21032 Federal Register / Vol. 66, No. 81 / Thursday, April 26, 2001 / Notices

4The remaining two eligibility provisions for

Market-Makers desiring to trade in SPX options

would continue to require Market-Makers to be

approved under Exchange rules and to maintain

their principal places of business on the CBOE as

Market-Makers. CBOE Rule 24.16(a)(iv)(A); CBOE

Rule 24.16(a)(iv)(B).

5CBOE Rule 24.16(a).

6CBOE Rule 24.16(a)(iv)(A).

7CBOE Rule 24.16(a)(iv)(B).

8A RAES group is a group of market-makers who

participate on RAES via either an Exchangeapproved joint account or a member organization

account with multiple market-maker nominees. Email from Jamie Galvin, Attorney, Legal Division,

CBOE to Steven Johnston, Special Counsel, Division

of Market Regulation (‘‘Division’’), Commission,

dated April 10, 2001.

9Conversation between Jamie Galvin, Attorney,

Legal Division, CBOE, and Steven Johnston, Special

Counsel, Division, Commission, February 28, 2001

(clarifying operation of current CBOE Rule 24.16(e))

10 In approving this rule change, the Commission

has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

11 15 U.S.C. 78f(b)(5).

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 43626

(November 27, 2000), 65 FR 75750.

3 In 1998, the Commission approved a rule

change that allowed GSCC to implement the GCF

Repo Service on an intrabank basis. Securities

Exchange Act Release No. 40623 (October 30, 1998),

63 FR 59831 (November 5, 1998) [File No. SR–

GSCC–98–02]. In 1999, the Commission approved

a rule change that allowed GSCC to implement the

interbank phase of the GCF Repo Service. That

enhancement has enabled participating dealers to

engage in GCF Repo trading with participating

(ii) The appropriate MPC [also] may

disallow any group from participating in

RAES where it appears to the Committee

that such group:

(A) has ‘‘purchased’’ RAES rights from

members of the group;

(B) does not afford each group participant

a reasonable participation in profits and

losses (As a guideline: no RAES

participant may receive a flat fee, and a

minimum participation level of any

group member would be 1⁄4 of a number

that would represent an equal

distribution to all group members, with

responsibility for losses equivalent to

share of profits);

(C) is managed by a person who is not a

member of the group; or

(D) is managed by a person who has a

financial interest in another group.

* * * * *

II. Description of the Proposal

Currently, Rule 24.16(a)(iv) sets forth

four eligibility requirements that must

be met by a Market-Maker before he or

she can participate on RAES in SPX

options. The CBOE proposal would

eliminate two of the current four

Market-Maker eligibility requirements.

One of these requirements is that the

Market-Maker must execute at least fifty

percent of his or her Market-Maker

contracts for the preceding calendar

month in SPX. Another requirement is

that the Market-Maker must execute in

person at least seventy-five percent of

his or her Market-Maker trades for the

preceding calendar month in SPX. No

comparable RAES eligibility

requirements are imposed upon MarketMakers trading in non-index option

classes. The Exchange proposes to

eliminate the in-person and volume

quotas from the eligibility requirements

of Rule 24.16 so that the RAES

eligibility requirements of SPX MarketMakers are the same as those for MarketMakers trading in non-index options.4

The Exchange represents that

recently, Market-Maker participation on

RAES in index options has been low

compared to historical levels. The

Exchange believes that this is a problem

that has been aggravated by the fact that

the in-person and volume requirements

in essence require the Exchange to have

new Market-Makers desiring to

participate on RAES wait for at least 30

days before logging onto RAES. The

proposed rule change would permit a

new Market-Maker to log onto RAES if

the Market-Maker: (1) has signed the

RAES Participation Agreement and

completed the RAES instructional

program; 5 (2) has been approved under

Exchange rules as a Market-Maker with

a letter of guarantee; 6 and (3) is

maintaining his or her principal

business on the CBOE as a MarketMaker.7

The Exchange also proposes to

eliminate the cap, set forth in Rule

24.16(e)(i), on the number of MarketMakers that may participate in a RAES

group.8 Rule 24.16(e)(i) provides that a

RAES group may not exceed the lesser

of: (1) 331⁄3 percent; or (2) a smaller

maximum number set by the

appropriate Market Performance

Committee. According to the CBOE, a

recent decline in RAES participation in

index options has, by operation of such

Exchange rules as Rule 24.16(e)(i),

resulted in reductions, as compared to

historical levels, in the size of RAES

groups. The reductions have taken place

because, among other reasons, CBOE

Rule 24.16(e)(i) currently ties maximum

RAES group size to the level of RAES

participation.9

III. Discussion

The CBOE proposal would amend

Rule 24.16 to eliminate what the CBOE

represents are several disincentives to

Market-Maker participation in SPX

trades. The Commission finds that

removal of in-person volume quotas and

elimination of the cap on the number of

Market-Maker that may participate in

SPX trades are appropriate measures to

reduce disincentives. In addition, the

Commission recognizes the importance

of encouraging Market-Maker

participation to ensure adequate

liquidity, particularly where

participation levels are low.

For these reasons the Commission

finds that the proposed rule change is

consistent with the Act 10 and the rules

and regulations promulgated thereunder

applicable to a national securities

exchange. Specifically, the Commission

finds that the proposal is consistent

with section 6(b)(5) of the Act,11 which

requires that the rules of an Exchange be

designed to promote just and equitable

principles of trade, to prevent

fraudulent and manipulative acts and

practices, and, in general, to protect

investors and the public interest.

IV. Conclusion

It is therefore ordered, pursuant to

section 19(b)(2) of the Act,12 that the

proposal (SR–CBOE–00–49) be and

hereby is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10392 Filed 4–25–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44206; File No. SR–GSCC–

00–05]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to

Enhancements to the GCF Repo

Service and Clarifying Certain Risk

Management Practices of the Service

April 20, 2001.

On June 5, 2000, the Government

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

and on July 13, 2000, amended a

proposed rule change (File No. SR–

GSCC–00–05) 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 December 4, 2000.2 No comments

letters were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

GSCC introduced its GCF Repo

Service in November 1998.3 The GCF

Federal Register / Vol. 66, No. 81 / Thursday, April 26, 2001 / Notices 21033

dealers that use a different clearing bank. Securities

Exchange Act Release No. 41303 (April 16, 1999),

64 FR 20346 (April 26, 1999) [File No. SR–GSCC–

99–01].

4On March 20, 2000, GSCC activated the generic

CUSIP number representing Federal Home Loan

Mortgage Corporation and Federal National

Mortgage Association fixed-rate MBS.

5As provided in GSCC’s Rule 46, the use of

borrowing and lending terminology in this

proposed rule change filing and in GSCC’s rules

and agreements shall not be deemed to affect the

intent of members as to their characterization of

their transactions in agreements entered into by the

members with each other or with third parties with

respect to such transactions.

6 ‘‘Collateral Allocation Obligation’’ is defined in

GSCC’s Rules as ‘‘the obligation of a Netting

Member to allocate securities or cash for the benefit

of the Corporation to secure such Member’s GCF

Net Funds Borrower Position.’’

7 In its Rules, GSCC has defined the term

‘‘Comparable Securities’’ to mean ‘‘a security or

securities that are represented by a particular

Generic CUSIP Number, any other security or

securities that are represented by the same Generic

CUSIP Number.’’ 8 15 U.S.C. 78q–1(b)(3)(F).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

Repo Service allows GSCC’s non-interdealer broker netting members to trade

general collateral repos involving U.S.

Government securities throughout the

day without requiring trade for trade

settlement on a delivery versus payment

basis.

GSCC has been activating the generic

CUSIP numbers representing the

securities that are eligible for GCF Repo

processing in stages. U.S. Treasury

securities with a maturity of ten years or

less and U.S. Treasury securities with a

maturity of thirty years or less were the

first products to be made eligible for

GCF Reprocessing. At the beginning of

this year, GSCC also began accepting

non-mortgage-backed agency securities

for GCF Repo processing and more

recently began accepting mortgagebacked agency securities (‘‘MBS’’) for

GCF Repo processing.4

Having gained the experience of

operating the GCF Repo Service for

more than two years, GSCC is now

enhancing the service in certain ways in

order to make it more responsive to its

members’ needs and to clarify certain

risk management practices, each in a

manner consistent with market practice.

(i) Authority To Deliver Comparable or

U.S. Treasury Securities

The first enhancement by GSCC

applies to the collateral allocation

obligations of securities lenders 5 in GCF

Repo transactions. Securities lenders

will now be permitted to satisfy their

collateral allocation requirements 6 in

connection with their GCF Repo activity

with, in addition to ‘‘comparable

securities’’ 7 and cash, U.S. Treasury

securities (i.e., bills, notes, or bonds).

Market participants consider

comparable securities to be acceptable

substitutes because securities that fall

within the same generic CUSIP number

tend to have the same level of liquidity.

U.S. Treasury securities are also

acceptable substitutes securities because

of their high level of liquidity.

The second enhancement by GSCC

applies where the securities borrower

due to reasons beyond its control and

despite its exercising best efforts is not

able to return in a timely manner the

securities that were delivered on the day

before by the securities lender. In such

a situation, the securities borrower will

now have the right to return (1)

comparable securities, (2) U.S. Treasury

bills, notes, or bonds, or (3) cash. The

securities borrower will be responsible

make the securities lender whole

(through GSCC) for any actual damages

directly suffered by the securities lender

as a result of its not receiving back the

same securities that it originally loaned.

(ii) Insolvency Situation Involving

Mortgage-Backed Securities

The third enhancement by GSCC

clarifies its risk management procedures

associated with the CGF Repo Service to

reflect the nature of MBS and MBS

market practice. In the event of a

securities borrower’s insolvency, it may

be impractical or even impossible for

GSCC to obtain the identical types of

MBS that were originally lent.

Moreover, MBS market practice in such

a situation is that securities lenders in

repurchase transactions would not

expect to receive the same MBS back.

GSCC’s Rule 22, section 4 is being

amended to give GSCC the authority in

an insolvency situation, where MBS

were the underlying collateral, to

delivery back to a securities lender

comparable securities or U.S. Treasury

bills, notes, or bonds. Alternatively, the

rule will permit GSCC to give a

securities lender the right to close out

the transaction by buying comparable

securities or U.S. Treasury bills, notes,

or bonds in return for a cash payment

by GSCC equal to the value of the

securities it bought. However, if GSCC

determines that the price paid by the

securities lender is unreasonably high,

GSCC will be entitled to pay the

securities lender a reasonable price as

determined by an independent third

party pricing source for the comparable

securities or U.S. Treasury bills, notes,

or bonds.

II. Discussion

Section 17A(b)(3)(F) 8 of the Act

requires that the rules of a clearing

agency be designed to promote the

prompt and accurate clearance and

settlement of securities transactions and

to assure the safeguarding of securities

and funds which are in the custody or

control of the clearing agency or for

which it is responsible. The

Commission believes that the proposed

rule change is consistent with these

obligations because it should further

enable GSCC to help facilitate the

prompt and accurate clearance and

settlement of GCF repos involving U.S.

Government securities and to remove

impediments to and help perfect the

mechanism of the national clearance

and settlement system for securities

transactions.

III. 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 the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

GSCC–00–05) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10391 Filed 4–25–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44207; File No. SR–Phlx–

2001–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Relating to the Automatic Display of

Customer Limit Orders

April 20, 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 February

2, 2001, the Philadelphia Stock

Exchange, Inc. (‘‘Phlx’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change described in Items

I, II, and III below, which Items have

been prepared by the Exchange. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.