Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Notices 26895

24See note 9, supra.

25 15 U.S.C. 78o–3(b)(4).

26See note 14, supra.

27 15 U.S.C. 78o–3(b)(6).

28 15 U.S.C. 78f(b)(2).

29 15 U.S.C. 78s(b)(2).

30 17 CFR 200.30–3(a)(12).

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

proposal does not allow the NASD

Board to wage an all-out offensive on

behalf of its candidates, as claimed by

the commenter.24 Therefore, the

Commission finds that this proposed

amendment permitting the NNC to

participate in contested election under

the measured terms proposed by the

NASD is consistent with section

15A(b)(4) because, as proposed, it

ensures fair representation by fostering

dialogue among the NASD membership

about candidates eligible for election to

the NASD Board without giving unfair

advantage to NNC-supported

candidates.

Access to Ballot by Petition

The Commission further finds that

changes to the petition process for

individual nominees and a slate of

nominees also is consistent with section

15A(b)(4)’s fair access requirement.

Currently, the By-Laws provide that a

candidate—including slates of

candidates—needs to obtain a petition

signed by only three percent of the

NASD membership. By presenting a

slate of candidates to the NASD

membership, one of the candidates on

the slate can in effect ‘‘coattail’’ on the

endorsement obtained by the other

members of the slate. This result both

frustrates the purpose of the petitionmaking process (to gauge the support of

an individual NASD candidate) and

treats individual candidates seeking

nomination through petitions the same

as a slate of candidates. Therefore, the

NASD’s amendments, while continuing

to recognize the validity of slate

petitions, requires that the slate be

endorsed by ten percent of the NASD’s

voting members. The NASD will retain

the three percent standard for

individuals. This modification is a

reasonable attempt by the NASD to

promote the fairness of its nomination

process by limiting the ability of

individual candidates to be nominated

via a slate and without independent

support, consistent with section

15A(b)(4) of the Act.

Industry Segment Representation

The NASD is proposing to amend

Article VII, Section 4 of the NASD ByLaws to require representation by three

additional Industry segments: a national

retail firm, a regional retail or

independent financial planning member

firm, and a clearing firm, and to allow

the Board, by resolution, to specify the

criteria for representatives of national

retail and regional retail or independent

financial planning firms.

The Commission finds that this

proposed change is consistent with

sections 15A(b)(4) of the Act.25 The

Commission believes that this proposed

amendment ensures that the NASD

Board reflects the current constituencies

of the securities markets and allows for

representation by various categories of

market participants within the NASD’s

membership ranks. Consequently, the

Commission believes that NASD’s

proposal promotes fair representation,

consistent with section 15A(b)(4).

Other changes

To conform the NASD By-Laws to the

new NASD corporate structure and the

change in the NASD-Nasdaq

relationship, the NASD has determined

to make three categories of additional

changes to the By-Laws: (1)

amendments reflecting the new

corporate relationship between NASD

and Nasdaq (e.g., NASD’s proposed

changes to Article VII, Section 9 of its

By-Laws reflect that the NASD

Regulation and Nasdaq Boards no longer

will propose candidates to the NASD

Board for appointment to the NNC); (2)

references to the newly formed NASD

Dispute Resolution subsidiary and

deleted references to Nasdaq where no

longer applicable (e.g., in Article IV,

Section 1, NASD’s proposal to add a

reference to ‘‘NASD Dispute

Resolution’’ in the membership

agreement that must be signed by new

NASD members);26 (3) amendments to

conform the NASD By-Laws to Delaware

law (e.g., in Article VIII, Section 6,

NASD’s proposed amendment stating

that a resolution for removal of officers

of the NASD must be in writing,

consistent with Delaware law). The

Commission finds that these proposed

changes are consistent with section

15A(b)(6) of the Act 27 in that they

accurately reflect the NASD’s new

corporate structure and conform to

applicable law.

The Commission finds good cause for

approving proposed Amendments No. 3

and No. 4 prior to the thirtieth day after

the date of publication of notice of filing

thereof in the Federal Register. The

Commission notes that Amendments

No. 3 and No. 4 clarifies the proposed

rule change. Because these amendments

do not significantly alter the original

proposal, which was subject to a full

notice and comment period, the

Commission finds that granting

accelerated approval to Amendments

No. 3 and No. 4 is consistent with

section 19(b)(2) of the Act.28

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendments No.

3 and No. 4, including whether the

proposed amendments are 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 at

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 File No.

SR–NASD–2001–06 and should be

submitted by June 5, 2001.

V. Conclusion

It Is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,29 that the

proposed rule change (SR–NASD–2001–

06), as amended, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.30

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–12189 Filed 5–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44276; File No. SR–NSCC–

2001–04]

Self-Regulatory Organizations; The

National Securities Clearing

Corporation; Notice of Filing of

Proposed Rule Change to Modify and

Consolidate Clearing Fund Rules

May 8, 2001.

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

Securities Exchange Act of 1934

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

April 24, 2001, the National Securities

26896 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Notices

2The Commission has modified the text of the

summaries prepared by NSCC.

3Addedum O was temporarily approved by the

Commission in 1996 and approval has been

extended consecutively on a temporary basis.

Securities Exchange Act Release Nos. 37202 (May

10, 1996), 61 FR 24993 [File No. SR–NSCC–93–17];

38622 (May 19, 1997), 62 FR 27285 [File No. SR–

NSCC–97–04]; 40034 (May 27, 1998), 63 FR 30277

[File No. SR–NSCC–98–03]; 41478 (June 4, 1999),

64 FR 31664 [File No. SR–NSCC–99–06]; 42864

(May 30, 2000), 65 FR 36204 [File No. SR–NSCC–

99–09] (Commission approval date corrected in

Federal Register, 65 FR 42065); and 44277 (May 8,

2001) [File No. NSCC–2001–05] (notice of filing and

order granting accelerated approval of Addendum

O through December 31, 2002).

4Procedure XV contains NSCC’s clearing fund

formulas.

5Under NSCC rules the only qualified securities

depository is DTC.

Clearing Corporation (‘‘NSCC’’) filed

with the Securities and Exchange

Commission (‘‘Commission’’) and on

April 30, 2001, amended the proposed

rule change as described in Items I, II,

and III below, which items have been

prepared primarily by NSCC. 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

NSCC seeks to modify and

consolidate its clearing fund rules. As

more fully described below, NSCC

proposes to apply its current clearing

fund requirements for settling members

on surveillance (Addendum O) to all

members and, for ease of reference,

incorporate these requirements as well

as the clearing fund requirements found

in Addendum B into NSCC’s Procedure

XV.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NSCC 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. NSCC 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

Under current Addendum O,3 NSCC

collects additional clearing fund

deposits from settling members on

surveillance pursuant to a risk-based

margining (‘‘RBM’’) methodology that

includes, but is not limited to,

calculations based on portfolio volatility

and, where applicable, market maker

domination. This rule filing would

extend these RBM requirements to all

NSCC members in lieu of Procedure

XV’s current allocation [Section

A.I.(a)(i)(a)] and liquidation [Section

A.I.(a)(i)(c)] clearing fund

requirements.4

Since the Commission’s approval of

Addendum O in 1996, NSCC has

studied the impact of RBM on member

firms. NSCC found that utilization of

RBM more accurately reflects NSCC’s

exposure than the current allocation and

liquidation formulae because it enables

NSCC to more precisely identify the

risks posed by a member’s unsettled

portfolio and, as a result, more quickly

adjust and collect additional clearing

fund requirements. NSCC management

therefore recommended, and the

Membership and Risk Management

Committee concurred, that RBM

methodologies should be applied to all

NSCC members, not just those on

surveillance.

This rule change will modify

Procedure XV as follows:

• With respect to clearing fund

requirements for CNS transactions,

Procedure XV’s allocation [current

Section A.I.(a)(i)(a)] and liquidation

[current Section A.I.(a)(i)(c)] formulae

will be replaced with RBM

methodology, specifically volatility

[new Section I.(A)(1)(a)] and market

maker domination [new Section

I.(A)(1)(c)] calculations, currently found

in Addendum O. The volatility formula

will continue to permit the NSCC to

utilize any generally accepted portfolio

volatility model to calculate volatility.

• In addition, the rule will continue

to provide that NSCC may exclude from

volatility calculations net unsettled

positions in classes of securities whose

volatility is (1) less amenable to

statistical analysis, such as OTC

Bulletin Board or Pink Sheet issues or

issues trading below a designated dollar

thresthold (e.g., five dollars), or (2)

amenable to generally accepted

statistical analysis only in a complex

manner, such as municipal or corporate

bonds. The amount of clearing fund

required with respect to these net

unsettled positions will be determined

by multiplying the absolute value of the

net unsettled positions by a percentage

designated by NSCC. This percentage

will not be less than 10% with respect

to the positions covered by item (1)

above and will not be less than 2% with

respect to the positions covered by item

(2) above.

• The clearing fund requirements for

all when-issued and when-distributed

transactions will be consolidated with

the calculations for regular way

transactions.

• The third prong of the CNS formula,

the calculation of the difference

between the contract price and the

current market price of compared

pending positions, will remain the same

[current Sections I.(A)(i)(b) and

I.(A)(2)(b)]; however, these calculations

will be undertaken on a daily basis.

• All clearing fund and other deposit

requirements will be required to be

made by members within one hour of

demand. However, to the extent a

member is meeting its obligation with:

(1) a deposit of cash, the cash deposit

must be made by Federal Funds wire

transfer and must be received no later

than fifteen minutes prior to the close of

the Federal Funds wire and (2) a

delivery of eligible securities, the

delivery of eligible securities must be

received within the deadlines

established by a qualified securities

depository.5 The proposed rule further

provides that, at the discretion of NSCC,

these cash deposits may be included as

part of the member’s daily settlement

obligation.

• Addendum B, among other things

currently specifies thresholds pursuant

to which NSCC will require additional

clearing fund contributions. Procedure

XV [new Section II.(C)] will now

provide that additional clearing fund

deposits shall not be requested where

the amount of the deficiency for a: (1)

Member on Class A or B Surveillance is

equal to or less than $5,000 and such

amount is less than 5% of such

member’s actual deposit; (2) member on

Advisory Surveillance is equal to or less

than $20,000 and such amount is less

than 5% of such member’s actual

deposit; or (3) member not on any

surveillance is equal to or less than

$50,000 and such amount is less than

10% of the member’s actual deposit.

• Other changes to Procedure XV

result from relabeling and/or moving the

placement of NSCC’s clearing fund

requirements without altering their

substantive nature.

As described below, NSCC intends,

subject to Commission approval, to

begin implementing the proposed

clearing fund changes on June 15, 2001,

and to conclude by December 31, 2002.

Subject to Commission approval,

members currently subject to

Addendum O will be subject to these

clearing fund changes on June 15, 2001.

Applicants approved for NSCC

membership from and after April 24,

2001, the date of this filing, will also be

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Notices 26897

6The April 27, 2001 amendment to the rule filing

added the language ‘‘in conjunction with or’’ to the

filing.

7NSCC will keep effective all rules affected by

this filing until all members are subject to the

revised rules.

8 15 U.S.C. 78q–1. 9 17 CFR 200.30–3(a)(12).

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

2 In NSCC–2001–04, which is subject to

Commission approval, NSCC proposes to apply its

current clearing fund requirements for settling

members on surveillance (Addendum O) to all

NSCC members and to incorporate those

requirements as well as all the clearing fund

formulae and requirements currently found in

Addendum B into NSCC’s Procedure XV. The phase

in of the new procedures under SR–NSCC–2001–04

will begin June 15, 2001, and will end no later than

December 31, 2002. See Securities Exchange Act

Release No. 44276 (May 8, 2001) [File No. NSCC–

2001–04] (notice of filing of proposed rule change

to modify and consolidate clearing fund rules).

immediately subject to these rule

changes on June 15, 2001. Members who

have a position which will subject them

to a deposit requirement based on the

market domination calculations will

also be subject to these rule changes on

June 15, 2001. NSCC will place every

remaining member into deciles and will

apply the revised clearing fund

methodologies pursuant to a step-bystep, decile-by-decile plan based upon

the volatility classification of each such

member’s unsettled portfolio.

Accordingly, members with the most

volatile portfolios will be subject to

these rule changes first, on or shortly

after June 15, 2001, provided, however,

that to the extent any such member has

significant CNS obligations resulting

from options exercises and assignments

or is a municipal securities brokers’

broker, it will be subject to these rule

changes in conjunction with or 6 after all

other members but in no event later

than December 31, 2002.7

NSCC believes that the proposed rule

change is consistent with the

requirements of Section 17A of the Act 8

and the rules and regulations

thereunder applicable to NSCC because

it will permit NSCC to assure the

safeguarding of funds and securities for

which it is responsible by allowing

NSCC to more appropriately collect

collateral to cover members’ exposures.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments relating to the

proposed rule change have not yet been

solicited or received. NSCC will notify

the Commission of any written

comments received by NSCC.

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 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 NSCC. All submissions should

refer to File No. SR–NSCC–2001–04 and

should be submitted by June 5, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–12136 Filed 5–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44277; File No. SR–NSCC–

2001–05]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Notice of Filing and Order

Granting Accelerated Approval of a

Proposed Rule Change Related to

Additional Procedures for Class A

Surveillance of Certain Settling

Members and to the Collection of

Clearing Fund and Other Collateral

Deposits from These Settling Members

May 8, 2001.

Pursuant to Section 10(b)(1) of the

Securities Exchange Act of 1934

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

April 24, 2001, the National Securities

Clearing Corporation (‘‘NSCC’’) 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 primarily by NSCC. 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 December 31, 2002.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change extends the

temporary approval of additional

procedures that govern the placement of

NSCC members of Class A surveillance

and the clearing fund deposit and other

collateral requirements for such

members until NSCC’s proposed rule

change, SR–NSCC–2001–04, is phased

in. 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,

NSCC 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