38442 Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices

4 15 U.S.C. 78f.

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

6 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1) (1994).

2 17 CFR 240.19b–4 (1997).

consistent with Section 6 of the Act,4 in

general, and with section 6(b)(5),5 in

particular, because it is designed to

promote just and equitable principles of

trade and to protect investors and the

public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE 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

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

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, as amended, 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 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 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 CBOE. All

submissions should refer to File No.

SR–CBOE–98–20 and should be

submitted by August 6, 1998.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.6

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18905 Filed 7–15–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40187; File No. SR–CHX–

98–13]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc.

Amending the Exchange’s Clearing the

Post Policy for Cabinet Securities

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 10,

1998, the Chicago Stock Exchange, Inc.

(‘‘CHX’’ or ‘‘Exchange’’) 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 by the CHX. 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 Exchange proposes to amend

interpretation and policy .02 of CHX

Rule 10 of Article XX and amend CHX

Rule 11 of Article XX relating to

clearing the post and to make

permanent the policy contained in

Article XX, Rule 11 regarding the ability

of oral bids and offers to clear the

cabinet post by phone. The text of the

proposed rule change is as follows:

Additions are italicized; deletions are

[bracketed].

ARTICLE XX

Rule 10. Manner of Bidding and

Offering.

No change in text.

* * * Interpretations and Policies

02. Clearing the Post.

Policy. All orders received by floor

brokers or originated by market makers

on the floor of the Exchange must

effectively clear the post before the

orders may be routed to another market,

either via the ITS System or through the

use of alternative means.

Floor brokers who receive an order on

the floor have a fiduciary responsibility

to seek a best price execution for such

order. This responsibility includes

clearing of the Exchange’s post prior to

routing an order to another market so

that other buying and selling interest at

the post can be checked for a potential

execution that may be as good as or

better than the execution available in

another market.

Market makers are required to provide

depth and liquidity to the Exchange

market, among other things. Exchange

Rules require that all market maker

transactions constitute a course of

dealings reasonably calculated to

contribute to the maintenance of a fair

and orderly market. In so doing, market

makers must adhere to traditional

agency/auction market principles on the

floor. Transactions by Exchange market

makers on other exchanges which fail to

clear the Exchange post do not

constitute such a course of dealings.

Notwithstanding the above, it is

understood that on occasion a customer

will insist on special handling for a

particular order that would preclude it

from clearing the post on the Exchange

floor. For example, a customer might

request that a specific order be given a

primary market execution. These

situations must be documented and

reported to the Exchange. Customer

directives for special handling of all

orders in a particular stock or all stocks,

however, will not be considered as

exceptions to clearing the post policy.

All executions resulting from bids and

offers reflected on Instinet terminals

resident on the Exchange floor

constitute ‘‘orders’’ which are

‘‘communicated’’ to the Exchange floor.

Therefore, all orders resulting from

interest reflected on Instinet terminals

on the Exchange floor must be handled

as any other order communicated to the

floor. All such orders must be presented

to the post during normal trading hours.

All trades between Instinet and

Exchange floor members are Exchange

trades and must be executed on the

Exchange.

Method of Clearing the Post. [Subject

to Article XX, Rule 11 relating to cabinet

securities,] [t]The Exchange’s clearing

the post policy requires the floor broker

or market maker to be physically

present on the Exchange floor and to be

present at the post. So long as the floor

broker or market maker is physically

present on the Exchange floor, a floor

broker’s or market maker’s bids and
Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices 38443

3See Securities Exchange Act Release No. 39519

(January 6, 1998), 63 FR 1985 (January 13, 1998)

(Order approving proposed rule change SR–CHX–

97–28 relating to a six month pilot program for

Exchange’s clearing the post policy for cabinet

securities); and Securities Exchange Act Release No.

40144 (June 30, 1998), 63 FR 37157 (July 9, 1998)

(Order approving proposed rule change SR–CHX–

98–17 relating to a five month extension of the pilot

program for the Exchange’s clearing the post policy

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

offers may be made by clearing the post

by phone provided that such bids and

offers are audibly announced at the post

through a speaker system maintained by

the Exchange. A market maker, after

requesting the specialist’s market quote,

must bid or offer the price and size of

his intended interest at the post. A floor

broker must clear the post by requesting

a market quote from the specialist. If the

specialist or any other member who has

the post indicates an interest to trade at

the price that was bid or offered by the

market maker or the price of the floor

broker’s order (even though that order

has not yet been bid or offered), then the

trade may be consummated with the

specialist (or whomever has the post) in

accordance with existing Exchange

priority, parity and precedence rules. If

the specialist (or any other member who

has the post) indicates interest to trade

at that price but the member

communicating the intended interest,

including Instinet interest, determines

not to consummate the trade with the

specialist or such member, then, to

preserve the Exchange’s existing

priority, parity and precedence rules,

the trade may not be done with any

other Exchange floor member. (See

Article XXX, Rule 2). If the trade is

consummated with the specialist or

other member who has the post, the

specialist (or any customer represented

by the specialist) is not required to pay

any fees to the broker or market maker

in connection with the execution of the

order, unless such fee is expressly

authorized by an Exchange Rule. If the

specialist does not indicate an interest

to trade, then the trade may be

consummated with another Exchange

floor member on the Exchange floor

with a resultant Exchange print.

Failure to clear the post may result in

a ‘‘trade-through’’ or ‘‘trading ahead’’ of

other floor interest. In addition, failure

to properly clear the post may result in

a violation of the Exchange’s Just and

Equitable Trade Principles Rule (Article

VIII, Rule 7) and a market maker rule

that requires all market maker

transactions to constitute a course of

dealing reasonably calculated to

contribute to the maintenance of a fair

and orderly market (Article XXXIV,

Rule 1). Failure to properly clear the

post may also subject the violator to a

minor rule violation under the

Exchange’s Minor Rule Violation Plan.

Rule 11. Cabinet Securities

Stocks having no designated specialist

unit of trading shall be assigned for

dealings by use of cabinets and shall be

dealt in at a location designated for that

purpose.

The Exchange may also designate

bonds which are to be dealt in by use

of cabinets.

Bids and offers in securities dealt in

by use of cabinets shall be written on

cards, which shall be filed in the

cabinets in the following sequence:

1. According to price, and

2. According to the time received at

the cabinet.

Orders in such securities shall be

filled according to the bids and offers

filed in the cabinets, in the sequence

indicated above, except that oral bids

and offers in such securities may be

made if not in conflict with bids and

offers in the cabinets. Oral bids and

offers may be made by clearing the

cabinet post by phone provided that

such bids and offers are audibly

announced at the cabinet post through

a speaker system maintained by the

Exchange.

Every card placed in the cabinets

shall bear a definite price and number

of shares and no mark or identification

shall be placed thereon to indicate it is

other than a limited order at the price.

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

CHX 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 in the places specified

in Item IV below. The CHX 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 make permanent the policy

contained in Article XX, Rule 11

regarding the ability of oral bids and

offers to clear the cabinet post by

phone.3 The proposed rule change will

also amend Article XX, Rule 10 to

expand this policy to bids and offers in

all securities traded on the trading floor.

Under the proposed rule change, as

long as the floor broker or market maker

is physically present on the Exchange

floor, a floor broker’s or market maker’s

bids and offers in any security traded on

the trading floor may be made by

clearing the post by phone, provided

they are audibly announced at the post

through a speaker system maintained by

the Exchange. The Exchange has not

experienced any adverse effects from

the implementation of this policy for

cabinet issues, and believes that the

differences obtained with the use of a

speaker system in cabinet issues should

be extended floor wide.

2. Statutory Basis

The proposed rule change is

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

Act 4 in that it is designed to prevent

fraudulent and manipulative acts and

practices and to perfect the mechanism

of a free and open market.

(B) Self-Regulatory Organization’s

Statement on Burden of Competition

The Exchange 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 either

solicited or received.

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
38444 Federal Register / Vol. 63, No. 136 /Thursday, July 16, 1998 / Notices

5 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by DTC.

3Pledgee accounts will continue to be available

at DTC.

4The procedures for DTC shared control accounts

are attached as Exhibit 2 to DTC’s proposed rule

change (File No. SR–DTC–98–5) which is available

for inspection and copying at the Commission’s

Public Reference Room or through DTC.

5 15 U.S.C. 78q–1(b)(3)(F).

6 15 U.S.C. 78q–1(b)(3)(F).

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 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. Copies of such filing will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–CHX–98–13 and should be

submitted by August 8, 1998.

For the Commission, by the Division of

Market Regulations, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–18906 Filed 7–15–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–40191; File No. SR–DTC–

98–5]

Self-Regulatory Organizations; The

Depository Trust Company; Notice of

Filing and Order Granting Accelerated

Approval of a Proposed Rule Change

Relating to Shared Control Accounts

July 10, 1998.

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

Securities Exchange Act of 1934

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

April 7, 1998, The Depository Trust

Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I and II,

below, which items have been prepared

primarily by DTC. The Commission is

publishing this notice and order to

solicit comments from interested

persons and to grant accelerated

approval of the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to allow DTC to make shared

control accounts available to its

participants.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the proposed

rule change. The text of these statements

may be examined at the places specified

in Item IV below. DTC has prepared

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

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

New York State recently enacted

revised Article 8 of the Uniform

Commercial Code (‘‘UCC’’). Revised

Article 8 gives priority in certain

situations to a pledgee that has control

over pledged securities (or other

financial assets). According to DTC, a

pledgee has control over securities

when it has the ability to have the

securities sold or transferred without

further consent by the pledgor. The

control of the pledgee need not be

exclusive. The pledgor can retain the

right to redeliver or make substitutions

for the pledged securities.

Currently, when a participant pledges

securities to the pledgee account of a

pledgee at DTC, the securities are under

the sole control of the pledgee.

Therefore, only the pledgee can

redeliver or release the securities.

The purpose of the proposed rule

change is to make shared control

accounts available at DTC as an

alternative to the use of pledgee

accounts.3 As a result of the rule

change, a DTC participant will be able

to establish a shared control account

and to designate any DTC pledgee as the

pledgee for the shared control account.

A pledgee will have control over

securities delivered by a participant to

the participant’s shared control account

at DTC because the pledgee will have

the ability to redeliver the securities

without further consent by the

participant. However, the participant

also will have the ability to redeliver or

to make substitutions for the securities

without obtaining the pledgee’s release

of the securities. DTC states that, except

as modified by the procedures for DTC

shared control accounts,4 the operation

of a shared control account will be

identical to the operation of a DTC

pledgee account and all DTC procedures

applicable to pledgee accounts are

applicable to shared control accounts.

DTC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder because it is consistent with

DTC’s obligation to safeguard securities

and funds in its custody or control or for

which it is responsible.5

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

DTC 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

The proposed rule change was

developed through discussions with

several participants. No written

comments have been solicited or

received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

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

that the rules of a clearing agency be

consistent with its obligation to

safeguard securities and funds in its

custody or control or for which it is

responsible.6 The Commission believes

that the rule change is consistent with

this obligation because the proposal

should help facilitate the processing of

secured transactions through DTC’s

facilities. In addition, the operation of

shared control accounts will be

essentially identical to the operation of

pledgee accounts which are currently

available at DTC. Therefore, DTC’s

experience in the operation of pledgee

accounts will help enable DTC to

operate shared control accounts in a safe

and efficient manner.

DTC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after

publication of the notice of this filing.

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after

publication of the notice because