33282 Federal Register / Vol. 66, No. 120 / Thursday, June 21, 2001 / Notices

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

2 17 CFR 240.19b–4.

3The proposed rule change, as amended by

Amendment No. 1, was published for comment in

the Federal Register on February 10, 2000. See

Securities Exchange Act Release No. 42381

(February 3, 2000), 65 FR 6673.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44427; File No. SR–NYSE–

99–25]

Self-Regulatory Organizations; Notice

of Filing of Amendment No. 2 to

Proposed Rule Change by the New

York Stock Exchange, Inc. To Amend

Rule 134, Governing Error Accounts,

and Rule 411, Governing Erroneous

Reports; and To Adopt New Rule 407A

July 14, 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 January 8,

2001, the New York Stock Exchange,

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

the Securities and Exchange

Commission (‘‘Commission’’)

Amendment No. 2 to the proposed rule

change submitted as File No. SR–NYSE–

99–25.3 Amendment No. 2 is described

in Items I, II and III below, which Items

have been prepared by the NYSE. The

Commission is publishing this notice to

solicit comments on Amendment No. 2

from interested persons.

I. Self—Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

Amendment No. 2 proposes an

amendment to NYSE Rule 411; an

additional amendment to NYSE Rule

134 with regard to error accounts; and

an amendment to proposed NYSE Rule

407A regarding notification by members

of accounts in which they have an

interest.

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

Amendment No. 2 to the proposed rule

change and discussed any comments it

received on the amendment. 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

In the initial filing of proposed rule

change SR–NYSE–99–25, the Exchange

proposed initiatives to strengthen the

regulation of activities of members on

the Floor. The initiatives consisted of

amendments to NYSE Rule 134,

regarding error accounts, and a new

rule, NYSE Rule 407A, regarding Floor

member account disclosure.

Amendment No. 1 to the filing provided

more detail as to the application of Rule

134 and proposed amendments to Rule

134 by adding specific language with

respect to the Rule’s requirements.

Amendment No. 2 now proposes an

amendment to another Exchange rule,

NYSE Rule 411, and additional

amendments to NYSE Rules 134 and

407A.

Amendment of Rule 411

NYSE Rule 411(a), ‘‘Erroneous

Reports,’’ provides that the price and

size of the actual auction market trade

are binding, notwithstanding the fact

that the customer has received an

erroneous report with respect to the

terms of the trade. In today’s markets,

however, some customers may not want

to take corrected reports, due to

processing costs or other difficulties

with respect to other trading strategies

effectuated by the customer in reliance

on the erroneous report. This has the

potential for creating problems in

clearing and settling trades, because

Rule 411(a) does not currently provide

a means whereby a Floor broker can

treat an erroneous report as though it

were an erroneous trade.

The Exchange is proposing to amend

Rule 411(a) to provide two alternative

approaches in cases where an order has

been executed, but the wrong price and/

or size has been reported to the

customer:

Alternative One: The first alternative

is simply the current rule. The actual

execution price and size are binding,

and the trade clears and settles in

accordance with the terms of the

auction market trade. The member and

the customer resolve any monetary

issues between themselves. This

alternative must be represented to the

customer and rejected by a person

authorized to accept or reject the

erroneous report for the customer before

a member can rely on new Alternative

Two.

Alternative Two. Under this

alternative, which is proposed to be

added to Rule 411(a), a non-member

may treat the terms of the execution

report as though they were the terms of

the actual auction market trade,

provided that:

(i) The price and size of the erroneous

report are within the range of prices and

sizes reported on the Consolidated

Tape; (ii) the member reports the nature

of the error to the non-member, and

whether it results in a favorable

adjustment to the non-member; (iii) the

member documents, on a trade-by-trade

basis, the name of the individual

authorized to accept or reject the

erroneous report for the non-member,

where such documentation includes the

amount of the error, and whether it was

in the non-member’s or member’s favor;

(iv) the member treats the erroneous

report as though ti were an erroneous

trade, and, in the member’s error

account, the member takes the opposite

side of the report and the opposite side

of the actual auction market trade; (v)

the member absorbs any loss as a result

of taking the trade into the member’s

error account and any profit is paid to

the New York Stock Exchange

Foundation; and (vi) a specialist may

accommodate the member by taking the

error into the specialist’s error account.

In the latter case, the member would be

required to absorb any loss, while any

profit would go to the New York Stock

Exchange Foundation; the member

would be required to document the

specialist’s accommodation and nonmember understandings as per (ii)

above; and the specialist would be

required to document taking in the error

to accommodate the member.

The NYSE is also proposing to amend

NYSE Rule 411 to make clear that a

member may not rely on Alternative

Two in situations where a member has

issued a report but has not actually

executed the order.

The Exchange believes this approach

provides a reasonable means for

handling erroneous reports as between

members and non-members, and

provides sufficient safeguards to prevent

abusive practices.

Other Amendments

The Exchange also proposes to amend

NYSE Rule 134 to provide that no nonerror trading may take place in a

member’s error account, and to amend

NYSE Rule 407A, ‘‘Disclosure of All

Members Accounts,’’ to provide that a

member must inform the Exchange

when any securities account in which

the member has an interest is closed.

The amendment to Rule 134 will assist

in surveilling members’ error account

activities by limiting transactions to

those that are related to errors. The

amendment to Rule 407A will help the

Federal Register / Vol. 66, No. 120 / Thursday, June 21, 2001 / Notices 33283

4 15 U.S.C. 78f(b)(5).

5 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1).

2Securities Exchange Act Release No. 44212,

(April 23, 2001), 66 FR 21425. 3Letters to Jonathan Katz, Secretary, SEC, from

Chris Concannon, Vice President, The Island ECN,

Inc. (May 21, 2001) (‘‘Island letter’’); William H.

Navin, Executive Vice President and General

Counsel, OCC (June 1, 2001) (‘‘OCC letter’’); and

Fulbright & Jaworski, L.L.P., on behalf of The

Philadelphia Stock Exchange, (June 7, 2001)

(‘‘PHLX letter’’).

Exchange know whether members have

active securities accounts.

2. Statutory Basis

The Exchange believes the proposed

rule change, as amended, is consistent

with Section 6(b)(5) 4 of the Act, which

requires that an exchange have rules

that are designed to promote just and

equitable principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest. The Exchange believes

that the proposed rule change, as

amended, will help accomplish these

ends by strengthening the Exchange’s

ability to surveil the Floor activities of

members.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change, as amended,

will impose any burden on competition

that is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 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

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 Exchange 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 Amendment No. 2 to

the proposed rule change is consistent

with the Act. Persons making written

submission 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 the filing will also be

available for inspection and copying at

the principal offices of the NYSE. All

submissions should refer to File No.

SR–NYSE–99–25 and should be

submitted by July 6, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–15622 Filed 6–20–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44434; File No. SR–OCC–

2001–05]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Granting Approval of a Proposed Rule

Change Relating to Clearing Security

Futures

June 15, 2001.

On March 21, 2001, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) and on

April 16, 2001, amended a proposed

rule change (File No. SR–OCC–2001–05)

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

April 30, 2001.2 Three comment letters

were received.3 For the reasons

discussed below, the Commission is

granting approval of the proposed rule

change.

I. Description

The Commodity Futures

Modernization Act (‘‘CFMA’’), which

became law on December 21, 2000,

eliminated the preexisting ban on

trading in futures 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 OCC’s proposed rule change

is to make an initial identification of the

kinds of markets for whom OCC will

clear transactions in security futures.

OCC proposed to amend its 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.

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 designated contract

market in security futures products

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 well-positioned

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 as readily available if positions

in security futures were carried with

other clearinghouses. OCC’s settlement

interface with the National Securities

Clearing Corporation gives OCC the