Federal Register / Vol. 66, No. 83 / Monday, April 30, 2001 / Notices 21425

7 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 OCC.

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

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 SR–NASD–

2001–21 in the caption above and

should be submitted by May 21, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10641 Filed 4–27–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44212; File No. SR–OCC–

2001–05]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing of Proposed Rule Change

Relating to Clearing Security Futures

April 23, 2001.

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

Securities Exchange Act of 1934

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

March 21, 2001, The Options Clearing

Corporation (‘‘OCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) and on April 16, 2001,

amended the proposed rule change as

described in Items I, II, and III below,

which items have been prepared

primarily by OCC. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested parties.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change would

amend OCC’s By-Laws to provide that

OCC may clear transactions in security

futures effected on any national

securities exchange or association

registered under section 6(a) or 15A(a)

of the Act, as amended, or any

‘‘designated contract market’’ (as that

term is used in the Commodity

Exchange Act (‘‘CEA’’) that is registered

as a national securities exchange under

section 6(g) of the Act.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

OCC 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. OCC has prepared

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

and (C) below, of the most significant

aspects of these statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The Commodity Futures

Modernization Act (‘‘CFMA’’), which

became law on December 21, 2000,

eliminated the preexisting ban on

trading in future contracts on individual

securities and narrow-based stock

indices. Such ‘‘security futures’’ will be

permitted to be traded on a principal to

principal basis between ‘‘eligible

contract participants’’ on August 21,

2001, and by other classes of customers

on December 21, 2001. The purpose of

this proposed rule change is to identify

the kinds of markets from which OCC

will accept transactions in security

futures for clearance.

OCC anticipates that some or all of

OCC’s five participant exchanges will

trade security futures, either on the

participant exchange itself or on an

affiliated futures exchange. OCC expects

that it will therefore enter into the

business of clearing security futures.

However, the types of entities that can

provide a marketplace for security

futures include markets in addition to

the options exchanges that are OCC’s

participant exchanges. These include

other national securities exchanges and

national securities associations as well

as any ‘‘board of trade’’ that has been

designated as a ‘‘contract market’’ under

the CEA. An SEC-regulated market that

wishes to trade security futures is

required to obtain a limited-purpose

registration as a marketplace under the

CEA through a notice filing with the

Commodity Futures Trading

Commission (‘‘CFTC’’). A CFTCregulated market trading security

futures is required to obtain a limitedpurpose registration with the

Commission as a national securities

exchange under a similar procedure.

Each market will be regulated primarily

by the agency (i.e., the Commission or

the CFTC) with which it is fully

registered.

OCC believes that it is in a uniquely

favorable position to clear security

futures for any of these types of markets.

OCC’s role as the common

clearinghouse for equity options offers

opportunities for margin offsets and

other efficiencies that would not be

available if positions in security futures

were carried with other clearinghouses.

OCC’s settlement interface with the

National Securities Clearing Corporation

gives OCC the ready ability to effect

delivery of underlying stocks with

respect to physically settled security

futures. Because of OCC’s experience

and expertise in adjusting equity option

contracts to compensate for various

corporate actions, OCC is uniquely

prepared to perform the same necessary

function for security futures. Finally,

OCC is legally able to clear security

futures transactions originating on any

type of market whereas a futures

clearinghouse cannot clear security

futures transactions originating on

national securities exchanges that are

registered with the Commission

pursuant to section 6(a) of the Act

without registering as a securities

clearing agency.

Clearing members have conveyed to

OCC their desire to consolidate

clearance, settlement, and

collateralization of similar or hedgeable

products. This need grows in urgency

with the sale of the collateral necessary

to support the growing security

derivatives markets.

21426 Federal Register / Vol. 66, No. 83 / Monday, April 30, 2001 / Notices

3The term ‘‘security futures market’’ does not

include an ‘‘alternative trading system’’ or a

‘‘derivatives transaction execution facility’’ even

though such markets may also trade security futures

under provisions of the CEMA. Under section 6(h)

of the Act, alternative trading systems would be

permitted to trade only those security futures that

are listed on a national securities exchange or

national securities association and even then not

until certain additional action is taken by such an

exchange or association as provided in section

6(h)(5) of the Act. ‘‘Derivatives transaction facility’’

is a newly created regulatory category under the

CEA. OCC believes that clearance of transactions for

either of these types of entities could involve

additional considerations not raised by its current

proposal. 4 15 U.S.C. 78q–1.

OCC believes that the interests of

minimizing the scale and cost of

collateral, maximizing the efficiency of

clearance and settlement, reducing

systemic risk, providing the best

possible service to clearing members at

the lowest possible price, and ultimately

reducing costs to investors all argue that

OCC’s policy should be to clear stock

futures transactions for any national

securities exchange or association

registered under section 6(a) or 15(A)(a)

of the Act or any ‘‘designated contract

market’’ (as that term is used in the

CEA) that is registered as a national

securities exchange under section 6(g) of

the Act.

OCC will, of course, need to adopt

additional rules governing security

futures. Additionally, as described

below, OCC proposed to cover security

futures under separate clearing

agreements between it and the markets

desiring to clear security futures

transactions through OCC rather than to

incorporate security futures in the

Restated Participant Exchange

Agreement (‘‘RPEA’’). Because these

products and the systems and other

infrastructure needed to clear them are

still being designed and developed, it is

too early for OCC to be able to file a

complete set of rules for clearing

security futures. These rules, including

a proposed form of clearing agreement

for security futures, will be the subject

of one or more future filings under Rule

19b-4. However, it is important to

resolve now the question of which

markets OCC will clear for in order that

both those markets and OCC can

prepare for the start of security futures

trading, which can begin in less than six

months.

Considerations of fairness dictate that

markets other than participant

exchanges and their affiliates be

required to market some form of

‘‘investment’’ in OCC analogous to the

redeemable equity investments required

of participant exchange, However, such

markets should not be offered OCC

common stock. Increasing the number of

OCC’s common stockholders would

dilute the interest of OCC’s existing

stockholders and unnecessarily

complicate issues of corporate

governance.

Accordingly, the proposed

amendment to Article I of OCC’s ByLaws would define a separate category

of market—a ‘‘security futures market—

’’—from which OCC would accept

transactions in security futures for

clearance. The definition of ‘‘security

futures market’’ would include certain

entities, other than participant

exchanges, that can be marketplaces for

security futures under the provisions of

the CFMA.3 A security futures market

would not be defined as an ‘‘exchange,’’

and OCC would be simply a provider of

clearing services to such markets. For

convenience, however, the terms

‘‘exchange transaction,’’ ‘‘exchange

rules,’’ and ‘‘exchange member’’ would

be redefined to include transactions on

the rules and members of, as the case

may be, a security futures market.

OCC anticipates that it would clear

security futures transactions on security

futures markets on the same terms and

subject to the same clearing fees that

will apply to security futures

transactions originating on the

exchanges. OCC proposes to create a

new Article XII of its By-Laws that will

be applicable to security futures. For the

reasons stated, the present filing

contains only the first section of Article

XII, which establishes the conditions on

which OCC will clear transactions in

security futures for an exchange or a

security futures market. Section 1

distinguishes between participant

exchanges and security futures markets

that are affiliated with an exchange, on

the one hand, and non-affiliated

security futures markets on the other

hand.

For the sake of fairness to its

participant exchanges, which are

required to purchase and hold shares of

OCC stock and to provide additional

capital to OCC to support the

preparation for clearing transactions for

new security futures markets, OCC

proposes that non-affiliated security

futures markets be required to make a

‘‘good faith’’ deposit with OCC of

$250,000. That deposit will be refunded

to the security futures market in whole

or in part if it ceases clearing security

futures through OCC. OCC is

considering a formula that would fix the

amount of the refund at the lesser of the

full amount of the original deposit or

50% of the amount of clearing fees

received by OCC from clearing members

as a result of transactions on that market

(i.e., a kind of ‘‘earn out’’ provision).

OCC would not be obligated to

undertake security futures clearing for

any non-affiliated security futures

market if it determined that to do so

would tax OCC’s resources in a way that

would jeopardize OCC’s ability to fully

perform its other responsibilities.

The proposed By-Law provision

would also require an exchange or

security futures market that wishes OCC

to clear its transactions in security

futures to enter into a clearing

agreement with OCC that would define

the business relationship between OCC

and such market with respect to security

futures. OCC anticipates that there will

be separate but uniform (except for

provisions relating to the good faith

deposit required of non-affiliated

security futures market) clearing

agreements with each exchange and

security futures market that clears

security futures through OCC. These

agreements would cover some of the

same matters covered in the RPEA but

would omit inapplicable provisions

relating to the registration statement on

which OCC registers options,

registration under state securities laws,

and the options disclosure document.

The clearing agreement would also

contain appropriate indemnification of

OCC and its officers and directors. The

clearing agreement would terminate if

the exchange or security futures market

is no longer eligible to list security

futures, no longer lists security futures

despite being eligible to do so, or is in

material breach of the clearing

agreement.

The proposed rule change is

consistent with the purposes and

requirements of section 17A of the Act4

and the rules and regulations

thereunder applicable to OCC because it

fosters cooperation and coordination

with persons engaged in the clearance

and settlement of securities

transactions, removes impediments to

and perfects the mechanism of a

national system for the prompt and

accurate clearance and settlement of

securities transactions, and in general

protects investors and the public

interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

OCC does not believe that the

proposed rule change would impose any

burden on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were not and are

not intended to be solicited with respect

Federal Register / Vol. 66, No. 83 / Monday, April 30, 2001 / Notices 21427

5 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See April 12, 2001 letter and attachments from

Murray L. Ross, Phlx to Nancy Sanow, Division of

Market Regulation, SEC (‘‘Amendment No. 1’’). In

Amendment No. 1, the Phlx limited the new

securities eligible for eVWAP to exchange traded

component issues of the Standard & Poor’s 500

index, and made other technical, non-substantive

changes to the original proposal. For purposes of

calculating the 60-day abrogation period, the

Commission considers the period to commence on

April 13, 2001, the date the Phlx filed Amendment

No. 1.

4 15 U.S.C. 78s(b)(3)(A).

5 eVWAP was developed by Universal Trading

Technologies Corporation, and was approved by the

Commission to operate as a facility of the Exchange.

See Securities Exchange Act Release No. 41210

(March 24, 1999), 64 FR 15857 (April 1, 1999)(SR–

Phlx–96–14). The original pilot program was

extended until November 30, 2001. See Securities

Exchange Act Release No. 43477 (October 23, 2000),

65 FR 64734 (October 30, 2000)(SR–Phlx–00–84).

to the proposed rule change, and none

have been received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 also will be available for

inspection and copying at the principal

office of OCC. All submissions should

refer to File No. SR–OCC–2001–05 and

should be submitted by May 21, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10607 Filed 4–27–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44203; File No. SR–Phlx–

2001–10]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change and

Amendment No. 1 by the Philadelphia

Stock Exchange, Inc. To Amend Phlx

Rule 237 To Expand the Securities

Eligible for eVWAP Trading

April 19, 2001.

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 April 5,

2001, the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by the Exchange.

On April 13, 2001, the Exchange

amended the proposal.3 The Exchange

has designated this proposal as one

affecting a change in an existing order

entry or trading system of the Phlx that

(i) does not significantly affect the

protection of investors or the public

interest; (ii) does not impose any

significant burden on competition; and

(iii) does not have the effect of limiting

the access to or availability of the

system under Section 19(b)(3)(A) of the

Act,4 which renders the proposal

effective upon filing with the

Commission. The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend

Phlx Rule 237, eVWAP Morning

Session,5 to expand the securities

eligible for eVWAP trading to include

additional exchange traded component

issues of the Standard and Poor’s

(‘‘S&P’’) 500 index. Specifically, the

Exchange proposes to adopt paragraph

(b), which states the following:

(b) Eligible Securities. The following

securities will be eligible for execution

in the System:

(i) Exchange listed component issues

of the Standard & Poor’s 500 index and

any exchange listed issue that has been

designated by the compiler of such

index for inclusion in such index.

(ii) Any of 300 New York Stock

Exchange (NYSE) issues selected as

follows: the 400 NYSE issues with the

highest market capitalization excluding

the 100 issues that have the lowest

average daily dollar trading volume over

20 days preceding the eligibility

determination, with eligibility

determined at least semiannually.

The Exchange also proposes technical

amendments to Phlx Rule 237 relating

to decimal reporting and a minor change

to the calculation methodology, as

described further below. The complete

text of the proposal is available at the

Phlx and at the Commission.

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

Exchange 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. The

Exchange 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 expand the number of

highly capitalized and actively traded

securities eligible to participate in

eVWAP pursuant to Phlx Rule 237. The

eVWAP is a pre-opening order matching

session for the electronic execution of

large-sized stock orders at a

standardized volume weighted average

price (‘‘eVWAP Price’’).

The proposed expansion of eligible

securities would include those exchange