Federal Register / Vol. 60, No. 94 / Tuesday, May 16, 1995 / Notices 26059

5The CBOE represents that examples of ‘‘systems

malfunctions’’ include: outages of the Exchange’s

autoquote system; communications disruptions

between the Exchange and the processor for the

Options Price Reporting Authority; and the

unavailability of market data from the underlying

market due to systems malfunctions in that market

or in the communications between that market and

CBOE. See Letter from Michael Meyer, Attorney,

Schiff, Hardin and Waite, to John Ayanian,

Attorney, Office of Market Supervision (‘‘OMS’’),

Division of Market Regulation (‘‘Market

Regulation’’), Commission, dated February 17,

1995.

6The Control Room immediately notifies the floor

that RAES has been turned off by (1) transmitting

a message to the book staff, floor broker, and

member firm booth printers; (2) announcing it via

the public address system; (3) posting it on the

electronic administrative message board located in

the pits; and (4) posting it on the CBOE bulletin

board, which is available from any Exchange

terminal. Telephone conversation between Tim

Watkins, Market Operations Department, CBOE,

and John Ayanian, Attorney, OMS, Market

Regulation, Commission, on April 19, 1995.

7According to CBOE, when determining order

parameters for routing purposes, the member firms

look to (1) the size of the order, (2) whether the

series is on RAES, and (3) whether it is a market

order or an immediately executable limit order.

Telephone conversation between Edward Joyce,

CBOE, Michael Meyer, Attorney, Schiff, Hardin and

Waite, Michael Walinskas, Branch Chief, OMS,

Market Regulation, Commission, and John Ayanian,

Attorney, OMS, Market Regulation, Commission, on

February 13, 1995.

8Telephone conversation between Barbara Casey,

Market Regulation Department, CBOE, and John

Ayanian, Attorney, OMS, Market Regulation,

Commission, on April 18, 1995.

9 15 U.S.C. 78f(b)(5).

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 35148

(December 23, 1994), 60 FR 155.

of the order’s entry into the system. A

buy order will pay the prevailing market

quote for an offer and a sell order will

sell at the prevailing market quote for

the bid. A market maker who has signed

on as a participant in RAES will be

designated as a contra-broker on the

trade; trades are assigned to

participating market makers on a

rotating basis.

By agreeing to participate in RAES, a

market maker is automatically assigned

trades based on the prevailing market

quote that is then being disseminated.

Consequently, it is important that the

prevailing market quote be accurate,

because otherwise market makers

participating in RAES may be assigned

trades at prices other than the actual

prevailing market quote. In addition, in

the event that incorrect quotes are

displayed because of a quote

dissemination problem, a customer’s

order could be filled at a price other

than the quote the customer sees on

display.

CBOE believes that the proposed

interpretations to Rules 24.15 and 6.8

are necessary to prevent market makers

from being assigned trades based on

inaccurate or ‘‘stale’’ market quotes that

are the result of a system malfunction,

and to prevent customer orders from

being filled based on such inaccurate or

‘‘stale’’ market quotes. CBOE also

believes that the proposed

interpretations are necessary to prevent

filling customers’ orders at prices

different from the prices displayed.

The proposed rule change seeks to

address these occurrences by vesting the

senior person then in charge of the

Exchange’s Control Room with the

authority to act quickly to turn off RAES

if there is a system malfunction that

affects the Exchange’s ability to

disseminate or update market quotes.5

Because RAES trades are based on the

current disseminated quote, RAES

trades would be based on inaccurate or

‘‘stale’’ quotes during a system

malfunction that interferes with

dissemination of current quote

information. The Exchange believes it is

important for staff persons in the

Control Room to have the authority to

turn off RAES because the Control Room

will most likely learn of the system

malfunction before Floor Officials or

other Exchange staff. Consequently,

Control Room staff can act in a timely

manner to prevent trades based on

‘‘stale’’ market quotes.

If RAES is turned off because of the

circumstances described above, the

Control Room will disseminate a floorwide announcement that RAES has been

turned off,6 and the orders that would

have been routed to RAES will be

automatically rerouted to the floor

broker printer in the trading crowd or to

the appropriate member firm booth.

Where the order is re-routed will

depend upon parameters set by member

firms for their customers’ orders prior to

entering the orders onto RAES.7 If the

order is not re-routed to the member

firm booth, the order will be

automatically re-routed to the

designated floor broker printer, where

the floor broker assigned to that printer

will promptly execute the order.8

Pursuant to the proposed

interpretations, once the system

malfunction has been corrected and the

market quotes have been updated, either

the senior person then in charge of the

Exchange’s Control Room, or the Order

Book Official, or the RAES Supervisor

may re-start RAES.

III. Commission Finding and

Conclusions

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, the

requirements of Section 6(b)(5) of the

Act.9 Specifically, the Commission finds

that the proposed rule change provides

a reasonable mechanism for the CBOE to

respond to system malfunctions that

impact the integrity of the RAES system.

The Commission notes that this

proposal only authorizes the senior

person in the Control Room to turn off

RAES in circumstances that involve

technical system malfunctions affecting

the accuracy of the CBOE’s automated

pricing system. While the Commission

understands that it is impractical to

enumerate every possible system

malfunction that may affect the

accuracy of market quotations, it notes,

nonetheless, that not all ‘‘stale’’ or

inaccurate market quotations are the

result of system malfunctions, and that

this proposal does not grant senior

persons in the Control Room the

authority to turn off RAES in these other

circumstances.

Finally, the Commission believes that

CBOE’s alternative routing procedures,

as proposed for RAES orders in the

event of a system malfunction, should

provide small investors an efficient and

effective method for order execution in

circumstances where RAES is turned off

pursuant to this rule change.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (File No. SR–

CBOE–95–06), is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–12002 Filed 5–15–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35696; File No. SR–NSCC–

94–19]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving

Proposed Rule Change to Settle

Certain Mutual Fund Services

Transactions in Same Day Funds

May 9, 1995.

On November 8, 1994, the National

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

a proposed rule change (File No. SR–

NSCC–94–19) pursuant to Section

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

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on January 3, 1994.2 One comment letter
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.