Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14991

7Before delivering to MSTC certificates with an

aggregate current market value in excess of the

maximum amount of the blanket bond, the transfer

agent may not create or maintain certificates, other

than any balance certificate, having a value in

excess of the blanket bond.

8 15 U.S.C. 78q–1 (1988).

9 15 U.S.C. 78q–1(b)(3)(A) and (F) (1988).

10For a complete description of DRS, refer to

Securities Exchange Act Release No. 35038

(December 1, 1994), 59 FR 63652 [File No. S7–34–

94] (concept release soliciting comment on a

transfer agent operated book-entry registration

system).

11 17 CFR 200.30–3(a)(12) (1994).

1See letter from Michael D. Pierson, Senior

Attorney, PSE, to Jennifer S. Choi, Attorney,

Division of Market Regulation, SEC, dated March 2,

1995. Amendment No. 1 adds .02 of the

Commentary to the proposed rule change.

or make available the certificates as

promptly as possible.7

Instructions from MSTC to register the

transfer of securities evidenced by a

balance certificate in a name other than

MSTC will constitute a presentation of

the balance certificate to the transfer

agent under applicable law. The same

warranties that would apply if MSTC

physically presented the balance

certificate to the transfer agent will be

applicable in this instance.

II. Discussion

The Commission believes that

MSTC’s proposal is consistent with

Section 17A of the Act 8 and specifically

with Sections 17A(b)(3)(A) and (F).9

Sections 17A(b)(3)(A) and (F) require

that a clearing agency be organized and

its rules be designed to facilitate and

promote the prompt and accurate

clearance and settlement of securities

transactions and to assure the

safeguarding of securities and funds in

its custody or control or for which it is

responsible.

Under MSTC’s proposed rule change,

an electronic instructions will replace

the physical transfer of securities

between MSTC and transfer agents. The

proposal should help alleviate the

inefficiencies associated with the

physical transfer of securities and

should help reduce the possibility of

loss while securities are in transit

between MSTC and the transfer agent.

The transfer of securities will be factor

and more efficient with the likely effect

of reducing costs related to the

preparation of written instructions and

physical delivery of the securities.

MSTC’s proposed rule change also

should help MSTC fulfill its safekeeping

obligations by allowing MSTC to

maintain securities in a form which

should reduce the chances of loss and

theft.

MSTC’s proposed rule change

requires that the transfer agent be

insured by a customary bankers blanket

bond which will cover any securities

received from MSTC and/or held by the

transfer agent or processor on behalf of

MSTC under the Agreement. Where

balance certificates have an aggregate

current market value in excess of the

maximum value of the bankers blanket

bond, the transfer agent will not create

or maintain certificates in excess of that

value, other than any balance certificate,

prior to delivery to MSTC. These

insurance requirement should better

enable MSTC to safeguard securities

which are at the transfer agent or are in

transit from the transfer agent to MSTC

and should aid in the safekeeping of

securities with a market value in excess

of the bankers blanket bond.

MSTC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. The

Commission finds good cause for so

approving the proposed rule change

because the ATS program allows for an

electronic communication between

brokers and transfer agents through

MSTC. Such communication will be

necessary for transfer agents to

participate in the direct registration

system (‘‘DRS’’) recently proposed by

the Commission.10 The Commission

believes it is prudent to allow MSTC to

begin use of the ATS as soon as possible

in order that MSTC and its participants

will have time to become proficient in

using such a system before a DRS is

implemented. The Commission also

believes that accelerated approval will

allow MSTC participants to utilize and

to take full advantage in a more timely

fashion of the benefits of the ATS

service.

III. Conclusion

The Commission finds that MSTC’s

proposal is consistent with the

requirements of the Act and particularly

with Section 17A 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–

MSTC–94–21) be, and hereby is,

approved on an accelerated basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Jonathan G. Katz,

Secretary.

[FR Doc. 95–6841 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35497; File No. SR–PSE–

95–2]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Stock Exchange

Incorporated Relating to Obligations

for Regulatory Cooperation

March 15, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on February 8, 1995,

the Pacific Stock Exchange,

Incorporated (‘‘PSE’’ or ‘‘Exchange’’)

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 by the selfregulatory organization. On March 3,

1995, the Exchange submitted to the

Commission Amendment No. 1 to the

proposed rule change, which is also

described below.1 The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange is proposing to amend

its rules to require regulatory

cooperation by members, member

organizations, and others over whom

the Exchange has jurisdiction pursuant

to Rule 10.1(b) in connection with

certain investigations and proceedings

that are initiated by other exchanges or

self-regulatory organizations. The text of

the proposed rule change is as follow

[new text is italicized]:

Rule 10.2

Regulatory Cooperation

(d) No member, member organization,

person associated with a number or

member organization, or other person or

entity over whom the Exchange has

jurisdiction pursuant to Rule 10.1(b),

shall refuse to appear and testify before

another exchange or self-regulatory

organization in connection with a

regulatory investigation, examination,

or disciplinary proceeding or refuse to

furnish documentary materials or other

information or otherwise impede or

delay such investigation, examination

or disciplinary proceeding if the

Exchange requests such information or

testimony in connection with an inquiry

resulting from an agreement entered
14992 Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices

2Rule 14.1 provides that the Exchange may enter

into agreements with domestic and foreign selfregulatory organizations providing for the exchange

of information and other forms of mutual assistance

for market surveillance, investigative, enforcement,

and other regulatory purposes.

3Under the proposed rule, the Exchange would

always act as an intermediary between another SRO

and the Exchange member, member organization, or

other designated person from whom information or

testimony is being sought, for any inquiry made

pursuant to an agreement under Rule 14.1. See

letter from Michael D. Pierson, Senior Attorney,

PSE, to Jennifer S. Choi, Attorney, Division of

Market Regulation, SEC, dated March 2, 1995.

4On July 14, 1983, the Intermarket Surveillance

Group (‘‘ISG’’) was formed to, among other things,

coordinate more effectively surveillance and

investigative information sharing arrangements in

the stock and options markets. See Intermarket

Surveillance Sharing Group Agreement, July 14,

1983. The members of ISG are the American Stock

Exchange, Inc., the Boston Stock Exchange, Inc., the

Chicago Board Options Exchange, Inc., the Chicago

Stock Exchange, Incorporated, the Cincinnati Stock

Exchange, Inc., the National Association of

Securities Dealers, Inc., the New York Stock

Exchange, Inc., the Pacific Stock Exchange, Inc.,

and the Philadelphia Stock Exchange, Inc.

into by the Exchange pursuant to Rule

14.1. The requirements of this Rule

10.2(d) shall apply regardless of

whether the Exchange has initiated an

investigation pursuant to Rule 10.2(a) or

a disciplinary proceeding pursuant to

Rule 10.3.

Commentary

.01 The terms ‘‘exchange’’ and ‘‘selfregulatory organization,’’ as used in

Rule 10.2(d), shall include, but are not

limited to, any member of affiliate

member of the Intermarket Surveillance

Group.

.02 Any person or entity required to

furnish information or testimony

pursuant to Rule 10.2(d) shall be

afforded the same rights and procedural

protections as that person or entity

would have if the Exchange had

initiated the request for information or

testimony.

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

self-regulatory organization 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.

The self-regulatory organization 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

The Exchange is proposing to amend

its Rule 10.2, relating to Exchange

investigations. The proposed

amendment would provide the

Exchange with the authority to compel

its members, member organizations, and

others over whom the Exchange has

jurisdiction pursuant to Rule 10.1(b) to

testify or furnish documentary materials

in connection with regulatory

investigations or examinations by other

exchanges or self-regulatory

organizations under certain

circumstances.

Specifically, the Exchange is

proposing to adopt new Rule 10.2(d) to

provide that no member, member

organization, person associated with a

member or member organization, or

other person or entity over whom the

Exchange has jurisdiction, shall refuse

to appear and testify before another

exchange or self-regulatory organization

in connection with a regulatory

investigation, examination, or

disciplinary proceeding or refuse to

furnish documentary materials or other

information or otherwise impede or

delay such investigation or examination.

Under the proposed rule change, this

requirement would apply whenever the

Exchange requests such information or

testimony in connection with an inquiry

resulting from an agreement entered

into by the Exchange pursuant to Rule

14.1 2 The proposal further provides that

the requirements of Rule 10.2(d) shall

apply regardless of whether the

Exchange has initiated an investigation

pursuant to Rule 10.2(a) or a

disciplinary proceeding pursuant to

Rule 10.3.3

Under the proposed rule change, the

Exchange defines in the Commentary

the terms ‘‘exchange’’ and ‘‘selfregulatory organization,’’ for purposes of

Rule 10.2(d), to include, but not be

limited to, any member or affiliate

member of the Intermarket Surveillance

Group.4 Moreover, the Exchange in .02

of the Commentary makes explicit that

persons or entities, required to furnish

information or testimony pursuant to a

regulatory agreement, will be afforded

the same rights and procedural

protections that such persons or entities

would have if the Exchange had

initiated the request for information or

testimony.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b)(5) of the

Act in that it is designed to prevent

fraudulent and manipulative acts and

practices and to perfect the mechanism

of a free and open market.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange 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 either

solicited or received.

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 other 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 self-regulatory organization

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 will also be available for

inspection and copying at the principal

office of the Exchange. All submissions

should refer to File No. SR–PSE–95–2

and should be submitted by April 11,

1995.
Federal Register / Vol. 60, No. 54 / Tuesday, March 21, 1995 / Notices 14993

1The Phlx will notify the Commission if an issue

of ELNs is structured so that it is convertible prior

to maturity and will submit a rule filing pursuant

to Section 19(b) of the Act prior to listing ELNs with

such terms if the Commission so requires.

2The Phlx will notify the Commission if an issue

of ELNs provides for periodic interest payments to

holders based on a floating rate and will submit a

rule filing pursuant to Section 19(b) of the Act prior

to listing ELNs with such terms if the Commission

so requires.

3 In this connection, the Commission notes that

any proposal to list an ELN linked to a security with

a market capitalization of less than $500 million

would raise significant regulatory concerns for

which a Section 19(b) rule filing would be required.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–6937 Filed 3–20–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35479; File No. SR–Phlx–

95–09]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to Listing Criteria for Equity

Linked Notes (‘‘ELNs’’)

March 13, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on March 8, 1995, the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) 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 by the Exchange. the

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Phlx proposes to amend

Exchange Rule 803 to adopt listing

standards for equity linked notes

(‘‘ELNs’’). The text of the proposed rule

change is available at the Office of the

Secretary, the Phlx, and at the

Commission.

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

Phlx included statements concerning

the purpose of and basis for the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

Exchange has prepared summaries, set

forth in Section (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

The purpose of the proposed rule

change is to add subsection (h) to

Exchange Rule 803 to permit the

Exchange to list and trade ELNs. ELNs

are intermediate-term, hybrid securities,

whose value is based in whole or in

part, to the performance of a highly

capitalized, actively traded U.S.

common stock, non-convertible

preferred stock, or foreign security that

is traded in the U.S. in the form of

sponsored American Depositary

Receipts (‘‘ADRs’’), ordinary shares, or

otherwise.1 ELNs may pay periodic

interest or may be issued as zero-coupon

instruments with no payments to

holders prior to maturity. ELNs may be

subject to a ‘‘cap’’ on the maximum

principal amount to be repaid to holders

upon maturity, and they may feature a

‘‘floor’’ on the minimum principal

amount paid to holders upon maturity.

A specific issue of ELNs, for example,

may provide holders with a fixed semiannual interest payment, while capping

the maximum amount to be repaid upon

maturity at 135% of the issuance price,

with no minimum floor guarantee on

the principal to be repaid at maturity.

Another issue of ELNs might offer lower

semi-annual payments based upon a

floating interest rate 2 with a minimum

floor for the repayment of principal of

75% of the issuance price. ELNs will be

treated as equity instruments for, among

other purposes, margin requirements.

According to the Phlx, the flexibility

available to an issuer of ELNs permits

the creation of securities which offer

issuers and investors the opportunity to

more precisely focus on a specific

investment strategy.

There are four components to the

proposed listing standards for ELNs: (1)

ELN issuer standards; (2) ELN offering

standards; (3) underlying linked

security standards; and (4) limitations

on the size of ELN offerings.

1. Issuer Listing Standards

The issuer must be listed on or be an

affiliate of a company listed on a

national securities exchange or the

Nasdaq National Market. Each issuer

must also have a minimum tangible net

worth of $150 million. Finally, the

market value of an ELN offering, when

combined with the market value of all

other ELN offerings previously

completed by the issuer and traded on

a national securities exchange or

through Nasdaq may not be grater than

25% of the issuer’s tangible net worth

at the time of issuance.

2. Offering Standards

In order to ensure adequate liquidity

in the markets for ELNs, each issuance

of an ELN must have: (1) A minimum

public distribution of one million ELNs;

(2) a minimum of 400 holders of the

ELNs, unless the ELNs are traded in

$1,000 denominations, in which case

thee is no minimum number of holders

required; (3) a minimum market value of

$4 million; and (4) a term to maturity of

two to seven years (although ELNs

linked to a non-U.S. security (including

a sponsored ADR) can not have a term

longer than three years).

3. Underlying Linked Security

Standards

In order to help ensure that ELNs will

not have a disruptive effect on the

market for the underlying securities, the

linked securities must have sufficiently

large market capitalizations and high

trading volumes. Specifically, an

underlying security must have: (1) A

minimum market capitalization of $3

billion and trading volume in the

United States of at least 2.5 million

shares in the 12-month period preceding

the listing of the ELN; (2) a minimum

market capitalization of $1.5 billion and

trading volume in the United States of

at least 20 million shares in the 12-

month period preceding the listing of

the ELN; or (3) a minimum market

capitalization of $500 million and

trading volume in the United States of

at least 80 million shares in the 12-

month period preceding the listing of

the ELN. In addition, if an issuer

proposes to issue ELNs on a security

that does not meet the market

capitalization and trading volume

standards set forth above, the Phlx, with

the concurrence of the staff of the

Commission, may evaluate the trading

volume, public float, and market

capitalization of that security, as well as

other relevant factors, and determine on

a case-by-case basis that it is appropriate

to list ELNs overlying that security. The

Phlx will submit a rule filing pursuant

to Section 19(b) of the Act if so required

by the Commission if significant

regulatory concerns are raised by a

proposed ELN offering that does not

meet the above market capitalization

and trading volume standards.3

The issuer of the linked security must

be a reporting company under the Act

and the underlying linked security must

be traded on a national securities

exchange or through Nasdaq and be