Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Notices 17831

1Rule 3a12–7 under the Act provides that options

that are not traded on a national securities exchange

and which relate to securities that are direct

obligations of the U.S. or are issued or guaranteed

by a corporation in which the U.S. has a direct or

indirect interest as shall be designated for

exemption pursuant to Section 3(a)(12) of the Act

are exempt from all provisions of the Act which by

their terms do not apply to ‘‘exempted security’’ or

‘‘exempted securities,’’ provided that the securities

underlying the option represent an obligation equal

to or exceeding $250,000 in principal amount.

2The NYSE clarified that category five of the

proposal applies to OTC margin bonds as defined

in Section 220.2(t) (1), (4), and (5) of Regulation T

under the Act. Telephone conversation between

Richard Nowicki, NYSE, and Yvonne Fraticelli,

Attorney, Options Branch, Division of Market

Regulation, on March 22, 1995 (‘‘March 22

Conversation’’). Section 220.2(t)(1) defines an OTC

margin bond as certain debt securities not traded on

a national securities exchange; Section 220.2(t)(4)

defines an OTC margin bond as a debt security

issued or guaranteed as a general obligation by the

government of a foreign country, its provinces,

states or cities, or a supranational entity, provided

that certain credit rating requirements are satisfied;

and Section 220.2(t)(5) defines an OTC margin bond

as a foreign security that is a nonconvertible debt

security that meets the requirements specified in

Section 220.2(t)(5).

The NRC staff has also made use of a

draft staff report, NUREG–1493, which

provides the technical justification for

the present Appendix J rulemaking

effort which also includes a 10-year test

interval for Type A tests. The integrated

leakage rate test, or Type A test,

measures overall containment leakage.

However, operating experience with all

types of containments used in this

country demonstrates that essentially all

containment leakage can be detected by

local leakage rate tests (Type B and C).

According to results given in NUREG1493, out of 180 ILRT reports covering

110 individual reactors and

approximately 770 years of operating

history, only 5 ILRT failures were found

which local leakage rate testing could

not detect. This is three percent of all

failures. This study agrees with previous

NRC staff studies which show that Type

B and C testing can detect a very large

percentage of containment leaks. The

PVNGS–1 experience has also been

consistent with this.

The Nuclear Management and

Resources Council (NUMARC), now the

Nuclear Energy Institute (NEI), collected

and provided the NRC staff with

summaries of data to assist in the

Appendix J rulemaking effort. NUMARC

collected results of 144 ILRTs from 33

units; 23 ILRTs exceeded 1.0 La. Of

these, only nine were not due to Type

B or C leakage penalties. The NEI data

also added another perspective. The NEI

data show that in about one-third of the

cases exceeding allowable leakage, the

as-found leakage was less than 2 La; in

one case the leakage was found to be

approximately 2 La; in one case the asfound leakage was less then 3 La; one

case approached 10 La; and in one case

the leakage was found to be

approximately 21 La. For about half of

the failed ILRTs, the as-found leakage

was not quantified. These data show

that, for those ILRTs for which the

leakage was quantified, the leakage

values are small in comparison to the

leakage value at which the risk to the

public starts to increase over the value

of risk corresponding the La

(approximately 200 La, as discussed in

NUREG–1493).

Based on generic and plant-specific

data, the NRC staff finds the licensee’s

proposed one-time exemption to permit

a schedular extension of one cycle for

the performance of the Appendix Type

A test, and the decoupling of the third

test to be performed coincident with the

completion of the inservice inspection

period, to be acceptable.

Pursuant to 10 CFR 51.32, the

Commission has determined that

granting this exemption will not have a

significant impact on the human

environment (60 FR 16180).

This exemption is effective upon

issuance and shall expire at the

completion of the 1R7 refueling outage.

For the Nuclear Regulatory Commission.

Dated at Rockville, Maryland, this 31st day

of March 1995.

Elinor G. Adensam,

Acting Director, Division of Reactor Projects—

III/IV, Office of Nuclear Reactor Regulation.

[FR Doc. 95–8585 Filed 4–6–95; 8:45 am]

BILLING CODE 7590–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–35555; File No. SR–NYSE–

95–10]

Self-Regulatory Organizations, Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.,

Relating to Margin Requirements for

Over-the-Counter Options and Interest

Rate Composites

March 31, 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 9, 1995, the

New York Stock Exchange, Inc.

(‘‘NYSE’’) or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) the proposed

rule change as described in Items I, II

and III below, which Items have been

prepared by the self-regulatory

organization. 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 NYSE proposes to amend

Exchange Rule 431, ‘‘Margins’’ to

establish margin requirements for overthe-counter (‘‘OTC’’) options and

interest rate composites. Specifically,

the NYSE proposes to establish initial

and/or maintenance margin

requirements for short positions in OTC

options overlying certain instruments

which are equal to a specified

percentage of the current value of the

underlying component and the

applicable multiplier, if any, plus any

in-the-money amount. The required

OTC option margin may be reduced by

any out-of-the-money amount, but may

not be less than the minimum amount

specified for each option category. The

percentages of the current value of the

underlying components are as follows:

(1) For stock and convertible corporate

debt securities, 30%, with minimum

margin of 10%; (2) for industry index

stock groups, 30%, with minimum

margin of 10%; (3) for broad index stock

groups, 20%, with minimum margin of

10%; (4) for U.S. Government or U.S.

government agency debt securities other

than those exempted by Rule 3a12–7

under the Act,1 5%, with minimum

margin of 3%; (5) for corporate debt

securities registered on a national

securities exchange and OTC margin

bonds as defined in Section 220.2(t) (1),

(4), and (5) 2 of Regulation T under the

Act, 15% with minimum margin of 5%;

and (6) for all other OTC options, 45%,

with minimum margin of 20%.

The text of the proposed rule change

is available at the office of the Secretary,

NYSE, 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

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.
17832 Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Notices

3See Securities Exchange Act Release No. 28219

(July 18, 1990), 55 FR 30348 (July 25, 1990).

4The proposal defines the ‘‘underlying

component’’ as follows: for stocks, the equivalent

number for shares; for industry and broad index

stock groups, the current index group value and the

applicable index multiplier; for U.S. Treasury bills,

notes and bonds, the underlying principal amount;

for foreign currencies, the units per foreign

currency contract; and for interest rate contracts,

the interest rate measure based on the yield of U.S.

Treasury bills, notes, or bonds and the applicable

multiplier. The ‘‘interest rate measure’’ for shortterm U.S. Treasury bills represents the annualized

discount yield of a specific issue multiplied by 10

or, for long-term U.S. Treasury notes and bonds, the

average of the yield to maturity of the specific

issues multiplied by 10.

5Option contracts in this category must be for a

principal amount of not less than $500,000.

6Options transactions on private mortgage passthrough securities and mortgage-related debt

securities qualified under Section 3(a)(41) under the

Act are not eligible for the margin requirements

contained in this provision. Margin requirements

for such securities must be computed pursuant to

the requirements in category six for all other OTC

options.

7Under the proposal, an ‘‘exempt account’’ is a

member organization, non-member broker/dealer,

‘‘designated account,’’ as defined in NYSE Rule

431(a)(3), any person having net tangible assets of

at least $16 million, or in the case of mortgagerelated debt securities transactions, an

independently audited mortgage banker with both

more than $1.5 million of net current assets (which

may include 3⁄4 of 1% maximum allowance on loan

servicing portfolios) and with more than $1.5

million of net worth.

8See Securities Exchange Act Release No. 26938

(June 15, 1989), 54 FR 26285 (June 22, 1989)

(ordering approving File No. SR–CBOE–87–30).

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

(a) Purpose

The NYSE proposes to amend

Exchange Rule 431 to establish margin

requirements for OTC options and

interest rate composites.

OTC options are not issued by the

Options Clearing Corporation (‘‘OCC’’)

or listed on any national securities

exchange. They are individually tailored

agreements between a customer and a

broker-dealer designed to reflect the

customer’s individual needs as to strike

price and expiration date. According to

the Exchange, these contracts are

generally entered into by credit worthy

domestic and foreign institutions,

mutual funds and insurance companies.

The options are usually written for

periods of less than one year.

In File No. SR–NYSE–90–25, the

NYSE proposed to amend Exchange

Rule 431 to establish margin

requirements for OTC options

developed in conjunction with industry

representatives and the Securities

Industry Associations’s Credit Division

on (1) U.S. government securities, and

(2) convertible and non-convertible

corporate debt securities, including

mortgage related securities, and to

reduce the existing margin requirements

for stocks and for narrow- and broadbased index groups.3 Since filing the

proposal in 1990, the Exchange staff has

permitted member organizations to

enter into option agreements on a pilot

basis utilizing the proposed margin

requirements. According to the NYSE,

31 member organizations have been

granted Exchange approval to

participate in the pilot program.

On October 7, 1994, the Exchange

withdrew File No. SR–NYSE–90–25

because pilot participants had not

provided volatility data sufficient for

Commission staff to consider the

appropriateness of the proposed margin

levels. The Commission indicated that

the Exchange should refile its proposal

when the NYSE obtained supporting

documentation. The price volatility data

has now been provided to the NYSE and

is being provided to the Commission for

review.

The proposed amendments to NYSE

Rule 431 are the same as those filed

previously with the Commission in File

No. SR–NYSE–90–25, except with

respect to the requirements for Treasury

bonds, when margin levels were

increased as a result of the

Commission’s review of volatility data.

In addition, the Exchange is not

proposing to establish margin

requirements for mortgage related debt

securities (qualified under Section

3(a)(41) under the Act) because

volatility data sufficient to assess the

adequacy of the requirements on an

ongoing basis is not available.

Under the proposal, the NYSE

proposes to establish initial and/or

maintenance margin requirements for

short positions in OTC options

overlying certain instruments which are

equal to a specified percentage of the

current value of the underlying

component and the applicable

multiplier, if any, plus any in-themoney amount. The required margin

may be reduced by any out-of-themoney amount, but may not be less than

the minimum amounts specified for

each option category. The percentages of

the current value of the underlying

components 4 are as follows: (1) For

stock and convertible corporate debt

securities, 30%, with minimum margin

of 10%; (2) for industry index stock

groups, 30%, with minimum margin of

10%; (3) for broad index stock groups,

20%, with minimum margin of 10% (4)

for U.S. government or U.S. government

agency debt securities other than those

exempted by Rule 3a12–7 under the

Act, 5%, with minimum margin of 3%; 5

(5) for corporate debt securities

registered on a national securities

exchange and OTC margin bonds as

defined in Section 220.2(r) of Regulation

T under the Act, 15%, with minimum

margin of 5%; 6 and (6) for all other OTC

options, 45%, with minimum margin of

20%.

OTC options on U.S. government and

U.S. government agency debt securities

that qualify for exemption pursuant to

Rule 3a12–7 under the Act must be for

a principal amount of not less than

$500,000 and the margin for such

securities for exempt accounts 7 will be

3% of the current value of the

underlying principal amount on 30-year

U.S. Treasury bonds and 2% of the

current value of the underlying

principal amount on all other U.S.

government and U.S. government

agency debt securities, plus any in-themoney amount or minus any out-of-themoney amount. The amount of any

deficiency between the equity in the

account and the margin required shall

be deducted in computing the net

capital of the member organization

under the NYSE’s capital requirements

on the following basis: (a) On any

account or group of commonly

controlled accounts to the extent the

deficiency exceeds 5% of the member

organization’s tentative net capital (net

capital before deductions on securities),

100% of such excess amount; and (b) on

all accounts combined to the extent

such deficiency exceeds 25% of a

member organization’s tentative net

capital, 100% of such excess amount,

reduced by any amount already

deducted pursuant to paragraph (a).

For non-exempt accounts, the

required margin will be 5% of the

current value of the underlying

principal amount on 30-year U.S.

Treasury bonds and 3% of the current

value of the underlying principal

amount on all other U.S. government

and U.S. government agency debt

securities, plus any in-the-money

amount or minus any out-of-the-money

amount, provided the minimum margin

shall not be less than 1% of the current

value of the underlying principal

amount.

In addition, the NYSE proposes to

incorporate into NYSE Rule 431 the

margin requirements for interest rate

composites which were proposed by the

Chicago Board Options Exchange, Inc.

(‘‘CBOE’’) and approved by the

Commission.8 Specifically, for interest

rate contracts, the initial and/or

maintenance margin will be 10% of the

underlying component value (i.e., the

product of the current interest rate

measure and the applicable multiplier),
Federal Register / Vol. 60, No. 67 / Friday, April 7, 1995 / Notices 17833

9Because the Exchange will submit data covering

seven-day price movements, the Exchange agreed to

delete references to seven-day price/yield

movements in order to clarify the proposal. March

22 conversation, supra note 2. 10 17 CFR 200.30–3(a)(12) (1994).

and the minimum required margin will

be 5% of the underlying component

value.

The Exchange has agreed to a system

for periodic review to ensure the

adequacy of the proposed margin

requirements and for increasing the

requirements on an expedited basis if

necessary. The NYSE’s monitoring plan

will consist of the following:

• Semi-annual reviews of the sevenday price 9 movements will be done.

These volatility reviews will cover both

the last six months and the last three

years.

• The semi-annual review must

indicate a 97.5% confidence level (i.e.,

the required margin level is adequate for

seven-day price movements 97.5% of

the time).

• For each option category, reports

must be done by two member

organizations using their own pricing

data or by one member organization

using an independent pricing source

acceptable to the Exchange. These

reports must be submitted to the

Exchange.

• If one semi-annual review indicates

the margin level is inadequate for an

option category, the Exchange will

increase the margin requirements by

filing a proposal pursuant to Section

19(b)(3)(A) under the Act for immediate

effectiveness.

• In order to lower the margin

requirements, two consecutive sixmonth reviews must demonstrate that

the lower requirement meets the 97.5%

confidence level. Amendments to lower

the requirement will be made by filing

a proposed rule change pursuant to

Section 19(b)(2) under the Act.

• In addition, before lowering the

margin requirements, the Exchange will

take into consideration other relevant

factors, such as current market

conditions, member organization views,

and margin levels implied from other

options products (where similar OCCissued options exist).

(b) Basis

The NYSE believes that the proposed

rule change is consistent with the

requirements of the Act and, in

particular, furthers the objectives of

Section 6(b)(5), which provides that the

rules of the Exchange be designed to

promote just and equitable principles of

trade and to protect the investing

public. The NYSE believes that the

proposed rule change is also consistent

with the rules and regulations of the

Board of Governors of the Federal

Reserve System for the purpose of

preventing the excessive use of credit

for the purchase or carrying of

securities, pursuant to Section 7(a)

under the Act.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange believes that the

proposed rule change will not 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

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 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 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 disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written date, 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, N.W.,

Washington, D.C. 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, N.W.,

Washington, D.C. Copies of such filing

will also be available for inspection and

copying at the principal office of the

above-mentioned self-regulatory

organization. All submissions should

refer to the file number in the caption

above and should be submitted by April

28, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–8546 Filed 4–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Rel. No. IC–20981; File No. 812–9360]

American Skandia Life Assurance

Corporation, et al.

March 31, 1995.

AGENCY: Securities and Exchange

Commission (the ‘‘Commission’’ or the

‘‘SEC’’).

ACTION: Notice of application of

exemption under the Investment

Company Act of 1940 (the ‘‘1940 Act’’

or ‘‘Act’’).

APPLICANTS: American Skandia Life

Assurance Corporation (‘‘Skandia Life’’);

American Skandia Life Assurance

Corporation Variable Account B (Class 3

Sub-Accounts) (the ‘‘Account’’); and

Skandia Life Equity Sales Corporation

(‘‘SLESCO’’).

RELEVANT 1940 ACT SECTIONS: Order

requested under Section 6(c) for

exemption from Sections 26(a)(2)(C) and

27(c)(2) of the Act.

SUMMARY OF APPLICATION: Applicants

seek an order to permit the deduction of

a mortality and expense risk charge

from the assets of the Account with

respect to certain flexible premium

deferred variable annuity contracts

(‘‘Contracts’’) and contracts offered in

the future that are substantially similar

in all material respects to the Contracts

(‘‘Future Contracts’’) that are issued

through the Account or any other

Accounts established in the future by

Skandia Life (‘‘Future Accounts’’).

Applicants also request that the

exemptive relief granted to SLESCO

extend to any other National

Association of Securities Dealers

member broker-dealer controlling,

controlled by, or under common control

with Skandia Life (‘‘Skandia Life

Broker-Dealers’’), that may serve in the

future as distributor and/or principal

underwriter for the Contracts or Future

Contracts.

FILING DATE: The application was filed

on December 13, 1994 and amended on

February 27, 1995.

HEARING OR NOTIFICATION OF HEARING: An

order granting the application will be