Federal Register / Vol. 66, No. 110 / Thursday, June 7, 2001 / Notices 30777

4 In approving this rule change, the Commission

has considered the proposed rule’s impact on

efficiency, competition, and capital information. 15

U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). 6 15 U.S.C. 78s(b)(2).

7 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 43612,

(November 22, 2000), 65 FR 75331.

3Section 11(a) of Article VI of OCC’s By-Laws

states that whenever there is a dividend, stock split,

reorganization, recapitalization, or similar event

with respect to an underlying security or whenever

there is a merger, consolidation, dissolution, or

liquidation of the issuer of an underlying security,

the number of option contracts, unit of trading,

exercise price, and the underlying security of all

outstanding options contracts open for trading in

that underlying security may be adjusted.

control of the member organization’s

main office or to be supervised by a

manager of another office within short

travel distance. The manager may be

responsible for only two small offices.

The proposed amendments to the

Interpretation will require that small

offices be controlled and supervised by

either the main office or another

designated branch office having a

qualified (i.e., Series 9 and 10 examqualified) Branch Office Manager on the

premises. Further, such supervisory

arrangements must be made part of the

member organization’s written plan of

supervision. Adoption of the

Interpretation will eliminate the current

provision under Interpretation /01 to

NYSE Rule 342.15 that a manager may

be responsible for only two small offices

that are in close geographical proximity.

Given modern electronic surveillance

and monitoring techniques, the

Exchange believes this limitation

regarding number of offices and

geographical location is no longer

necessary. New Interpretation /04 to

NYSE Rule 342.15 provides that RRs

operating from small, one-person branch

offices must be subject to the same

special supervision prescribed in

Interpretation /03 to NYSE Rule 342.11

for residence offices.

III. Discussion

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.4 Specifically, the

Commission finds the proposal is

consistent with the section 6(b)(5) 5

requirements that the rules of an

exchange be designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, and, in general, to

protect investors and the public interest.

The Commission believes that by

amending its Interpretations to NYSE

Rule 342, the Exchange will enhance the

process for member organization

supervision and control of small and

residence branch offices, while also

permitting RRs to engage in activities

upon completion of a prescribed

training period.

The proposal would amend

Interpretation /03 to NYSE Rule 342.11

to permit RRs in residence offices to

begin working after the four-month

training period required in NYSE Rule

345, instead of a six-month securities

industry experience requirement in

Interpretation /03. The proposal would

require member organizations to

develop and implement special

supervisory procedures for heightened

supervision for the two-month period

immediately following completion of

prescribed training, and to inform RRs

operating from a residence or small oneperson office of the special supervision,

as well as to maintain records

evidencing the implementation and

conduct of the special supervision.

Notwithstanding the proposed special

supervision period, member

organizations must always have

appropriate policies and procedures in

place for the supervision and control of

all sales and operational activities of

each branch office and of all registered

employees and the customer accounts

they service. The Commission believes

that this interpretation establishes a

good foundation for Exchange members

to develop sufficient procedures for

continuous and meaningful supervision

of their RRs operating from a residence

or small one-person office.

The proposal also would amend

Interpretations /01 and /02 of NYSE

Rule 342.15 to require that small offices

be controlled and supervised by either

the main office of another designated

branch office having a qualified Branch

Office Manager on the premises, and

that such supervisory arrangements

must be made part of the member

organization’s written plan of

supervision. Further, the proposal

would create Interpretation /04 to NYSE

Rule 342.15 which would require that

RRs operating from small, one-person

branch offices must be subject to the

same special supervision prescribed in

Interpretation /03 to NYSE Rule 342.11

for residence offices. The Commission

believes that these proposed changes are

consistent with the Act in that they will

aid the Exchange in supervising member

firms that have small offices and the

RRs who work therein without reducing

any of the currently established

oversight mechanisms.

IV. Conclusion

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,6 that the

proposed rule change (SR–NYSE–00–

58) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14331 Filed 6–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44370; File No. SR–OCC–

00–10]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Granting Approval of a Proposed Rule

Change Relating to Adjustments of

Options Contracts

May 31, 2001.

On October 3, 2000, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–00–10) 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 1, 2000.2 No comment

letters were received. For the reasons

discussed below, the Commission is

granting approval of the proposed rule

change.

I. Description

The purpose of the rule change is to

add new language to paragraph (b) of

Article VI, Section 11 of OCC’s By-Laws

to clarify that neither OCC nor OCC’s

securities committee will be liable for

any failure to adjust outstanding option

contracts or for any delay in adjusting

such contracts when the securities

committee does not learn in a timely

manner of an event for which it would

otherwise have directed an adjustment.

While OCC believes that this should be

the result under the By-Laws in its

present form, OCC believes it is

advisable to cover this situation

specifically.

Normally, OCC is notified of the

occurrence of a section 11(a) adjustment

event 3 by its internal stock watch

30778 Federal Register / Vol. 66, No. 110 / Thursday, June 7, 2001 / Notices

4 15 U.S.C. 78q–1(b)(3)(F).

5 17 CFR 200.30–3(a)(12).

1A copy of the text of OCC’s proposed rule

change and the attached exhibit are available at the

Commission’s Public Reference Section or through

OCC.

2Under OCC’s rules, an ‘‘escrow deposit’’ is a

deposit made by a clearing member’s customer with

a bank that has been approved by OCC (referred to

as an ‘‘escrow bank’’), and a ‘‘specific deposit’’ is

a deposit made by a clearing member at The

Depository Trust Company. When OCC accepts an

escrow deposit or a specific deposit, it does so in

lieu of requiring the clearing member to deposit

margin with OCC, and OCC therefore looks to the

deposit to make itself whole if the clearing member

fails to perform on an assignment on the short

position that is covered by the deposit.

department or by the exchanges, which

use their research departments to

monitor the underlying securities and

the issuers of the underlying securities.

OCC’s economic research department

regularly scans Bloomberg, Reuters, and

Dow Jones newswires for

announcements of adjustment events.

When it learns of such an event, OCC

contacts the options exchanges, the

primary market for the underlying, and

the issuer of the underlying to obtain

more information about the event and to

monitor the event. Likewise, the

research departments as the various

options exchanges scan a variety of

newswires and employ different news

alert services to monitor for adjustment

events. When the exchanges learn of an

adjustment event, they alert OCC and

contact the primary market for the

underlying security to obtain more

information about the event to monitor

the event.

Through these procedures, the

likelihood that a potential adjustment

event will escape notice is minimized.

However, the possibility of such an

occurrence can never be completely

estimated. Accordingly, OCC wishes to

make clear that neither it nor its

securities committee will have liability

for any failure to act or for any delay in

acting on events not known to the

securities committee.

The rule change also clarifies that

adjustment determinations are made in

light of circumstances known at the

time the determination is made. For

example, if the securities committee

does not learn of an event for which an

adjustment would normally be made

until after the ex-date, the fact that

options trading and/or exercise activity

has taken place in circumstances

suggesting that there would be no

adjustment could tip the balance of

fairness against making an adjustment.

II. Discussion

For the reasons set forth below, the

Commission believes that OCC’s rule

change is consistent with OCC’s

obligations under section 17A(b)(3)(F) 4

of the Act which requires that the rules

of a clearing agency be designed 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 rule change

minimizes OCC’s exposure to liability

for a delay or failure to adjust an

outstanding option contract for an event

which it would otherwise have made an

adjustment where OCC does not learn or

does not learn in a timely manner of the

event. By explicitly stating that OCC has

no liability in such situations beyond its

control, OCC’s rule change allows OCC

to focus its resources on safeguarding

the securities and funds for which OCC

is responsible.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and in

particular 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–

OCC–00–10) be and hereby is approved.

For the Commission by the Division of

Market Regulations, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14310 Filed 6–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44371; File No. SR–OCC–

00–09]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change Relating to Specific

Deposit and Escrow Deposit Programs

May 31, 2001.

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

Securities Exchange Act of 1934

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

September 8, 2000, The Options

Clearing Corporation (‘‘OCC’’) 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 OCC. The

Commission is publishing this notice

and order to solicit comments on the

proposed rule change from interested

parties and to grant accelerated

approval.1

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change adds a

provision to OCC’s rules to describe

specifically how OCC would handle a

closing purchase transaction submitted

to it in the name of a suspended clearing

member that had been effected to close

out or reduce a covered short position.

The purposed rule also updates and

clarifies OCC’s rules that describe how

OCC proceeds after suspending a

clearing member.

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.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The principal purpose of the

proposed rule change is to add a

provision to OCC’s rules to describe

specifically how OCC would handle a

closing purchase transaction submitted

to it in the name of a suspended clearing

member that had been effected to close

out or reduce a covered short position.

A secondary purpose of the proposed

rule change is to update and clarify a

few other rules that describe how OCC

proceeds after suspending a clearing

member. These changes are described

under the heading ‘‘Other Changes’’

below.

The rules governing both OCC’s

escrow deposit program and its specific

deposit program permit OCC to have

recourse to a deposit if an exercise is

assigned to the short position that is

covered by the deposit and if the

clearing member does not perform on

the assignment.2 Both programs are

intended to provide OCC with

protection against the risk associated

with short positions. The escrow

deposit program is intended also to

provide the clearing member and the

clearing member’s correspondent

broker, if there is one for a particular

customer, with recourse if the clearing