18452 Federal Register / Vol. 61, No. 81 / Thursday, April 25, 1996 / Notices

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

2Pursuant to a new rule numbering system for the

NSDA Manual anticipated to be effective no later

than May 1, 1996, the rules that are the subject of

this proposed rule change will become Rules 6530,

6540, and 6550 (regarding the OTC Bulletin Board

Rules); Rule 6100 (regarding the Automated

Confirmation Transaction Service); and new Rule

6900 series (regarding transaction reporting for

DPPs). See Securities Exchange Act Release No.

36698 (Jan. 11, 1996), 61 FR 1419 (approving new

NASD rule numbering system).

purchase of fuel or fuel reserves or

options on fuel reserves.

In addition, the Marketing

Subsidiaries might use available

hedging tools, such as gas futures

contracts and options on gas futures,

similar to those traded on the New York

Mercantile Exchange, and gas and oil

price swap agreements and other,

primarily commodity based, derivative

instruments. Holdings represents that

the Marketing Subsidiaries will not deal

in derivative products for purposes of

speculative trading.

Holdings might also offset price risk

exposure under a purchase or sales

contract through an opposite position to

that purchase or sale. Similarly, in a

portfolio of purchase and sales

contracts, risk could also be limited

through an appropriate mix of long-term

and short-term contracts.

Ultimately, the Marketing

Subsidiaries will seek to manage a

‘‘book’’ of various energy contracts

involving purchases, sales and trades of

oil, gas and electric power. The

Marketing Subsidiaries will seek to

hedge the risk associated with these

contracts through a combination of

physical assets, balanced physical

purchases and sales, purchases and

sales on futures markets, or other

derivative risk management tools.

The aggregate investment made by

Southern to finance the investments of

Holdings in the Marketing Subsidiaries

will be subject to all of the limitations

applicable to investments in EnergyRelated Companies imposed by the

Order. Similarly, Holdings anticipates

that guarantees of performance by the

Marketing Subsidiaries could be

required from time to time. Holdings

will count the amount of such

guarantees against the overall limitation

set forth in the Order to the extent that

the guarantees are directly or indirectly

made by Southern itself.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 96–10242 Filed 4–24–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37131; File No. SR–NASD–

96–08]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to the Quotation

of Direct Participation Programs in the

OTC Bulletin Board Service

April 19, 1996.

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

Securities Exchange Act of 1934

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

March 12, 1996, the National

Association of Securities Dealers Inc.

(‘‘NASD’’ or ‘‘Association’’) 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. 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 NASD is herewith filing a

proposed rule change to permit the

quotation of Direct Participation

Programs (‘‘DPPs’’) in the OTC Bulletin

Board Service (‘‘OTCBB’’ or ‘‘OTC

Bulletin Board’’) and to require the

reporting of transactions in DPPs

through the Automated Confirmation

Service (‘‘ACT’’). The text of the

proposed rule change is available at the

NASD and at the Commission.2

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

NASD 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 NASD 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 purpose of the proposed rule

change is to increase transparency and

provide for more efficient price

discovery in the secondary market for

limited partnerships, also known as

DPPs, by permitting these securities to

be quoted in the OTC Bulletin Board

and requiring transactions in DPPs to be

reported through ACT.

a. Background

In 1990, at the direction of the

NASD’s Direct Participation Programs

Committee (‘‘Committee’’), the staff

undertook a study of the nature and

functioning of the secondary market for

limited partnership securities. Data

gathered and interviews conducted

during the study revealed that

approximately $90 billion was invested

in public direct participation programs.

The programs were organized to invest

in a variety of industries including, but

not limited to, real estate, oil and gas,

cable television, commodities, and

equipment leasing. Although these

securities were not intended to be liquid

and tradeable, the NASD estimated at

that time that approximately two dozen

participants act as principal or agent for

customers in a fragmented secondary

market that in the aggregate transfers

ownership of an estimated $250 to $300

million worth of limited partnership

securities annually. The NASD noted

that the majority of transactions that

occur in the market are necessitated by

triggering events that force the sale of

the partnership unit upon the limited

partner. Such events include estate sales

by trustees due to the death of a limited

partner, liquidation of IRA accounts,

divorce, and unexpected or

extraordinary expenses such as major

medical or post-secondary education.

Thus, the inefficiencies of the

fragmented market tend to

disproportionately impact investors

who need liquidity, rather than

investors who are merely seeking

liquidity.

In response to the developing

secondary market, the NASD has

directed its regulatory focus to ensuring

that NASD members active in the

market comply with NASD rules,

federal securities laws and state laws

relating to advertising and sales

literature, suitability and

recommendations to customers,

solicitation and tender offers,

prospectus disclosure, transactions with

non-members, net capital, and escrow.
Federal Register / Vol. 61, No. 81 / Thursday, April 25, 1996 / Notices 18453

3Section 1.7704–1 has been added to the Income

Tax Regulations, (26 CFR Part 1), relating to Section

7704(b) of the Internal Revenue Code, which

defines the term ‘‘publicly traded partnership.’’ 60

FR 62026 (Dec. 4, 1995).

4 17 CFR 240.15c2–11 (governing the initiation or

resumption of quotations by a broker-dealer for

over-the-counter securities in a non-Nasdaq

interdealer quotation medium).

5 It is understood that members who effect

transactions in DPPs predominantly act in the

capacity of agent. For reporting purposes, it is

expected that the concepts of agency and principal

have the same meaning as those terms are

commonly used or understood, unless otherwise

noted in Rule 6900.

6Certain technical corrections have been made to

the definition of the term ‘‘ACT eligible security’’

to clarify that transactions in Nasdaq SmallCap and

certain other OTC securities must be reported

through ACT, and to delete an outdated reference

to ACT implementation.

7As set forth in Rule 6920, a member may use

the ACT Service Desk if it averages five or fewer

trades per day during the previous calendar quarter.

For this purpose, any calculation of the average

number of trades per day shall include transactions

in any security, and not just DPPs.

8 15 U.S.C. 78o–3(b)(6).

A particular focus has been directed

toward rules and policies relating to

markups/markdowns and best execution

of customer orders that require members

to use reasonable diligence to obtain the

most favorable price possible under

prevailing market conditions. The

NASD published its findings on the

secondary market in Notice to Members

91–69.

Since the time of that study, the

Committee has expressed the view that

the NASD’s primary concern should

continue to focus on ensuring that the

secondary market in partnership

securities is regulated efficiently and

operates in a manner that protects

public investors. In furtherance of these

goals, the Committee determined that

the quotation of DPPs in the OTC

Bulletin Board would enhance investor

protection and greatly assist the NASD

in carrying out its regulatory

responsibilities. The OTC Bulletin

Board is an electronic quotation

medium operated by the Nasdaq Stock

Market, Inc. that allows eligible

members to enter, update, and retrieve

quote information and unpriced

indications of interest for non-Nasdaq

securities.

b. Tax Status of DPPs

The NASD has long been aware that

facilitation of a more centralized means

for the quotation of DPPs could cause

these securities to be deemed ‘‘publicly

traded partnerships’’ under the Internal

Revenue Code, as that term is defined

therein. This would lead to the

unintended result of DPPs being treated

as corporations for federal tax purposes.

Recently issued IRS regulations,

however, have clarified the

circumstances under which interests in

partnerships may be quoted without

impacting their tax status.3 The

proposed rule change reflects the

requirement contained in these new

regulations, and thus is intended to

ensure that the quotation of DPPs in the

OTC Bulletin Board would not, by itself,

have negative tax status consequences

for the issuers of these securities. For

example, because the OTC Bulletin

board will not disseminate firm buy or

sell quotations with respect to

partnership interests under the

proposed rule change, it would not fall

within the definition of an ‘‘interdealer

quotation system’’ under the new IRS

regulations, as that term is defined

therein. As a result, such interests in

DPPs are not publicly traded for

purposes of the IRS Code, provided that

the some of the percentage interests in

partnership capital or profits transferred

during the taxable year of the

partnership (subject to certain

exclusions) does not exceed two percent

(or five percent for grandfathered

existing partnerships) of the total

interests in capital or profits. It is

expected that the monitoring of these

two and five percent thresholds will not

be the responsibility of the NASD, but

will be that of the general partners, who,

under most partnership agreements,

must approve each transfer of units in

the partnership. The NASD, however,

will make transaction reporting

information available to general partners

for a nominal fee to assist them with

such compliance.

c. Quotation of DPPs in the OTC

Bulletin Board

Generally, the treatment of DPPs

quoted in the OTC Bulletin Board will

be similar to that of foreign securities

and ADRs currently; i.e., no firm prices

will be displayed. NASD members will

be permitted to insert only non-firm

prices or unpriced indications of

interest (‘‘bid wanted’’ or ‘‘offer

wanted’’ and ‘‘name only’’ entries).

These non-firm prices or indications of

interest will provide the basis for a

negotiation that will take place in order

to complete a transaction in a DPP

security. The OTCBB display screen

will reflect the inside market, last sale,

previous close, volume, and distribution

information, if available.

In addition, only NASD members will

be permitted to apply to place unpriced

entries or indicative quotes on the OTC

Bulletin Board. The requirements of

Securities Exchange Act Rule 15c2–11

will apply, and thus firms generally will

be required to submit Form 211 prior to

initiating a quotation of a DPP in the

OTC Bulletin Board, unless an

exemption applies.4 There will be no

provision for any automatic execution

for DPPs in the OTCBB.

d. Reporting Transactions in DPPs

Subject to certain exclusions under

the reporting requirements, all

secondary market transactions in DPPs

will be required to be reported to the

NASD, without regard to whether the

DPP was the subject of a quotation in

the OTCBB. Transactions will be

reported through ACT for reporting

purposes only.5 Thus, ACT will not be

used to facilitate clearance and

settlement of these securities

notwithstanding the possibility that a

particular DPP eligible for inclusion in

the OTCBB also may be eligible for

clearing with a clearing agency, e.g.

NSCC, nor will the OTCBB provide

assistance to parties in completing the

transfer documents and other forms

necessary to clear and settle a

transaction in a DPP security.6

Firms will report on T+1, designating

the transaction ‘‘as of’’ the previous day

and include the time of execution.

Member firms that have the operational

capability to report transactions within

90 seconds of execution, however, may

do so. A symbol directory will be

prepared to facilitate transaction

reporting in DPPs.

The NASD recognizes that some

member firms who participate in this

market may not be Nasdaq Workstation

subscribers and thus may not have the

facility to report transactions through

ACT. Members without direct access to

ACT will have the option of reporting

through the ACT Service Desk if the

member averages a limited number of

transactions in DPPs.7 Alternatively,

such members may consider obtaining a

computer-to-computer interface

(‘‘CTCI’’) or a Nasdaq Workstation.

Members may contact Subscriber

Services for further information.

2. Statutory Basis

The NASD believes the proposed rule

change is consistent with the provisions

of Section 15A(b)(6) of the Act 8 in that

it is 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.

Subparagraph (b)(11) of that section

authorizes the NASD to adopt rules

governing the form and content of

quotations for securities traded over-thecounter for the purposes of producing

fair and informative quotations,

preventing misleading quotations, and

promoting orderly procedures for
18454 Federal Register / Vol. 61, No. 81 / Thursday, April 25, 1996 / Notices

9 15 U.S.C. 78k–1.

10 17 C.F.R. 200.30–3(a)(12).

1 In Amendment No. 1 the Phlx states that the

Index has always been a P.M. settled index and that

it proposes to apply all of the maintenance criteria

of Rule 1009(A)(c) except the requirement that the

index be designated as A.M. settled. See letter from

Michele R. Weisbaum, Associate General Counsel,

Phlx, to James T. McHale, Attorney, Office of

Market Supervision, Division of Market Regulation,

Commission, dated April 16, 1996 (‘‘Amendment

No. 1’’).

2See Securities Exchange Act Release No. 20437

(December 2, 1983) 48 FR 55229 (December 9, 1983)

(‘‘Index Approval Order’’).

3 Id.

collecting and disseminating quotations.

The proposed rule change would

centralize a fragmented market and

provide greater transparency, while

maintaining certainty with respect to

the tax status of these securities. It will

provide more efficient price discovery

in the secondary market for limited

partnerships, and is expected to aid

NASD members in complying with their

obligations for best execution when

effecting transactions.

In addition, the NASD relies on

Section 11A(a)(1) of the Act 9 in that the

proposed rule change is consistent with

the Congressional findings and policy

goals, as set forth therein, respecting

operational enhancements to the

securities markets. Basically, Congress

found that new data processing and

communications techniques should be

applied to improve the efficiency of

market operations, broaden the

distribution of market information, and

foster competition among market

participants.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD believes the proposed rule

change will impose no 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 NASD has neither solicited nor

received written comments.

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 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, 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. 20549. Also, copies of

such filing will be available for

inspection and copying at the principal

office of the NASD. All submisssions

should refer to File No. SR–NASD–96–

08 and should be submitted by May 16,

1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Jonathan G. Katz,

Secretary.

[FR Doc. 96–10244 Filed 4–24–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37123; File No. SR–Phlx–

96–03]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change and

Amendment No. 1 Thereto by the

Philadelphia Stock Exchange, Inc.

Relating to Component Additions to

the Phlx Gold/Silver Index

April 18, 1996.

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 April 1, 1996, 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 self-regulatory organization. On

April, 16, 1996, the Exchange filed

Amendment No. 1 to the proposal.1 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to revise the

composition of the Phlx Gold/Silver

Index (‘‘XAU’’ or ‘‘Index’’) by adding

three underlying stocks and to adopt a

procedure regarding replacements,

additions and deletions of component

stocks. The text of the proposed rule

change is available at the Office of the

Secretary, 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,

Phlx 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 Phlx 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

The XAU is a capitalization weighted

index currently composed of the stocks

of nine widely held U.S. companies in

the gold and silver mining industry.

Options on the Index have an American

style expiration and the settlement

value is based on the closing values of

the component issues on the last trading

day prior to expiration. The Index was

the first narrow based or industry index

approved for trading on the Exchange.2

Pursuant to Footnote 10 to the Index

Approval Order,3 the Exchange had

agreed to submit to the Commission

pursuant to Rule 19b–4 under the Act,

any changes to the stocks comprising

the Index and to attempt to formulate a

rule that will govern this process.

Accordingly, pursuant to this rule filing,

the Exchange is requesting approval to

change the composition of the XAU by

adding three stocks. The stocks are

AMAX Gold, Inc. (AU), Santa Fe Pacific

Gold Corp. (GLD) and TVX Gold Inc.

(TVX) and they all currently trade on

the New York Stock Exchange. The

addition of these three stocks will help

ensure an even more accurate response

to overall market activity in the precious