Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices 67003

securities options (Rule 21.3) each mandate

compliance with Rule 4.11.

10The CBOE notes that this filing does not

propose to change the existing SPX and interest rate

firm facilitation exemptions.

11 50,000 facilitation+50,000 hedge+25,000

standard=125,000 contracts

12The CBOE notes, however, that the Intermarket

Surveillance Group (‘‘ISG’’) is currently working on

developing such procedures. 13 17 CFR 200.30–3(a)(12) (1994).

As is the case with the SPX and

interest rate firm facilitation

exemptions, Exchange Rule 6.74(b)

procedures for crossing a customer

order with a firm facilitation order must

be followed. In this regard, before a

customer order can be crossed with a

firm facilitation order, the trading crowd

must be given reasonable opportunity to

participate. Moreover, only after it has

been determined that the trading crowd

will not fill the order, may the firm’s

customer order be crossed with the

firm’s facilitation order.

In addition, except for the existing

SPX and interest rate firm facilitation

exemptions which are set at higher

levels, the expanded firm facilitation

exemption will be twice the standard

limit.10

The CBOE notes that the firm

facilitation exemption will be in

addition to and separate from the

standard limit, as well as other

exemptions available under Exchange

position limit rules. For example, if a

firm desires to facilitate a customer

order in the XYZ option class, which is

assumed to be a class of options traded

exclusively on the Exchange with a

25,000 contract standard position limit,

the firm may qualify for a firm

facilitation exemption of up to twice the

standard limit (50,000 contracts), as

well as an equity hedge exemption of up

to twice the standard limit (50,000

contracts), in addition to the 25,000

contract standard limit. If both

exemptions are allowed, the facilitation

firm may hold or control a combined

position of up to 125,000 XYZ contracts

on the same side of the market.11

The CBOE notes, however, that the

firm facilitation exemption will not

extend to all option classes listed on the

Exchange. Rather, until coordinated

intermarket procedures are developed,

the exemption will be extended only to

non-multiply-listed option classes.12

The CBOE also proposes a new

provision with respect to the

requirement that the ‘‘facilitation firm’’

hedge the exempted position within five

business days. The new provision

would allow the facilitation firm to be

granted an exemption from this

requirement when opposite side of the

market contracts are used to hedge the

original facilitated customer order. In

this regard, the Department of Market

Regulation’s staff would be responsible

for granting the exemption for the

hedge, and the facilitation firm would

be required to submit documentation to

the regulatory staff as to how the

position was hedged.

Lastly, to aid in understanding the

scope of the firm facilitation exemption,

Interpretation .06 will include both a

table and an example showing how the

exemption will be applied.

The Exchange believes that expanding

the firm facilitation exemption will

contribute to the depth and liquidity of

the market by allowing those member

firms who are willing to commit firm

capital the ability to facilitate large

customer orders in a wide range of

option classes. In approving the firm

facilitation exemptions for SPX and

interest rate options, the Commission

expressed its opinion that providing

member organizations with exemptions

for the purpose of facilitating large

customer orders would better serve the

needs of the investing public by

distributing the risks of large customer

transactions to several market

participants. At that time, the

Commission also noted that safeguards

were built into the exemption to

minimize any potential disruption or

manipulation concerns. The CBOE

believes that these same benefits and

assurances are also applicable with

respect to the new firm facilitation

exemption.

Because the expanded firm

facilitation exemption will enhance the

depth and liquidity of the market for

both members and investors, the

Exchange believes that the rule proposal

is consistent with and furthers the

objectives of Section 6(b)(5) of the Act

in that it would remove impediments to

and perfect the mechanism of a free and

open market in a manner consistent

with the protection of investors and the

public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The CBOE does not believe that the

proposed rule change will impose any

inappropriate burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the 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 CBOE consents, the

Commission will:

A. By order approve the 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW,

Washington, DC 20549. 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

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 the CBOE. All submissions

should refer to File No. SR–CBOE–95–

68 and should be submitted by January

17, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31310 Filed 12–26–95; 8:45 am]

BILLING CODE 8010–01–M
67004 Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2Letters from Julie Beyers, Associate Counsel,

ISCC, to Christine Sibille, Division of Market

Regulation, Commission (November 28, 1995 and

November 30, 1995).

3The Commission has modified parts of these

statements.

4Securities Exchange Act Release Nos. 29841

(October 18, 1991), 56 FR 55960; 35392 (February

16, 1995), 60 FR 10415; and 36339 (October 5,

1995), 60 FR 53447.

5 IOA was established in 1980 to promote and

facilitate the development of cross-border

investment activities. IOA is a division of the

Securities Industry Association and has

membership of approximately 800 internationally

active broker-dealers, banks, custodians, clearing

organizations, and other service providers.

6 Its shareholders are brokerage houses, banks,

insurance companies, Banco de Mexico (the central

bank of Mexico), and the Mexican Stock Exchange.

7Starting in April 1994, Banco de Mexico

authorized INDEVAL to offer custodial and transfer

services for government debt securities to foreign

direct account depositors by means of a link

between Banco de Mexico and INDEVAL.

8Letter from Richard F. Jackson, Division of

Investment Management, Commission, File No.

132–3 (October 19, 1990). An ‘‘eligible foreign

custodian’’ includes a securities depository or

clearing agency which is incorporated or organized

under the laws of a country other than the United

States and which operates the central system for

handling of securities or equivalent book-entries in

that country. 17 CFR 270.17f–5(c)(2)(iii) (1994).

9Such agreement is governed by the laws of the

United Mexican States.

[Release No. 34–36605; International Series

Release No. 904; File No. SR–ISCC–95–5]

Self-Regulatory Organizations;

International Securities Clearing

Corporation; Notice of Filing of

Proposed Rule Change Relating to

Global Clearance Network Service

December 20, 1995.

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

Securities Exchange Act of 1934

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

November 22, 1995, the International

Securities Clearing Corporation

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

Exchange Commission (‘‘Commission’’)

the proposed rule change as described

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

have been prepared primarily by ISCC.

On November 29, 1995, and on

November 30, 1995, ISCC filed

amendments to its proposed rule

change.2 The Commission is publishing

this notice to solicit comments on the

proposed rule change from interested

persons.

1. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change is to

accommodate an additional service

provider in ISCC’s Global Clearance

Network (‘‘GCN’’) service.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

ISCC 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. ISCC has prepared

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

and (C) below, of the most significant

aspects of such statements.3

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

ISCC’s Rule 50 provides that ISCC

may establish a foreign clearance,

settlement, and custody service known

as the Global Clearance Network

(‘‘GCN’’) in conjunction with banks,

trust companies, and other entities.

Presently, ISCC has established GCN

relationships with Citibank, N.A.,

Standard Bank of South Africa, Westpac

Custodian Nominees Limited of

Australia, and Westpac Nominees-NZLimited.4 The proposed rule change will

accommodate S.D. INDEVAL, S.A. de

C.V. (‘‘INDEVAL’’) as an additional GCN

service provider.

ISCC in conjunction with the

International Operations Association

(‘‘IOA) 5 has developed a cross-border

communications link to INDEVAL using

the telecommunication system provided

by the Society for Worldwide Interbank

Financial Telecommunications S.C.

(‘‘SWIFT’’). INDEVAL was created

under Mexican securities law in 1978

and has been privately owned since

1987.6 INDEVAL is regulated by the

Government of Mexico. INDEVAL

provides clearance, settlement, and

custodial services for all transactions

executed on the Mexican Stock

Exchange and for transactions in other

securities that are publicly traded in

Mexico. INDEVAL accepts any security

publicly offered in Mexico for custody

and clearing except for certain Mexican

government securities.7 As of December

31, 1994, 415 institutions were

registered with INDEVAL, and the value

of assets under custody was 744.2

billion Mexican pesos. INDEVAL may

act as an eligible foreign custodian

under Rule 17f–5 under the Investment

Company Act of 1940.8

INDEVAL has entered into an

agreement with ISCC pursuant to which

INDEVAL has agreed to provide access

to its clearance, settlement, and custody

services to GCN participants that qualify

to be customers of INDEVAL.9 The link

permits ISCC members that also are

members of INDEVAL to send

instructions through ISCC to INDEVAL

regarding such participants’ INDEVAL

accounts. The link does not provide a

mechanism for transferring securities or

funds into or out of the United States.

INDEVAL is providing the services at its

scheduled rates and is responsible for

collecting fees directly from the

participants. The agreement is

terminable on ninety days prior notice.

However, if ISCC notifies INDEVAL

within such ninety day period that it

has not been able to make arrangements

with an alternative service provider, the

agreement terminates thirty days after

the expiration of such ninety day

period.

The proposed rule change will

facilitate and centralize the processing

of international transactions at a

beneficial cost to members which

ultimately will be reflected in services

to the investing public. Accordingly,

these changes are consistent with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

ISCC 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

No written comments relating to the

proposed rule change have been

solicited or received. ISCC will notify

the Commission of any written

comments received by ISCC.

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

published its reason 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 approved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.
Federal Register / Vol. 60, No. 248 / Wednesday, December 27, 1995 / Notices 67005

1 15 U.S.C. 78s(b)(1) (1988).

2Securities Exchange Act Release No. 36197,

International Series Release No. 850 (September 7,

1995), 60 FR 47633.

3OCC By-law, Article I.N. (2) employs the term

‘‘appropriate self-regulatory body’’ as defined in the

Supplementary Instructions re Completion of the

Joint Regulatory Financial Questionnaire to refer to

the government agency or self-regulatory authority

primarily responsible for regulating the activities of

a Canadian Clearing Member.

4 17 CFR 240.15c3–1.

5The Supplementary Instructions are issued by

the Investment Dealers Association of Canada and

provide additional guidance for securities firms in

connection with the preparation of the Joint

Regulatory Financial Questionnaire and Report.

6The JRFQ&R is a financial reporting form which

Canadian securities firms are required to prepare

and submit to appropriate Canadian regulatory

authorities and provincial exchanges to advise them

of such firms’ financial condition.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW,

Washington, DC 20549. 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 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 will also be

available for inspection and copying at

the principal office of the abovementioned self-regulatory organization.

All submissions should refer to the file

number SR–ISCC–95–05 and should be

submitted by January 17, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–31309 Filed 12–26–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36606; International Series

Release No. 905; File No. SR–CC–95–11]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Approving a Proposed Rule Change

Modifying the Capital Computation

Formula and Reporting Requirements

Applicable to Canadian Clearing

Members of The Options Clearing

Corporation

December 20, 1995.

On July 13, 1995, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–95–11) pursuant to Section

19(b)(1) of the Securities and Exchange

Act of 1934 (‘‘Act’’).1 Notice of the

proposal was published in the Federal

Register on September 13, 1995.2 No

comment letters were received. For the

reasons discussed below, the

Commission is granting approval of the

proposed rule change.

I. Description of the Proposal

OCC is modifying its rules concerning

the financial requirements of Canadian

clearing members, including the capital

computation formula and reporting

requirements applicable to Canadian

clearing members, to reflect revisions to

the capital computation and reporting

standards recently adopted by various

Canadian regulatory authorities. OCC’s

rules allow Canadian clearing members

to submit required financial reports in

accordance with the accounting and

reporting standards of their appropriate

self-regulatory body.3 In monitoring

Canadian clearing members’ compliance

with OCC financial requirements, OCC

converts this financial information into

a form consistent with Rule 15c3–1

under the Act.4

The capital formula applied under

Canadian securities regulations to

Canadian securities firms has been

revised and incorporated into a new

standard report format. The prior capital

formula applied a minimum capital

requirement, as assessed by a working

capital computation (i.e., total capital

less nonallowable assets), based upon

volume of business determined by a

percentage of adjusted liabilities. The

new capital formula continues to be

based on a working capital computation

minus certain charges, including

charges that reflect the risk of

proprietary securities held in inventory.

However, the new capital formula

replaces the concept of adjusted

liabilities with revised definitions of

allowable assets and margin charges that

are intended to reflect the credit

worthiness of counterparties and the

economic substance of transactions.

The report format used by Canadian

securities firms to report their capital

computation also has been revised.

Accordingly, OCC is changing its

financial requirements and reporting

rules to conform them to the revised

capital formula and reporting format.

Specifically, the prior Interpretations

and Policies (‘‘Interpretation’’) .01 to

OCC Rule 301, regarding initial

financial requirements, provided that a

Canadian clearing member that

commenced doing business as a broker

or dealer within twelve months prior to

its admission to OCC clearing

membership must have maintained

‘‘initial net free capital,’’ as defined in

the Supplementary Instructions re

Completion of the Joint Regulatory

Financial Questionnaire

(‘‘Supplementary Instructions’’),5 of not

less than ten percent of such clearing

member’s ‘‘adjusted liabilities,’’ as

defined in the Supplementary

Instructions, until the later of (i) three

months after its admission to OCC

clearing membership or (ii) twelve

months after it commenced doing

business as a broker or dealer.

Interpretation .01 to OCC Rule 302,

regarding minimum net capital

requirements, provided that a Canadian

clearing members must have maintained

net free capital, as defined in the

Supplementary Instructions, of not less

than the amount of net free capital that

would be required of such clearing

member under Section 100.2 of the ByLaws of the Investment Dealers

Association of Canada (‘‘IDAC’’) if the

clearing member was a member of the

IDAC.

As amended, Interpretation .01 to

Rule 301 requires a Canadian clearing

member to maintain an initial ‘‘early

warning reserve,’’ as determined in

accordance with the Joint Regulatory

Financial Questionnaire and Report

(‘‘JRFQ&R)’’),6 of not less than $1,

000,000 (U.S.) for the same period as

previously required. The amended

Interpretation .01 to Rule 302 will

provide that the minimum net capital

requirement of a Canadian clearing

member is the early warning reserve, as

determined under the JRFQ&R, in an

amount not less than the greater of

$750,000 (U.S.) or 2% of such Canadian

clearing member’s total margin

requirements as determined in

accordance with the JRFQ&R.

Application of the early warning reserve

as determined under the JRFQ&R also

replaces the use of the net free capital

formula as determined under the

Interpretations to OCC Rules 303 and

304, regarding early warning notice and

restrictions on distributions.

Finally, in connection with OCC’s

financial reporting requirements, each

Canadian clearing member now is

required to file its JRFQ&R with OCC on

a monthly basis except as provided in

the Interpretations to Rule 306. The

JRFQ&R replaces the Joint Industry

Monthly Financial Report which was

previously required under the