21228 Federal Register / Vol. 60, No. 83 / Monday, May 1, 1995 / Notices

4Rule 14.1 provides that the Exchange may enter

into agreements with domestic and foreign selfregulatory organizations providing for the exchange

of information and other forms of mutual assistance

for market surveillance, investigative, enforcement,

and other regulatory purposes.

5 15 U.S.C. 78f(b) (1988 & Supp. v. 1993).

6See Securities Exchange Act Release No. 35403

(Feb. 22, 1995), 60 FR 10884 (Feb. 28, 1995)

(approving File No. SR–CBOE–94–39).

7The members of ISG are the American Stock

Exchange, Inc., the Boston Stock Exchange, Inc., the

Chicago Board Options Exchange, Inc., the Chicago

Stock Exchange, Incorporated, the Cincinnati Stock

Exchange, Inc., the National Association of

Securities Dealers, Inc., the New York Stock

Exchange, Inc., the Pacific Stock Exchange

Incorporated, and the Philadelphia Stock Exchange,

Inc.

8 15 U.S.C. 78s(b)(2) (1988).

9 17 CFR 200.30–3(a)(12) (1994).

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

2Securities Exchange Act Release No. 34017 (May

5, 1994), 59 FR 24495 (File No. SR–PTC–92–16)

(order approving through April 30, 1995, PTC’s

CMO margin and pricing methodology).

investigations to add new subsection (d)

and .01 and .02 of the Commentary to

require members, member

organizations, persons associated with a

member or member organization, and

other persons or entities over whom the

Exchange has jurisdiction pursuant to

Rule 10.1(b) to testify before another

SRO and to furnish information in

connection with a regulatory inquiry,

investigation, examination, or

disciplinary proceeding resulting from

an agreement entered into by the

Exchange pursuant to Rule 14.1.4 The

proposed rule change would further

require these persons and entities not to

impede such a proceeding. Moreover,

the proposal provides that the rule

would apply regardless of whether the

Exchange initiated an investigation

pursuant to Rule 10.2(a) or a

disciplinary proceeding pursuant to

Rule 10.3.

Under the proposed rule change, the

Exchange also makes explicit that

persons or entities, required to furnish

information or testimony pursuant to a

regulatory agreement, will be afforded

the same rights and procedural

protections that such persons or entities

would have if the Exchange had

initiated the request for information or

testimony.

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of section 6(b).5 The

Commission believes the proposal is

consistent with the section 6(b)(5)

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public interest.

This proposal, which is similar to a

proposal by the Chicago Board Options

Exchange, Inc. that was recently

approved by the Commission,6 grew out

of a meeting of the Intermarket

Surveillance Group (‘‘ISG’’) to

coordinate more effectively surveillance

and investigative information sharing

arrangements in the stock and options

markets.7 The Commission believes that

the proposed rule change achieves a

reasonable balance between the need for

regulatory cooperation and protection of

the procedural rights of Exchange

members and others from whom

information or testimony is requested.

The rule would provide the Exchange

with the authority to seek cooperation

by certain persons with respect to

inquiries and investigations resulting

from regulatory agreements between the

Exchange and another SRO while

explicitly providing any person or entity

required to furnish information or

testimony pursuant to the rule with the

same procedural rights that they would

have if the request was pursuant to an

Exchange initiated inquiry or

investigation. In furtherance of the

policy to protect procedural rights, the

Exchange provides in Commentary .02

to Rule 10.2 that the Exchange will

always act as an intermediary between

another SRO and the exchange member,

member organization, or other

designated person from whom

information or testimony is being sought

for any inquiry made pursuant to an

agreement under Rule 14.1.

The Commission believes that it the

proposed rule change will further the

interest of the public and provide for the

protection of investors by allowing the

Exchange to assist other SROs conduct

prompt inquiries into possible trading

violations and other possible

misconduct. As the marketplaces

become more global and interlinked, the

Commission believes that is important

that the SROs coordinate their

investigatory activities to prevent

fraudulent and manipulative acts and

practices in all marketplaces.

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,8 that the

proposed rule change (SR–PSE–95–02)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10605 Filed 4–28–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35641; File No. SR–PTC–

95–03]

Self-Regulatory Organizations;

Participants Trust Co.; Notice of Filing

and Order Granting Accelerated

Approval of Proposed Rule Change

Extending Temporary Approval of

Current Margin and Pricing

Methodology for Collateralized

Mortgage Obligations

April 24, 1995.

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

Securities Exchange Act of 1934

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

March 28, 1995, the Participants Trust

Company (‘‘PTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–PTC–95–03) as

described in Items I and II below, which

Items have been prepared primarily by

PTC. The Commission is publishing this

notice and order to solicit comments

from interested persons and to grant

accelerated approval of the proposed

rule change through April 30, 1996.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change extends

through April 30, 1996, the temporary

approval of the current margin and

pricing methodology utilized by PTC for

collateralized mortgage obligations

(‘‘CMO’’) that are eligible for deposit or

that may become eligible for deposit at

PTC.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, PTC

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. Summaries of the

most significant aspects of such

statements are set forth in sections A, B,

and C below.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

Margin Under PTC’s Rules

Under PTC’s rules, a certain

percentage (‘‘applicable percentage’’) of
Federal Register / Vol. 60, No. 83 / Monday, May 1, 1995 / Notices 21229

3As set forth in PTC Rules, Article II, Rule 9, Net

Free Equity is calculated as the sum of (a) the cash

balance in the account; (b) the market value of

securities in the account less the applicable

percentage; (c) the value of the optional deposits to

the Participants Fund which are allocated to that

account (optional deposits to the Participants Fund

are deposits that exceed the minimum deposit

required pursuant to PTC’s rules and procedures);

and (d) 20% of the mandatory deposits to the

Participants Fund for the master account

(mandatory deposits to the Participants Fund are

minimum deposits required to be deposited into

such fund pursuant to PTC’s rules and procedures)

minus (e) ‘‘reserve on gain.’’ Reserve on gain means

(1) the contract value credited to the cash balance

of a delivering participant or limited purpose

participant over the market value of securities

credited to the transfer account associated with the

account of the receiving participant or (2) the

market value of securities credited to the transfer

account associated with the account of a receiving

participant over the contract value credited to the

cash balance of the delivering participant or limited

purpose participant.

4PTC Rules, Article II, Rule 13, ‘‘Transfers of

Securities.’’

5Securities Exchange Act Release No. 33840

(March 31, 1994), 59 FR 16672 (File No. PTC–93–

04) (order approving proposed rule change).

6A CMO is a multiple-class mortgage cash flow

security which redirects the cash flow from an

underlying standard mortgage-backed security, such

as a GNMA security, and allows the CMO issuer to

create classes, or tranches, with many different

interest rates, average lives, prepayment

sensitivities, final maturities, and payment

priorities.

7 15 U.S.C. 78q–1(b)(3)(F) (1988).

8Supra note 2.

9Letters from Michael D. Frieband, Senior Vice

President and Chief Financial Officer, PTC, to Jerry

W. Carpenter, Assistant Director, Division of Market

Regulation (‘‘Division’’), Commission (August 5,

1994, November 8, 1994, February 27, 1995, and

March 23, 1995).

10 15 U.S.C. 78q–1(b)(3)(F) (1988).

the market value of securities is

included in the computation of

participants’ Net Free Equity.3 Net Free

Equity of zero or greater is required to

be maintained by participants in each of

its agency, pledgee transfer, or

proprietary accounts in order for

transactions to be processed.4 Net Free

Equity represents PTC’s calculation of

the amount of excess equity available in

a participant’s account which PTC may

borrow against or liquidate in the event

the participant’s debit balance is not

satisfied at the end of the day.

By including only a portion of the

market value of securities in Net Free

Equity, PTC attempts to limit the risk

caused by fluctuations in the market

value of these securities. For

Government National Mortgage

Association (‘‘GNMA’’) single-class

securities, other than construction,

project, and mobile home securities,

margins are set at five percent, which is

a rate that exceeds their largest historic

consecutive two-day downward price

movement. GNMA construction, project,

and mobile home securities have a

higher margin to reflect their reduced

liquidity.5

CMO Margins

CMO securities that are currently

eligible for deposit at PTC are GNMA

REMICs, Department of Veterans Affairs

(‘‘VA’’) REMICs, and certain Federal

Home Loan Mortgage Corporation

(‘‘FHLMC’’) REMICs. Unlike GNMA

single-class securities, CMO securities

are structured as a series of tranches or

classes, each of which represents a

separate security with unique

characteristics, such as differing

payment schedules and price volatility.6

PTC, therefore, uses a model which

takes into account the unique

characteristics of each tranche to predict

its potential price movement. The

parameters of the model include

prepayment speeds, a yield spread, and

the yield on a benchmark Treasury

security. PTC subjects each CMO

tranche to a stress test to determine its

response to yield changes in order to

assign each tranche an appropriate

margin.

Currently, margins are based on a fifty

basis point upward movement in the

underlying Treasury securities for CMO

tranches that exhibit positive effective

duration (i.e., rise in value with falling

interest rates) or a fifty basis point

downward movement in the underlying

Treasury security for CMO tranches that

exhibit negative effective duration (i.e.,

decline in value with falling interest

rates). CMO tranches that are not

modeled by PTC’s pricing vendor are

margined at one hundred percent and

the minimum margin for any CMO

tranche is five percent.

PTC believes that the proposed rule

change is consistent with section

17A(b)(3)(F) of the Act 7 and the rules

and regulations thereunder because it

facilitates the prompt and accurate

clearance and settlement of securities

transactions and provides for the

safeguarding of securities and funds in

PTC’s custody or control or for which

PTC is responsible.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

PTC does not believe that the

proposed rule change imposes any

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

PTC has neither solicited nor received

comments on this proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

PTC’s current margin and pricing

methodology for CMO securities was

approved by the Commission on a

temporary basis through April 30,

1995,8 in order to allow PTC further

time in which to evaluate the

methodology and to take steps to

address any concerns which exist with

respect to the methodology. During the

temporary approval period, PTC has

provided information to the

Commission describing the steps taken

by PTC to improve the margin and

pricing methodology including

finalizing arrangements with a second

vendor for daily pricing and stress test

analysis.9

Section 17A(b)(3)(F) of the Act 10

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds in

the custody or control of the clearing

agency or for which it is responsible.

The Commission believes that extending

temporary approval of the current

margin and pricing methodology

utilized by PTC for CMO securities

should help assure the safeguarding of

securities and funds in PTC’s custody or

control. PTC’s current margin and

pricing methodology helps ensure that

CMO margins will be established that

take into account the unique

characteristics of each CMO tranche and

that PTC’s reliance on a daily pricing

source will provide it with timely price

information. The resulting margins will

afford PTC protection should it be

necessary for PTC to borrow against or

liquidate these assets. In addition, the

Commission believes that extending the

temporary approval will permit PTC to

make technical enhancements to its

system that will enable it to use and

compare data from two sources and also

enable PTC to further evaluate the

results of the CMO pricing and margin

methodology as so enhanced.

PTC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. In

order to allow PTC to continue

employing its current margin and

pricing methodology without disruption

of service, it is necessary for the

Commission to approve the proposed

rule change prior to the expiration of the

current temporary approval of the

methodology on April 30, 1995. The

Commission, therefore, finds sufficient

cause to accelerate approval of this

proposal. In addition, the staff of the

Board of Governors of the Federal

Reserve System (‘‘Board of Governors’’)
21230 Federal Register / Vol. 60, No. 83 / Monday, May 1, 1995 / Notices

11Telephone conversation between William R.

Stanley, Board of Governors, and Ari Burstein,

Division, Commission (April 11, 1995).

12 17 CFR 200.30–3(a)(12) (1994).

1The Commission previously has granted

NYLIAC, the Separate Accounts and NYLIFE

Securities exemptive relief to permit the deduction

of mortality and expense risk charges from the

assets of the Separate Accounts in connection with

the Policies. Rel. Nos. IC–19197 (Order) (Dec. 30,

1992) and IC–13592 (Notice) (Dec. 2, 1992); and IC–

13736 (Order) (Jan. 25, 1984) and IC–13592 (Notice)

(Oct. 21, 1983). NYLIFE Distributors was not a party

to such applications.

has concurred with the Commission’s

granting of accelerated approval.11

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

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 will also be available for

inspection and copying at the principal

office of PTC. All submissions should

refer to file number SR–PTC–95–03 and

should be submitted by May 22, 1995.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

PTC–95–03) be and hereby is approved

on an accelerated basis through April

30, 1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–10606 Filed 4–28–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–21026; No. 812–9296]

New York Life Insurance Annuity Corp.

et al.

April 24, 1995.

AGENCY: The Securities and Exchange

Commission (‘‘Commission’’).

ACTION: Notice of Application for an

Order under the Investment Company

Act of 1940 (‘‘1940 Act’’).

APPLICANTS: New York Life Insurance

and Annuity Corporation (‘‘NYLIAC’’);

NYLIAC Variable Annuity Separate

Account I (‘‘NVA Account I’’), NYLIAC

Variable Annuity Separate Account II

(‘‘NVA Account II’’), NYLIAC MFA

Separate Account I (‘‘MFA Account I’’)

and NYLIAC MFA Separate Account II

(‘‘MFA Account II’’) (collectively,

‘‘Separate Accounts’’); and NYLIFE

Distributors, Inc. (‘‘NYLIFE

Distributors’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) granting

exemptions from the provisions of

Sections 26(a)(2)(C) and 27(c)(2) of the

1940 Act.

SUMMARY OF THE APPLICATION:

Applicants seek an order permitting the

deduction of mortality and expense risk

charges from the assets of the Separate

Accounts in connection with the

offering of certain single premium or

flexible premium variable annuity

contracts (‘‘Policies’’) and certain other

variable annuity contracts that are

substantially similar in all material

respects to the Policies (‘‘Other

Policies’’). Applicants also request that

the order permit the deduction of a

mortality and expense risk charge from

the assets of any other separate accounts

established in the future by NYLIAC in

connection with the offering of the

Other Policies.

FILING DATES: The Application was filed

on October 21, 1994 and amended on

March 29, 1995 and April 6, 1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the Application will be

issued unless the Commission orders a

hearing. Interested persons may request

a hearing by writing to the

Commission’s Secretary and serving

Applicants with a copy of the request,

personally or by mail. Hearing requests

should be received by the Commission

by 5:30 p.m., on May 19, 1995, and

should be accompanied by proof of

service on Applicants in the form of an

affidavit or, for lawyers, a certificate of

service. Hearing requests should state

the nature of the writer’s interest, the

reason for the request, and the issues

contested. Persons may request

notification of a hearing by writing to

the Commission’s Secretary.

ADDRESSES: Secretary, The Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549.

Applicants, c/o A. Thomas Smith, III,

Esq., New York Life Insurance and

Annuity Corporation, 51 Madison

Avenue, New York, New York 10010.

FOR FURTHER INFORMATION CONTACT:

Yvonne M. Hunold, Assistant Special

Counsel, or Wendy Friendlander,

Deputy Chief, at (202) 942–0670, Office

of Insurance Products (Division of

Investment Management).

SUPPLEMENTARY INFORMATION: Following

is a summary of the application; the

complete application is available for a

fee from the Commission’s Public

Reference Branch.

Applicants’ Representations

1. NYLIAC is a Delaware stock life

insurance company that is whollyowned by New York Life Insurance

Company (‘‘New York Life’’), a New

York mutual life insurance company.

NYLIAC is licensed to sell life insurance

policies and annuity contracts in all 50

states and the District of Columbia.

2. The Separate Accounts were

established by NYLIAC as funding

vehicles for the Policies. Each Separate

Account has filed a registration

statement under the 1940 Act and the

Securities Act of 1933 (‘‘1933 Act’’).

Future Accounts established by NYLIAC

will be organized as unit investment

trusts and will file registration

statements under the 1940 Act and the

1933 Act.

3. The policies include flexible

premium variable annuity contracts

(‘‘NVA Policies’’) offered by NVA

Accounts I and II and single premium

and flexible premium variable annuity

contracts (‘‘MFA Policies’’) offered by

MFA Separate Accounts I and II.

Policies funded by NVA Account II and

MFA Account I are used in connection

with plans qualified under sections

401(a), 403(a), 403(b), 408 or 457 of the

Internal Revenue Code (‘‘Code’’).

Policies funded by NVA Account I and

MFA Account II are not offered in

connection with such qualified plans.

4. The investment divisions of the

Separate Accounts invest solely in

corresponding portfolios of New York

Life MFA Series Fund, Inc. (‘‘Fund’’), a

diversified open-end management

company registered under the 1940 Act.

Additional investment divisions may be

established in the future within the

Separate Accounts and may invest in

other portfolios of the Fund or in other

investments.

5. NYLIFE Distributors will replace

NYLIFE Securities, Inc. (‘‘NYLIFE

Securities’’) 1 as the principal underwriter of the Policies pursuant to an

agreement between NYLIAC, the

Separate Accounts and NYLIFE

Distributors. NYLIFE Distributors also

will serve as principal underwriter for

the Other Policies. NYLIFE Distributors

may enter into selling agreements with

other broker-dealers, including NYLIFE