26060 Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices

3Letter from Kevin Farragher, Director of

Operations, Distribution & Service, Investment

Company Institute, to Jonathan G. Katz, Secretary,

Commission (January 5, 1995).

4NSCC presently receives same-day funds

payments from fund members and mutual fund

processors for dividend amounts owed and

processed through NSCC’s Networking service and

for commission amounts owed and processed

through NSCC’s Commission Settlement service.

5Members in a debit position with NSCC will be

required to make payment to NSCC by 3:00 p.m. on

the day of settlement while those members in a

credit position will receive payment from NSCC

beginning at 5:00 p.m. on the day of settlement.

6Letter from Robert A. Schultz, NSCC, to Jerry

Carpenter, Assistant Director, Division of Market

Regulation, Commission (May 5, 1995).

If needed to fund same-day fund payments to

members, NSCC has a liquidity resource comprised

of a $300 million line of credit. This liquidity

resource is not exclusively dedicated to Fund/Serv

settlement but also is available to NSCC to protect

against losses in all of NSCC’s systems and services.

7Supra note 3.

8On 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 timeframe

for most broker-dealer transactions. The rule

becomes effective June 7, 1995. Securities Exchange

Act Release Nos. 33023 (October 6, 1993), 58 FR

52891 (release adopting Rule 15c6–1); 34952

(November 9, 1994), 59 FR 59137 (release changing

the effective date of the three day settlement cycle).

Exchange Act Release Nos. 33023 (October 6, 1993),

58 FR 52891 (release adopting Rule 15c6–1); 34952

(November 9, 1994), 59 FR 59137 (release changing

the effective date of the three day settlement cycle).

9 15 U.S.C. 78q–1(b)(3)(F) (1988).

10 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1994).

was received in favor of the proposed

rule change.3 For the reasons discussed

below, the Commission is approving the

proposed rule change.

I. Description

NSCC’s rule change enables NSCC to

offer same-day funds money settlement

capabilities as part of its Fund/Serv

service for certain mutual fund

products. Currently, NSCC’s Fund/Serv

service processes mutual fund

transactions in which money settlement

with many settling members occurs in

next-day funds.4

Money settlement for money market

and no-load mutual fund transactions

outside NSCC’s facilities typically

occurs in same-day funds. Accordingly,

NSCC is proposing to make and receive

same-day funds payments in connection

with the settlement of money market

and no-load mutual fund transactions.

NSCC will not net a member’s sameday funds debit or credit with the

member’s next-day funds debit or credit.

Accordingly, NSCC Rule 12 is being

modified to clarify that there will be

more than one mutual funds settling

trades summary which will reflect

amounts payable to or payable by NSCC

for the settlement of Mutual Fund

Services transactions. NSCC will

produce a mutual funds settling trades

summary that will evidence the

member’s same-day funds mutual funds

settlement obligation and a separate

mutual funds settling trades summary

that will evidence the member’s mutual

funds obligation settling in next-day

funds. Technical changes also are being

made to Sections B and C of NSCC’s

Rule 52 to conform the language

regarding money settlement and the

cross-references to NSCC’s settlement

rule.

Generally, NSCC intends to credit

Fund/Serv members’ accounts with

mutual fund transaction credits settling

in same-day funds only after it has

received same-day funds payments from

members in a debit position.5 However,

to maintain flexibility NSCC will have

the ability to credit members’ accounts

in same-day funds before receiving

same-day funds payments from

members unless NSCC has concerns

regarding the financial stability of the

members and if the aggregate of same

day funds payments for which NSCC

has not received payment but is

crediting members’ accounts does not

exceed $100 million per day.6 To

protect against any possible losses

incurred by NSCC if a member in a debit

balance fails to pay NSCC, NSCC has the

ability on the day following settlement

date to reverse the credits paid to

members.

II. Comments

The Commission received one

comment regarding the filing.7 The

commenter strongly supported and

recommended adoption of the proposed

rule change. The commenter based its

support on the efficiency, economy, and

standardization of services produced by

fund/Serv. The commenter noted the

importance of same day funds

settlement in the three business day

settlement cycle that will be

implemented on June 7, 1995,8 and

noted the ease in which this transition

will take place with same day funds

settlement available for some mutual

funds.

III. Discussion

The Commission believes that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder and

particularly with the requirements of

Section 17A(b)(3)(F).9 Section

17A(b)(3)(F) requires that the rules of a

clearing agency be designed to promote

the prompt and accurate clearance and

settlement of securities transactions.

NSCC’s proposed rule change to add

same-day funds settlement capabilities

to NSCC’s Fund/Serv should help

achieve the prompt and accurate

clearance and settlement of mutual fund

transactions by making money market

and no-load funds eligible for settlement

through Fund/Serv. Moreover, the

proposal will centralize the settlement

of these types of mutual funds in a

registered clearing agency and will

allow mutual fund processors and

brokers to take advantage of the

efficiencies inherent in Fund/Serv.

IV. 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 Section

17A(b)(3)(F) of the Act.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NSCC–94–19) be, and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–11947 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35704; File No. SR–NYSE–

95–18]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the New York Stock

Exchange, Inc., Relating to the

Extension of Rule 103A (Specialist

Stock Reallocation)

May 10, 1995.

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 May 2,

1995, the New York Stock Exchange,

Inc. (‘‘NYSE’’ 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

The NYSE proposes to extend the

effectiveness of Rule 103A until

September 10, 1996.
Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices 26061

3See Securities Exchange Act Release No. 34022

(May 6, 1994), 59 FR 25143 (May 13, 1994).

4See id. The Commission notes that the

Exchange’s current evaluation criteria under Rule

103A.10 include objective standards that measure

specialist performance at the opening (both regular

and delayed), systematized order turnaround, and

the timeliness of a unit’s response to status

requests. Specialist performance also is measured

by the Exchange’s Specialist Performance

Evaluation Questionnaire.

5See Securities Exchange Act Release No. 33369

(December 23, 1993), 58 FR 69431 (December 30,

1993). The Commission notes that the capital

utilization measure currently is not included in the

Exchange’s Rule 103A program

6See Securities Exchange Act Release No. 35175

(December 29, 1994), 60 FR 2167 (January 6, 1995).

7See Securities Exchange Act Release No. 35661

(May 2, 1995) (File No. SR–NYSE–95–05).

8The near neighbor measure would provide the

Allocation Committee with performance data. The

Exchange has not proposed to include the measure

in the Rule 103A program. 9 15 U.S.C. 78f and 78k (1988).

The Exchange requests the

Commission to find good cause,

pursuant to section 19(b)(2) of the Act,

for approving the proposed rule change

prior to the thirtieth day after

publication in the Federal Register.

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

self-regulatory organization 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 III below.

The self-regulatory organization 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 intent of Rule 103A is to

encourage a high level of market quality

and performance in Exchange listed

securities. Rule 103A grant authority to

the Exchange’s Market Performance

Committee to develop and administer

systems and procedures, including the

determination of appropriate standards

and measurements of performance,

designed to measure specialist

performance and market quality on a

periodic basis to determine whether or

not particular specialist units need to

take actions to improve their

performance. Based on such

determinations, the Market Performance

Committee is authorized to conduct a

formal Performance Improvement

Action in appropriate cases.

On May 6, 1994 the SEC extended the

effectiveness of the rule until May 9,

1995.3 In its approval order, the

Commission stated its belief that the

Exchange should develop objective

performance standards to measure

specialist performance.4 In this regard,

the Exchange has developed two

objective measures of specialist

performance. The first objective

measure of performance pertains to

specialist capital utilization. Adopted in

December 1993 on a pilot basis, the

capital utilization measure of specialist

performance focuses on a specialist

unit’s use of its own capital in relation

to the total dollar value of trading

activity in the unit’s stocks.5 The pilot

has been extended until June 30, 1995.6

The Exchange’s Allocation Committee is

being provided with specialist capital

utilization information for its use in

allocation decisions. The second

objective measure of performance,

which was recently developed, pertains

to ‘‘near neighbors.’’ On February 27,

1995, the Exchange filed, on a fifteen

month pilot basis, for Commission

approval of this new measure.7 The

‘‘near neighbors’’ measure compares

certain performance measures of a given

stock (price continuity, depth, quotation

spread and capital utilization) to those

of its ‘‘near neighbors,’’ i.e., stocks that

have certain similar characteristics. The

Exchange would provide ‘‘near

neighbor’’ information to the Allocation

Committee for its use in allocating

newly-listed stocks.8

Regarding the Intermarket Trading

System (‘‘ITS’’), the Commission has

stated its belief that the mature status of

the ITS as a market structure facility

warrants the incorporation of ITS

turnaround and ‘‘trade-through’’

concern into the NYSE’s Rule 103A

performance standards. The Exchange

continues to believe that ITS matters are

more appropriately addressed by means

of the Exchange’s regulatory process

rather than through its performance

measurement system, but will continue

to study the matter.

2. Statutory Basis

The basis under the Act for the

proposed rule change is the requirement

under Section 6(b)(5) that an exchange

have rules that are designed to promote

just and equitable principles of trade, to

remove impediments to, and perfect the

mechanism of a free and open market

and, in general, to protect investors and

the public interest. The proposed

extension of Rule 103A is consistent

with these objectives in that it will

allow the Exchange to continue to

administer the rule on an uninterrupted

basis, fostering quality specialist

performance.

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 that is not

necessary or appropriate in furtherance

of the purposes of the Act.

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. 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, D.C. 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 at

the Commission’s Public Reference

Section, 450 Fifth Street NW.,

Washington, D.C. 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the NYSE. All submissions

should refer to File No. SR–NYSE–95–

18 and should be submitted by June 6,

1995.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission has reviewed

carefully the NYSE’s proposed rule

change and believes that, for the reasons

set forth below, the proposal is

consistent with the requirements of

Sections 6 and 11 of the Act 9 and the

rules and regulations thereunder

applicable to a national securities

exchange. In particular, the Commission

believes that the proposal is consistent

with the Section 6(b)(5) requirement

that the rules of the Exchange be

designed to promote just and equitable
26062 Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices

10 15 U.S.C. 78f(5) (1988).

11 15 U.S.C. 78k(b) (1988).

12 17 CFR 240.11b–1 (1994).

13See generally NYSE Rule 104 (Dealing By

Specialists); and Commission Rule 11b–1 under the

Act, 17 CFR 240.11b–1 (1994).

14See Securities Exchange Act Release Nos.

34022 (May 6, 1994), 59 FR 25143 (May 13, 1994);

32285 (May 10, 1993), 58 FR 28905 (May 17, 1993);

29180 (May 8, 1991), 56 FR 22489 (May 15m, 1991);

and 28215 (July 17, 1990), 55 FR 30060 (July 24,

1990).

15See supra. Although the Exchange has

developed the capital utilization and near neighbor

measures of market making performance for use by

the Allocation Committee, it has not yet proposed

to include these objective measures in its Rule 103A

program.

16See Securities Exchange Act Release No. 34022,

supra note 3.

17See supra notes 5, 8 and 15.

18As of July 1996, the NYSE should have two

years experience with the capital utilization

measure and a full year’s experience with the near

neighbor measure of specialist performance.

19Assuming that the experience with the capital

utilization and near neighbor measure is good, the

NYSE should incorporate these measures in the

Rule 103A evaluation prior to the Exchange’s next

request for an extension or permanent approval of

the Rule. In this regard, the Commission expects the

NYSE to submit to the Division of Market

Regulation, by July 1, 1996, a proposed rule change

pursuant to Rule 19b–4 under the Act, 17 CFR

240.19b–4, to extend the Rule 103A pilot.

20The Commission requests that the Exchange

submit to the Division by July 1, 1996, a status

report on the implementation of Rule 103A. The

report should contain data, for each quarter of 1995

and the first quarter of 1996, on (1) the number of

specialists that fell below acceptance levels of

performance for each category; (2) the number of

performance improvement actions commenced; (3)

the number of units subjected to informal

counseling to improve performance; and (4) a list

of stocks reallocated due to substandard

performance under the Rule and the particular unit

involved.

21See Securities Exchange Act Release Nos.

24919 (September 15, 1987), 52 FR 35821

(September 23, 1987); and 25681 (May 9, 1988), 53

FR 17287 (May 16, 1987).

22See supra note 3.

23 15 U.S.C. 78s(b)(2) (1988).

24 17 CFR 200.30–3(a)(12) (1994).

principles of trade, perfect the

mechanism of a free and open national

market system, and, in general, further

investor protection and the public

interest.10 Further, the Commission

finds that the proposal is consistent

with Section 11(b) of the Act,11 and

Rule 11b–1 thereunder,12 which allow

securities exchanges to promulgate rules

relating to specialists consistent with

the maintenance of fair and orderly

markets.

Specifically, because specialist units

play a crucial role in providing stability,

liquidity, and continuity to the trading

of stocks on the Exchange, the

Commission believes that effective

oversight, including periodic evaluation

of the specialists’ performance, is

important to the maintenance of a fair

and efficient marketplace. The

Commission believes that the NYSE’s

Rule 103A performance evaluation

process is critical to this oversight in

that it provides the Exchange with the

means to identify and correct poor

specialist performance and to ascertain

whether specialists are maintaining fair

and orderly markets in their assigned

securities, as required pursuant to

Exchange rules and the Act, and the

rules thereunder.13 Moreover, the

possibility of a performance

improvement action as a result of the

evaluation process, in addition to the

use of the evaluation results in stock

allocation decisions, should help

motivate and provide incentives for

specialists to maintain and improve

their market making performance for the

benefit of investors.

In previous orders extending the Rule

103A pilot,14 the Commission

emphasized its desire for the Exchange

to develop objective measures of market

making performance and incorporate

such measures into the Rule 103A

pilot.15 In addition, the Commission

previously stated that it believes the

mature status of the Intermarket Trading

System (‘‘ITS’’), as a market structure

facility, warrants the incorporation of

ITS turnaround and trade-through

concerns into the NYSE’s Rule 1903A

performance standards. As discussed

fully in the previous extension order,16

the Commission believes that objective

measures of specialist performance with

regard to these concerns should be

incorporated into the evaluation

process.

Even though the proposal lacks

objective market marking performance

standards, the Commission has

determined to approve the proposal to

extend the effectiveness of Rule 103A

for an additional sixteen months in light

of the substantial time and resources the

Exchange has dedicated to the

development of the capital utilization

and near neighbor measures. The

Commission notes that the NYSE has

not proposed to incorporate these

objective measures into their specialist

evaluation program at this time.17 The

Commission believes that it is

reasonable to extend the pilot to give the

Exchange time to gain experience with

these measures before incorporating

them into the Rule 103A evaluation

criteria.18

The Commission continues to believe

that the Exchange should include

objective performance standards that

would measure accurately the

traditional indica of specialist

performance, namely market depth,

price continuity and dealer

participation and stabilization in the

Rule 103A program. The Commission

encourages the NYSE to incorporate

objective standards, including those

relating to ITS and market making

performance, into the program prior to

or simultaneous with future proposals

to extend the effectiveness of Rule 103A

or adopt the Rule on a permanent

basis.19

The Commission finds good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. The Commission

believes it is appropriate to approve the

proposed rule change on an accelerated

basis so that the Exchange can continue

to administer, on an uninterrupted

basis, its Rule 103A evaluation process.

During the extension of the Rule, the

Commission expects the NYSE to

continue its examination of the efficacy

of its current specialist evaluation

procedures.20 In addition, a substantial

portion of current Rule 103A was

noticed for the full statutory period in

1987, and the Commission did not

receive any adverse commentary on the

revised Rule 103A program.21 Further,

interested persons were invited to

comment on the most recent of such

proposals being the extension of Rule

103A until May 9, 1995.22 The

Commission received no comments on

these proposals. The Commission

believes, therefore, that granting

accelerated approval of the proposed

rule change is appropriate and

consistent with Section 6 of the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,23 that the

proposed rule change is hereby

approved on an accelerated basis until

September 10, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.24

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12003 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35688; International Series

Release No. 811; File No. SR–PHLX–95–13]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment Nos. 1 and 2 to the

Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.,

Relating to Modifications of the

Position and Exercise Limits for

Foreign Currency Options

May 8, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on March 10, 1995,