Federal Register / Vol. 60, No. 81 / Thursday, April 27, 1995 / Notices 20785

24 15 U.S.C. 78s(b)(2).

25 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2Securities Exchange Act Release No. 35257

(January 20, 1995), 60 FR 5446.

3Letters from M. Dryhurst, Cage Manager,

Levesque Beaubien Geoffrion Inc., to Secretary,

Commission (February 8, 1995); Charles J. Dunlap,

C.G.A., Chief Financial Officer, Haywood Securities

Inc., to Secretary, Commission (February 7, 1995),

Donna M. Kenny, Back Office Manager, Global

Securities, to Secretary, Commission (February 9,

1995); D. Foreman, Manager, Clearing, Odlum

Brown, to Secretary, Commission (February 9,

1995); B.D. Harwood, Vice Chairman, Canaccord, to

Secretary, Commission (February 16, 1995); Gerald

H. Powers, Senior Vice President, Cantella & Co.,

Inc., to Secretary, Commission (February 16, 1995);

David R. Smith, Chief Financial Officer, McDermid

St. Lawrence Chisholm Ltd., to Secretary,

Commission (February 14, 1995); Phyllis Stevenson,

Manager, Operations, Meridian Securities

International Ltd., to Secretary, Commission

(February 10, 1995); Steve McKee, Registered

Representative, Golden Capital Securities Ltd., to

Secretary, Commission (February 14, 1995); Tony

Chan, Vice President, Golden Capital Securities

Ltd., to Secretary, Commission (February 14, 1995);

Jeff Rutledge, Registered Representative, Golden

Capital Securities Ltd., to Secretary, Commission

(February 14, 1995); Gus Wahlroth, Registered

Representative, Golden Capital Securities Ltd., to

Secretary, Commission (February 14, 1995); Jack

Finkelstein, Registered Representative, Golden

Capital Securities Ltd., to Secretary Commission

(February 14, 1995); Randy Shaw, Registered

Representative, Golden Capital Securities Ltd., to

Secretary, Commission (February 14, 1995); Rita

Gatto, Registered Representative, Golden Capital

Securities Ltd., to Secretary, Commission (February

14, 1995); Marie Martin, Vice President and

Operations Manager, Midland Walywn Capital Inc.,

to Secretary, Commission (February 22, 1995). The

comment letters are discussed in Section B below.

4For a description of ACT, refer to Securities

Exchange Act Release Nos. 27229 (September 8,

1989), 54 FR 38484 [File No. SR–NASD–89–25]

(order partially approving proposed rule change to

permit ACT to be used by self-clearing firms) and

28583 (October 26, 1990), 55 FR 46120 [File No.

SR–NASD–89–25] (order approving remainder of

File SR–NASD–89–25 to permit ACT to be used by

introducing and correspondent broker-dealers).

5ACT uses three methods to lock-in trades: (1)

Trade-by-trade match, whereby both sides of the

trade are reported to ACT and matched; (2) trade

acceptance, whereby one side of the trade is

reported to ACT and accepted by the contra-side;

and (3) aggregate volume match, whereby ACT

performs a batch-type comparison at the end of

each day that aggregates previously unmatched

trade reports to effect a match. (For example, two

identical trade reports for 300 and 400 shares of the

same security may be matched with a 700 share

trade report.)

6Among others, ACT has the following risk

management capabilities. First, ACT can compute

the dollar value of each trade report entered thereby

allowing member firms to assess their market

exposure during the trading day. Second, clearing

firms can establish daily gross dollar thresholds for

each correspondent’s trading activity. If a

correspondent reaches or exceeds the threshold, the

clearing firm is so notified. Third, ACT alerts

clearing firms when a correspondent reaches 70%

or 100% of its daily gross dollar threshold. Fourth,

ACT has a single trade limit that provides clearing

firms with a 15 minute review period prior to

becoming obligated to clear a trade of $1,000,000 or

more executed by one of its correspondents. Fifth,

ACT has a super cap limit set at two times the gross

dollar thresholds for purchases and sales but in no

Continued

Copies of the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. § 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to the file

number SR–NASD–94–54 and should be

submitted by May 18, 1995.

V. Conclusion

For the reasons stated above, the

Commission finds that the rule change

is consistent with the Act and the rules

and regulations thereunder applicable to

the NASD, in particular, Section

15A(b)(6). In addition, pursuant to

Section 19(b)(2) of the Act,24 the

Commission finds good cause for

approving the proposed rule change, as

amended, prior to the 30th day after

publication of Amendments No. 1 and

2 in the Federal Register. These

amendments provide that the NASD

will apply initial listing and

maintenance criteria consistent with the

application of these criteria by the

options exchanges for determining

whether a security qualifies for

standardized options trading. The

Commission finds that no new

regulatory issues are raised by these

amendments and notes that prior to

them, the proposed rule change was

published in the Federal Register for

the full statutory period and no

comments were received.

It is therefore ordered, pursuant to

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

proposed rule change SR–NASD–94–54

be, and hereby is, approved, as

amended.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10295 Filed 4–26–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35625; International Series

Release No. 804; File No. SR–NASD–94–

55]

Self-Regulatory Organizations;

National Association of Securities

Dealers; Order Approving a Proposed

Rule Change Relating to the Access of

West Canada Clearing Corporation and

Its Members to the Automated

Confirmation Transaction Service

April 19, 1995.

On October 12, 1994, the National

Association of Securities Dealers, Inc.

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

Exchange Commission (‘‘Commission’’)

a proposed rule change (File No. SR–

NASD–94–55) under Section 19(b)(1) of

the Securities Exchange Act of 1934

(‘‘Act’’) 1 to allow access by West

Canada Clearing Corporation (‘‘West

Canada’’) and its members to the

NASD’s automated confirmation

transaction service (‘‘ACT’’). Notice of

the proposal was published in the

Federal Register on January 27, 1995.2

Sixteen comment letters were received

that supported the proposal.3 For the

reasons discussed below, the

Commission is approving the proposed

rule change.

I. Description of the Proposal

A. Description

The NASD is amending its rule

regarding ACT to allow West Canada, a

nonmember of the NASD, and members

of West Canada who are not members of

the NASD to access this service. The

NASD also is amending the ACT rule to

reflect that NASD members functioning

as market makers in over-the-counter

equity securities are also classified as

ACT participants.

The NASD created and implemented

the ACT system in response to problems

experienced in the wake of the October

1987 market break and at the urging of

the Commission to consider accelerating

efforts to generate same day compared

trades.4 ACT has three primary features:

(1) Trade match processing (i.e., the

comparison of trade information and the

submission of locked-in trades for

regular way settlement to clearing

agencies on a trade date or next day

[‘‘T+1’’] basis); 5 (2) trade reporting for

transactions in securities that are subject

to real time trade reporting

requirements; and (3) risk management

features that provide firms with a

centralized, automated environment for

assessing market exposure during and

after the trading day and that permit

clearing firms to monitor and respond to

the ongoing trading activities of their

correspondents.6
20786 Federal Register / Vol. 60, No. 81 / Thursday, April 27, 1995 / Notices

event less than $1 million that provides clearing

firms with a 15 minute review period prior to

becoming obligated to clear a trade of $200,000 or

more executed by one of its correspondents once

the limit is surpassed.

7 In January 1983, MCC, Midwest Securities Trust

Company (‘‘MSTC’’), the Vancouver Stock

Exchange, and the Vancouver Stock Exchange

Service Corporation (‘‘VSESC’’), (now known as

West Canada Clearing Corporation [‘‘WCCC’’])

(‘‘VSESC/WCCC’’) created the American and

Canadian Connection for Efficient Securities

Settlements (‘‘ACCESS’’). Through ACCESS, overthe-counter securities transactions between the U.S.

and Canadian broker-dealers in both U.S. and

Canadian securities are compared, cleared, and

settled. Trades between U.S. and Canadian brokerdealers involving securities listed on U.S. securities

exchanges, Canadian securities exchanges, or the

National Association of Securities Dealers

Automated Quotation (‘‘NASDAQ’’) System are

eligible for clearance and settlement through

ACCESS. To establish ACCESS, VSESC/WCCC

became an MCC/MSTC participant, and opened

separate sponsored MCC/MSTC accounts for

Canadian broker-dealers that were participants of

VSESC. As an MCC/MSTC member, VSESC/WCCC

is liable as principal (i.e., guarantees) all trades that

it submits including all trades in its sponsored

accounts. Some safeguards on ACCESS activity

include, contributions by VSESC/WCCC to MCC/

MSTC’s participant fund based on VSESC/WCCC’s

total activity, and a cash reserve of over 250,000

Canadian dollars maintained by VSESC/WCCC to

be used to satisfy the obligations of any VSESC/

WCCC participant that may become insolvent. In

addition, VSE guarantees all VSESC/WCCC

liabilities to MCC/MSTC. Letter from Jonathan

Kallman, Assistant Director, Division of Market

Regulation, Commission, to Michael Wise,

Associate Counsel, MCC/MSTC (September 12,

1985).

8Securities Exchange Act Release No. 30415

(February 26, 1992), 57 FR 7829 [File No. SR–

NASD–92–5] (order approving OTC Equity

Securities as ACT eligible securities).

9Under Schedule D to the NASD By-Laws, Part

XII, Section 1(d) defines ‘‘OTC Market Maker’’ to

mean any NASD member that holds itself out as

being a market maker in any OTC Equity Security

by entering proprietary quotations or indications of

interest in an inter-dealer quotation system.

10Supra note 3.

11On October 6, 1993, the Commission adopted

Rule 15c6–1 under the Act, which establishes three

business days after the trade date instead of five

business days as the standard settlement time frame

for most broker-dealer transactions. Securities

Exchange Act Release No. 33023 (October 6, 1993),

58 FR 52891 (release adopting Rule 15c6–1). On

November 16, 1994, the Commission changed the

effective date of Rule 15c6–1 from June 1, 1995, to

June 7, 1995. Securities Exchange Act Release No.

34952 (November 9, 1994), 59 FR 59137.

12The present filing solely addresses the access

of West Canada to ACT. Other proposals concerning

nonmember access to ACT, if any, will be raised in

separate rule filings submitted pursuant to Section

19 of this Act.

Since its implementation, ACT has

functioned as an effective and efficient

vehicle to compress the trade

comparison cycle thereby facilitating

the prompt and accurate clearance and

settlement of securities transactions and

enabling NASD members to know their

positions and market exposure before

trading commences the next day. As a

facility of the Nasdaq Stock Market

operated by the Nasdaq Stock Market,

Inc. (‘‘NSMI’’) subsidiary of the NASD,

access to the ACT system is limited to

NASD members.

Providing West Canada access to ACT

has been structured so that the primary

parties to the arrangement are West

Canada and NSMI, the NASD subsidiary

that owns and operates ACT. Rather

than negotiating separate contracts with

each individual organization, the NASD

believes that it is more efficient for

NSMI to negotiate with the exchange,

market, or clearing entity to which the

non-NASD member belongs, in this case

West Canada. Accordingly, under the

rule change, West Canada operates as a

service bureau to input information into

ACT on behalf of West Canada

members. Individual West Canada

members will not be able to obtain

access to ACT unless there is first an

overriding, umbrella-type agreement

reached between NSMI and West

Canada. Thus, whenever NASD

members transact with West Canada

members in ACT eligible securities, they

will be able to use ACT just as they do

now for comparing regular-way trades

with other NASD members.

Under the rule change a nonmember

clearing organization will not be given

access to ACT unless it: (1) Is a clearing

agency registered under the Act; (2)

maintains membership in a registered

clearing agency; or (3) maintains an

effective clearing arrangement with a

registered clearing agency. West Canada

has an effective clearing arrangement

with the Midwest Clearing Corporation

(‘‘MCC’’) and thus satisfies this

requirement.7 New section (b)(5)(B) of

the ACT Rules provides that West

Canada must execute a Non-member

Clearing Organization ACT Participant

Application Agreement. This agreement

requires West Canada to abide by the

ACT rules and regulations and will

ensure that West Canada members’

trades processed through ACT will be

accepted for clearance and settlement by

West Canada. The agreement also

addresses NSMI concerns over

nonpayment of service charges, the

financial exposure and liabilities of the

parties, and methods of redress should

West Canada or a West Canada member

fail to comply with the relevant NASD

rules and regulations. In addition, new

Section (b)(5)(B)(6) of the ACT Rules

provides that West Canada will not be

able to input information into ACT on

behalf of a West Canada member unless

such member also enters into a NonMember ACT Access Participant

Application Agreement with NSMI. In

the case of a clearing broker, this

agreement provides that the member

will accept and will settle each trade

that ACT identifies as having been

effected by such member of any of its

correspondents on the regularly

scheduled settlement date. In the case of

an order entry firm, the firm must agree

to accept and settle each trade that it has

effected or, if settlement is to be made

through a clearing member, guarantee

the acceptance and settlement of each

ACT-identified trade by the clearing

member on the regularly scheduled

settlement date.

Separately, the proposal also amends

the ACT Rules to expand the term

‘‘Participant’’ to include NASD member

firms that function as market makers in

over-the-counter (‘‘OTC’’) equity

securities that are eligible for clearing

via the National Securities Clearing

Corporation’s (‘‘NSCC’’) facilities.8 The

instant modification will clarify that

ACT participant status encompasses

NASD members that function as market

makers in such securities via the OTC

Bulletin Board service or another

interdealer quotation system.9

B. Comments

The Commission received sixteen

comment letters supporting approval of

the filing.10 The commenters believe

that allowing West Canada and its

participants to submit trade input to

ACT for comparison will improve the

timeliness of trade confirmation which

is essential to meeting the June 7, 1995

three business day settlement cycle.11

II. Discussion

The rule change stems from a request

from West Canada to NASD for access

to ACT for trade comparison purposes

only.12 Prior to this rule change, when

an NASD member effected a transaction

with a West Canada member, the

transaction typically was compared,

cleared, and settled in the following

manner. The NASD member entered the

trade into ACT with the West Canada

member designated as the contra-party.

Because the West Canada member was

not an ACT participant, ACT responded

to the NASD member ‘‘contra-side not

ready.’’ ACT then reported the trade for

trade reporting purposes and

transmitted the trade to NSCC as a oneside trade for trade comparison. The

West Canada member submitted the

trade information to West Canada that

in turn sent the trade to MCC. MCC then

transmitted the trade report to NSCC by

2:00 a.m. on T+1 for comparison. NSCC

then compared the trade reports, and

assuming there was a match, NSCC

submitted the West Canada member’s

side of the transaction to MCC for

clearance and settlement; the NASD
Federal Register / Vol. 60, No. 81 / Thursday, April 27, 1995 / Notices 20787

13 15 U.S.C. 78o–3(b)(6) (1988).

14Supra note 11.

15 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1994).

3See letter from Michael Pierson, PSE, to

Katherine Simmons, SEC, dated April 12, 1995

(‘‘PSE Letter’’). The Amendment clarified certain

aspects of the SCOR program, see infra notes 12, 16,

and 26, and made non-substantive changes to the

SCOR Rules. Notice of the Amendment was

therefore unnecessary.

4The PSE originally proposed to list and trade

SCOR securities in 1992. That proposal was

published for public comment in Securities

Exchange Act Release No. 32514 (June 25, 1993), 58

FR 35496 (July 1, 1993) (File No. SR–PSE–92–42).

The Commission received several comment letters

regarding the proposal, and subsequently published

amendments to the proposal for public comment in

Securities Exchange Act Release No. 34328 (July 7,

1994), 59 FR 35776 (July 13, 1994). The Exchange

withdrew File No. SR–PSE–92–42 on November 22,

1994, and submitted the instant filing that includes

modifications to the proposal in response to

comments from the public and from Commission

staff.

5The PSE will evaluate the SCOR listing program

at least on an annual basis to determine whether

this new marketplace has achieved its policy

objectives, which the Exchange states are to

facilitate capital formation for small businesses and

to provide public market liquidity for the securities

of these small businesses.

6The Commission approved the PSE’s two-tiered

listing criteria for its regular listings in Securities

Exchange Act Release No. 34429 (July 22, 1994), 59

FR 50950 (August 1, 1994).

7Once a class of SCOR securities has been

accepted for listing on the Exchange, all securities

of that class will be listed and traded on the

Exchange as SCOR securities, except those

securities of the class that are subject to restrictions

that make them ineligible for trading on the

Exchange.

8Under Regulation A, public offerings of up to $5

million in a twelve-month period are exempt from

registration under the Securities Act. See 17 CFR

230.251 to 230.263 (1994). Rule 504 of Regulation

D provides an exemption from registration for

limited offerings and sales of securities not

exceeding $1,000,000. See 17 CFR 230.504 (1994).

member’s side of the transaction was

retained by NSCC for clearance and

settlement. If there was a discrepancy

concerning the terms of the transaction,

the trade reconciliation process

involved the two clearing corporations

and the two parties to the transaction

and might last until three days

following the trade date. Although the

NASD believes that the facilities of

NSCC and MCC have been used to

compare trades between NASD and

West Canada members adequately, the

NASD believes the trade comparison

procedure for these trades would be

streamlined and made more efficient

through the use of ACT.

The NASD does not believe that

granting West Canada and West Canada

members access to ACT will jeopardize

the integrity of ACT or any other market

facility operated by NSMI. In this

regard, before West Canada or any of its

members are granted access to ACT,

these entities must agree to be bound by

the terms of the revised ACT Participant

Application Agreements, which

establish the terms and conditions

under which West Canada and its

members will receive access to ACT.

The revised Agreements will provide an

adequate and sufficient surrogate for

NASD membership which otherwise

would provide the jurisdictional nexus

to ensure compliance with applicable

NASD rules and regulations. Initial and

continuing access to ACT by

nonmembers will be specifically

conditioned upon adherence to the

terms and conditions of these

agreements. West Canada and West

Canada members also will be required

to maintain the physical security of the

equipment used to input trades into

ACT. Based on these factors, the NASD

believes that granting West Canada and

West Canada members access to ACT

will not compromise the integrity or

operation of Act.

The Commission believes that the

proposed rule change is consistent with

Section 15A(b)(6)13 of the Act which

requires that the rules of a national

securities association be designed to

foster cooperation and coordination

with persons engaged in regulating,

clearing, settling, and processing

information with respect to securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a nationl market system, and, in

general, to protect investors and the

public interest. The Commission

believes the proposal fosters

cooperation and coordination with

persons engaged in clearing and settling

securities transactions by helping to

eliminate the inefficiencies inherent in

the practice of submitting two-sided

transaction reports to two separate

clearing corporations. The proposal

should help streamline and improve the

process by which trades between NASD

and West Canada members are

compared. In addition, by compressing

the time-period in which open trades

are left uncompared, market

participants will be better able to access

and evaluate their market exposure

thereby contributing to fair and orderly

markets and the protection of investors

and the public interest. Moreover, ACT

generally achieves locked-in trades

within minutes of an execution thus

resulting in faster and more efficient

trade reconciliation, confirmation and

increased efficiency of back office

operations which the Commission

believes is necessary for compliance

with Rule 15c6–1 mandating settlement

on T+3.14

III. Conclusion

For the reasons discussed above, the

Commission finds that the proposal is

consistent with the requirements of the

Act and particularly with Section

15A(b)(6) of the Act and the rules and

regulations thereunder.

It is therefore ordered, purusant to

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

proposed rule change (File No. SR–

NASD–94–55) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10296 Filed 4–26–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35628; File No. SR–PSE–

94–31]

Self-Regulatory Organizations; Pacific

Stock Exchange, Inc.; Order Granting

Approval to Proposed Rule Change

and Amendment No. 1 to Proposed

Rule Change Relating to the Listing

and Trading of Small Corporate

Offering Registration (‘‘SCOR’’)

Securities on the Exchange

April 19, 1995.

I. Introduction

On December 15, 1994, the Pacific

Stock Exchange, Inc. (‘‘PSE’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

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

of 1934 (‘‘Act’’) 1 and rule 19b–4

thereunder,2 a proposed rule change to

permit the Exchange to list and trade

Small Corporate Offering Registration

(‘‘SCOR’’) securities. On April 12, 1995,

the Exchange submitted Amendment

No. 1 to the proposal.3

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 35140

(December 22, 1994), 60 FR 159 (January

3, 1995). No comments were received on

the proposal.4 This order approves the

PSE’s SCOR listing on a three year pilot

basis.5

II. Description

The SCOR listing would be a new tier

of listed securities that would not

qualify for listing on the PSE under

either its Tier I or Tier II listing criteria.6

Under the SCOR designation, issuers

may list any single class of common or

preferred stock 7 that was issued

pursuant to either Regulation A or Rule

504 under the Securities Act of 1933

(‘‘Securities Act’’).8 The listing of