or not. The Exchange believes

that the proposed rule change will help

ensure that there are no incentives on

the part of issuers of Specialists that

may jeopardize or call into question the

independence of the market.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6 of the Act,3 in general, and

furthers the objectives of Section 6(b)(5)

of the Act,4 in particular, in that it is

designed to perfect the mechanisms of

a free and open market and a national

market system, and to protect investors

and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the 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

submissions, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying at

the Commission’s Public Reference

Room, 450 Fifth Street, NW,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the CHX. All submissions

should refer to File No. SR–CHX–98–15

and should be submitted by August 12,

1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19441 Filed 7–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40207; File No. SR–GSCC–

98–01]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to

Funds-Only Settlement Payment

Procedures

July 15, 1998.

On February 17, 1998, the

Government Securities Clearing

Corporation (‘‘GSCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–GSCC–98–01) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of proposal was published in the

Federal Register on April 21, 1998.2 No

comment letters were received. For the

reasons discussed below, the

Commission is approving the proposed

rule change.

I. Description

Two important elements of GSCC’s

risk management process are the daily

calculation and collection of clearing

fund deposit deficiency amounts and of

mark to the market margin. At times,

GSCC is obligated to pay a member a

FOS amount on a day on which that

member also has a clearing fund

deficiency call. Pursuant to its current

rules, GSCC is required to make the FOS

payment to such a member prior to the

time the member must make its clearing

fund deficiency payment to GSCC.3 The

proposed rule change permits GSCC to

retain FOS payments it owes to a

member and to apply such amounts to

any clearing fund deposit obligation the

member owes to GSCC.4

Under the proposed rule change,

GSCC is entitled to retain the lesser of

the FOS amount or the amount of the

clearing fund call (or the entire FOS

amount if the difference between the

amounts is zero) and apply it to the

member’s clearing fund deposit

requirement. If a member pays all or a

portion of its clearing fund deficiency in

any type of eligible collateral by a

preestablished time before GSCC’s

deadline to make its own FOS payments

to members,5 GSCC is only entitled to

retain the portion of its FOS obligation

to the member in an amount equal to the

member’s remaining clearing fund

deficiency.6

II. Discussion

Section 17A(b)(3)(F) of the Act 7

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds in

its custody or control or for which it is

responsible. The Commission believes

that the proposed rule change is

consistent with this obligation because

it will allow GSCC to increase its

control over FOS payments it owes to

members that have a significant clearing

fund deposit obligation. This should
Federal Register / Vol. 63, No. 140 /Wednesday, July 22, 1998 / Notices 39321

8 17 CFR 200.30–3(a)(12).

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

2CFR 240.19b–4.

3See Securities Exchange Act Rel. No. 39900

(April 22, 1998), 63 FR 23315.

4See letter from Sarah M. Starkweather, Vice

President and Associate General Counsel, The Bond

Market Association (‘‘TBMA’’), to Jonathan G. Katz,

Secretary, SEC, dated May 19, 1998.

5Securities Exchange Act Release No. 26985

(June 28, 1989), 54 FR 28700 (July 10, 1989).

6This compressed time frame arises as a result of

the fact that, as securities bearing short-term yields

sold at par, the market dictates that pricing (i.e., the

setting of the interest rate borne by the securities

during the initial rate period) and settlement occur

on a same-day or next-day basis.

7Standard industry practice dictated that issuers

deliver the securities to the underwriters two or

more weeks after the sale date for the securities.

8See MSRB Reports, Vol. 17, No. 2 (June 1997)

at 3–16.

help reduce the risk to GSCC that a

member will fail after it has received a

FOS payment from GSCC but before it

has satisfied its clearing fund deficiency

call. Thus, the proposal should enhance

GSCC’s risk management process.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A of the Act

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–

GSCC–98–01) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–19440 Filed 7–21–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40197; File No. SR–MSRB–

98–04]

Self-Regulatory Organizations,

Municipal Securities Rulemaking

Board; Order Granting Approval of

Proposed Rule Change Relating to

Rule G–32, on Disclosures in

Connection with New Issues

July 14, 1998.

I. Introduction

On March 25, 1998, the Municipal

Securities Rulemaking Board (‘‘Board’’

or ‘‘MSRB’’) submitted to the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’), 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 Rule G–32, on

disclosures in connection with new

issues. The proposed rule change

provides an alternate method of

compliance by brokers, dealers and

municipal securities dealers with their

obligation to deliver official statements

in final form to customers by settlement

for certain new issues of variable rate

demand obligations. Notice of the

proposed rule change appeared in the

Federal Register on April 28, 1998.3

The Commission received one comment

letter which endorsed the proposed rule

change.4 This order approves the

proposed rule change.

II. Description of the Proposal

The Board amended Rule G–32, on

disclosures in connection with new

issues, that would permit brokers,

dealers and municipal securities dealers

(‘‘dealers’’), selling variable rate demand

obligations (‘‘VRDO’s’’) to customers

during the underwriting period, to

deliver a preliminary official statement

by no later than settlement and to send

the official statement in final form

within one business day of receipt from

the issuer, provided these VRDOs

qualify for the exemption provided

under subparagraph (d)(1)(iii) of Rule

15c2–12 under the Act (‘‘Rule 15c2–

12’’).

In 1989, the Commission promulgated

Rule 15c2–12,5 which requires

underwriters in primary offerings

subject to the rule, among other things,

to contract with issuers to receive final

official statements within seven

business days after any final agreement

to purchase, offer or sell municipal

securities and to receive these

statements in sufficient time to

accompany any confirmation that

requests payment from any customer.

Commenters questioned applying this

provision of the rule to VRDOs. In

response, the Commission provided an

exemption to the rule for obligations

that can be tendered by their holders for

purchase by the issuer or its agent at

least as frequently as every nine months

and that are in authorized

denominations of $100,000 or more

(‘‘Exempt VRDOs’’). This exemption

reflects the fundamental structural

differences between VRDOs and other

traditional municipal securities. For

most VRDO issues, particularly those

that fall within the Exempt VRDO

category, the purchase contract is not

executed until the issue closing date or

the immediately preceding day.6 Thus,

in the vast majority of these issues, the

Bond Delivery Period, the period

between the purchase date and the

closing date, is at most one business

day. As issuers typically do not

authorized the printing of the official

statement in final form until the

execution of the purchase contract,

underwriters usually do not receive the

official statement in final form until the

closing date at the earliest and, in many

instances, the printed version is not

available until after the closing date, at

which point the issuer has already

delivered the Exempt VRDOs to the

underwriters.

At the time Rule 15c2–12 was drafted,

the industry’s standard Bond Delivery

Period was two or more weeks.7 For

example, the seven business day time

frame of paragraph (b)(3) of Rule 15c2–

12 presumably anticipated a typical

Bond Delivery Period of at least one and

one-half weeks, because the final official

statement is generally expected to be

available at least by closing of the

underwriting transaction. Presumably,

Rule G–32’s official statement delivery

obligation was premised, at least in part,

on this industry standard.

In 1997, the Board launch a review of

the underwriting process which focused

on, among other things, the manner and

timeliness of delivery of official

statements from issuers to underwriters

under Rule 15c2–12 and from

underwriters to the Board of Rule G–

36.8 The Board found that, in some

instances, issuers do not meet their

contractual obligations entered into

with underwriters pursuant to Rule

15c2–12 deliver official statements

within seven business days after the

date of final agreement to purchase,

offer or sell the municipal securities.

The Board noted that, if issuers are not

meeting the current delivery

requirement under Rule 15c2–12, it is

possible that final official statements

also are not being prepared in time to

deliver to customers by settlement as

required under Rule G–32.

Thus, the Board determined that,

because the Bond Delivery Period for

Exempt VRDOs is at most one business

day, it is often not possible for dealers

to settle with customers, who expect to

receive delivery of their securities on

the issue date, without causing a

violation of the requirement that they

deliver the official statement in final

form to such customers by settlement.

As a result, the Board amended Rule G–

32 to permit a dealer, selling new issue

Exempt VRDOs, to deliver the official

statement in preliminary form to the