202 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

9 15 U.S.C. 78f(b)(5).

10See Securities Exchange Act Release No. 26924

(June 13, 1989), 54 FR 26284 (June 22, 1989).

11See CBOE Rule 8.51(a)(2).

12See CBOE Letter, supra note 6.

13See CBOE Letter, supra note 6.

14 15 U.S.C. 78s(b)(2).

15 17 CFR 200.30–3(a)(12).

granting certain authority to the senior

person then in charge of the Control

Room to suspend the firm quote

requirement when there has been a

system malfunction affecting the

dissemination or updating of quotes.

The Exchange also believes that the

entire proposal is consistent with

Section 6(b) of the Act in general and

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

in particular in that it is designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of change, to foster

cooperation and coordination with

persons engaged in facilitating

transactions in securities, and to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system.

III. Commission Finding and

Conclusions

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6(b)(5) of the

Act.9 Specifically, the Commission finds

that the Exchange’s proposal strikes a

reasonable balance between the

Commission’s mandates under Section

6(b)(5) to remove impediments to and

perfect the mechanism of a free and

open market and a national market

system, while protecting investors and

the public interest.

For purposes of the CBOE’s proposal

to permanently approve the ten contract

firm quote pilot program, the

Commission reasserts its initial position

regarding the benefits of the rule on the

CBOE.10 Specifically, the permanent

approval of the ten contract firm quote

requirement rule is consistent with

Section 6(b)(5) of the Act in that the rule

results in improved market quality and

better market maker performance than

would otherwise occur. The ten contract

firm quote requirement should continue

to result in better executions of small

customer orders by ensuring greater

depth of CBOE options markets.

The Commission also believes that the

ten contract firm quote requirement

encourages market makers to become

more competitive in making size

markets, thereby facilitating transactions

in securities, contributing to a more free

and open market, and improving the

quality of the CBOE’s public customers’

options markets.

The Commission also believes that it

is appropriate for the Exchange to

conform its rules to the current practice

not to automatically suspend the ten

contract firm quote requirement when a

fast market has been declared.11

Accordingly, the Commission believes

that it is appropriate to add

Interpretation .07 to Rule 8.51 to grant

any two Floor Officials the authority,

but not require them, to suspend the ten

contract firm quote requirement during

a fast market. The Commission agrees

with the CBOE that, during a fast

market, Exchange officials should have

the discretion to evaluate market

conditions and circumstances and to

exercise their judgment as to whether

the ten contract firm quote requirement

should be suspended. Both amended

Rule 8.51(a)(2) and proposed

Interpretation .07 to Rule 8.51

adequately address these issues and

should help minimize adverse impact

on non-broker dealer customers during

a fast market when two Floor Officials

determine that market conditions and

circumstances do not warrant such

action.

The Commission also believes it is

appropriate to allow the Exchange to

allow any two Floor Officials, including

members of the Market Performance

Committee acting as Floor Officials and

members of the Floor Officials

Committee, to grant suspensions,

exemptions, or exceptions to the ten

contract firm quote requirement under

Rule 8.51. Specifically, proposed rule

change will (i) allow members of the

Market Performance Committee to retain

authority to grant exemptions from, or

to suspend, the ten contract firm quote

requirement under Rule 8.51, and grant

Floor Officials that same authority; and

(ii) clarify that the authority of Market

Performance Committee members under

Interpretation .09 under Rule 6.20

includes enforcing policies and acting

pursuant to rules related to RAES and

fast markets.12 The Commission

believes that the Exchange adequately

addresses these issues by amending (1)

Rule 8.51(a)(3), (2) Interpretation .06 to

Rule 8.51, (3) Interpretation .09 to Rule

6.20, and (4) Rule 6.6(b)(iv) as set forth

above in Section II.

In regard to RAES orders during a fast

market, the Commission believes that it

is appropriate to grant any two Floor

Officials, pursuant to proposed Rule

6.6(b) (v), the express authority to turn

off RAES after a fast market declaration

if in the interest of maintaining a fair

and orderly market. Floor Officials have

the general authority to turn off RAES

during unusual market conditions

pursuant to current Rule 6.6(b)(v).

Current Rule 6.6 (b)(v) allows Floor

Officials to ‘‘[t]ake such other actions as

are deemed necessary in the interest of

maintaining a fair and orderly market.’’

The Commission agrees with the

Exchange that by expressly granting its

Floor Official the discretion to turn off

RAES during a fast market, Exchange

members and the public will be

properly notified that such action may

be taken when a fast market has been

declared.

The Commission also believes that it

is appropriate to allow the senior person

then in charge of the Exchange’s Control

Room the authority to suspend the ten

contract firm quote requirement if there

is a systems malfunction or other

circumstance that affects the Exchange’s

ability to disseminate or update market

quotes. The type of circumstances that

might impair the Exchange’s ability to

disseminate or update market quotes in

a timely and accurate manner, include,

but are not limited to, outages of the

Exchange’s autoquote system,

communication disruptions between the

Exchange and the Processor for the

Options Price Reporting Authority, and

the unavailability of market data from

the underlying market and the CBOE.13

The Commission notes that the

proposed rule change requires the

senior person in charge of the

Exchange’s Control Room to

immediately seek approval from two

Floor Officials after exercising such

authority. The Commission believes that

this proposed rule change provides a

reasonable mechanism for the CBOE to

suspend the market maker’s obligations

under Rule 8.51 when the Exchange is

unable to disseminate the then current

and accurate quote.

It is therefore ordered, pursuant to

section 19(b) (2) of the Act,14 that the

proposed rule change (File No. SR–

CBOE–95–52) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.15

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00020 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M
Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices 203

1 15 U.S.C. § 78s(b)(1) (1988).

2Securities Exchange Act Release No. 36352

(October 6, 1995), 60 FR 53652 [File No. SR–MSRB–

95–14] (notice of filing of proposed rule change).

3Securities Exchange Act Release No. 35427

(February 28, 1995), 60 FR 12798 [File No. SR–

MSRB–94–10] (order approving proposed rule

change).

4MSRB rule G–14 sets forth the Transaction

Reporting Procedures for inter-dealer transactions.

5Former MSRB rule G–12(b)(ii)(c) required the

underwriter to provide the initial settlement date

for a new issue to the registered clearing agency

offering automated comparison services as soon as

the initial settlement date was known or

immediately upon a change. This requirement

continues in effect by cross-reference in revised rule

G–12(b)(2)(C) to new rule G–34(a)(ii)(D)(2).

Generally, the automated comparison system

requires two days advance notice of the initial

settlement date of an issue from the underwriter to

process when-issued transactions for the

underwriter and all other dealers.

6Nearly all new issue municipal securities are

eligible for automated comparison with the

exception of those that do not meet the CUSIP

numbering eligibility requirements.

7As set forth in detail in MSRB rule G–14,

brokers, dealers, or municipal securities dealers

must submit or cause the submission of specified

transaction information for any transaction eligible

to be compared in NSCC’s automated system

directly to NSCC or to another registered clearing

agency linked with NSCC for the purpose of

automated comparison.

8As amended, Rule G–34 will require

underwriters for new issues of municipal securities

to carry out certain functions. Generally,

underwriters must apply for depository eligibility,

attain CUSIP numbers, communicate CUSIP

numbers and the initial trade date to syndicate and

selling group members, and, for any new issue

eligible for automated comparison, to provide the

clearing agency responsible for comparing when, as

and if issued transactions with final interest rate

and maturity information and the settlement date as

soon as they are known.

[Release No. 36640; File No. SR–MSRB–94–

14]

Self-Regulatory Organizations;

Municipal Securities Rulemaking

Board; Order Approving a Proposed

Rule Change Relating to the

Settlement Dates for ‘‘When, As and If

Issued’’ Transactions, the

Confirmation of Inter-Dealer

Transactions, and Providing New Issue

Information to Registered Securities

Clearing Agencies

December 27, 1995.

On August 15, 1995, the Municipal

Securities Rulemaking Board (‘‘MSRB’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

MSRB–95–14) 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 October 16, 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

On February 28, 1995, the

Commission approved amendments to

MSRB rules G–12(b) and G–15(b)

redefining regular-way settlement as

three rather than five business days after

the trade date (‘‘T+3 settlement’’).3

Since that time, the MSRB has been

reviewing its rules to determine other

appropriate changes to accommodate

T+3 settlement within the municipal

securities market.

Consequently, the MSRB is amending

rules G–12 and G–34 to modify the

requirements for setting settlement dates

for ‘‘when, as and if issued’’

(collectively ‘‘when-issued’’)

transactions and for the confirmation of

inter-dealer transactions. The MSRB

also is modifying and reorganizing the

requirements for providing new issue

information to registered securities

clearing agencies. Finally, the MSRB is

making technical changes to rule

language to clarify the different

processing requirements for transactions

that are eligible for automated

comparison through the facilities of a

registered clearing agency as opposed to

those that are not eligible. The MSRB

designed these amendments to advance

T+3 settlement in the municipal

securities market, to generally facilitate

automated clearance and settlement of

municipal securities, and to support the

MSRB’s Transaction Reporting

Program.4

MSRB rule G–12(f) requires all interdealer transactions eligible for

automated comparison to be compared

in an automated comparison system

operated by a registered clearing agency.

Revised MSRB rule G–12(b) requires

that the settlement date for when-issued

transactions eligible for automated

comparison shall not be earlier than two

business days after notification of the

initial settlement date for the issue is

provided by the managing underwriter

to the registered clearing agency.5 This

change reflects current capabilities of

the automated comparison system to

process when-issued transactions upon

two days notice of the settlement date

from the underwriter.

Prior to the current amendment,

MSRB rule G–12(b) required that the

settlement date of a when-issued

transaction for the rare inter-dealer

transactions not eligible for automated

comparison could not be earlier than the

fifth business day following the date the

physical confirmation indicating the

final settlement date was sent (six days

for syndicate transactions).6 Under the

revised rule, the settlement date for

such ineligible when-issued

transactions, including syndicate

transactions, shall not be earlier than

the third business day following the

date that the confirmation indicating the

final settlement date is sent.

Furthermore, the MSRB amended rule

G–12(c) concerning the sending of

confirmations for inter-dealer

transactions not eligible for automated

comparison. For such ineligible whenissued transactions, the MSRB is

reducing the time period for sending (i)

the initial confirmation from two

business days to one business day after

trade date and (ii) the final confirmation

from five business days to three

business days prior to final settlement.

For regular-way transactions ineligible

for automated comparison, the MSRB is

changing the requirement for sending a

confirmation from one business day

after trade date to trade date.

In addition, the MSRB is amending

rule G–34 to require underwriters to

submit interest rate and final maturity

information about new issues to the

registered clearing agency offering

comparison services as soon as such

information is known and to reorganize

the existing requirements of the rule.

The MSRB is aware of instances in

which incomplete or inaccurate security

descriptions for new issue municipal

securities are available in the initial

days of trading in the issue. The MSRB’s

Transaction Reporting Program and

participants in the municipal securities

market rely on accurate and complete

security descriptions in the automated

comparison system. The new

requirement is designed to ensure that

the registered securities clearing

agencies have the information necessary

to provide accurate descriptions and to

calculate accurately final money

amounts. Because the MSRB’s

Transaction Reporting Program is linked

to the National Securities Clearing

Corporation’s (‘‘NSCC’’) automated

comparison system,7 the proposed

amendment also will facilitate accurate

prices and security descriptions in the

NSCC system.

The requirement that an underwriter

provide the registered clearing agency

with notification of the settlement date

as soon as it is known is being moved

from rule G–12(b) to rule G–34. The

placement of this requirement within

rule G–34 is part of the MSRB’s plan to

include basic new issue requirements

for underwriters within one rule.8

Finally, the MSRB is making technical

changes in rule language to clarify the

different processing requirements for

transactions that are eligible for

automated comparison as opposed to
204 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

9 15 U.S.C. § 78o–4(b)(2)(C).

10 17 CFR 200.30–3(a)(12) (1994).

1 15 U.S.C. § 78s(b)(1) (1988).

2 17 CFR 240.19b–4 (1991).

3See letter from Joan Conley, Corporate Secretary,

NASD, to Mark Barracca, Branch Chief,

Commission, dated December 15, 1995.

4The Commission notes that the paragraph

designation within the proposed rule language, as

originally filed, has been adjusted with the NASD

staff’s consent, to reflect an outstanding proposal

currently under review with the Commission.

Telephone conversation between Tom Gira,

Assistant General Counsel, NASD, and Betsy Prout

Lefler, Senior Counsel, Commission, on December

19, 1995.

those transactions that are ineligible for

automated comparison.

II. Discussion

Section 15B(b)(2)(C) 9 of the Act

authorizes the MSRB to adopt rules to

foster cooperative and coordination

with persons engaged in regulating,

clearing, settling, processing

information with respect to, and

facilitating transactions in municipal

securities. The MSRB also has the

authority to adopt rules to remove

impediments to and perfect the

mechanism of a free and open market in

municipal securities, and in general to

protect investors and the public interest.

The Commission believes the MSRB’s

proposed rule change is consistent with

the requirements of Section 15B(b)(2)(C)

because it will require earlier

confirmation of certain inter-dealer

when-issued and regular way

transactions and require a shorter

settlement cycle for certain inter-dealer

when-issued transactions. Furthermore,

the amendments will conform the

MSRB’s rules regarding the settlement

dates for when-issued transactions

eligible for automated comparison at a

registered clearing agency with the

clearing agency’s processing capabilities

for these transactions. Finally, the

amendments require underwriters to

provide registered clearing agencies

with interest rate and final maturity

information about new issues as soon as

such information is known. This should

help ensure that clearing agencies have

the information necessary to calculate

accurately final money amounts and to

provide complete and accurate

descriptions of new issues in the

automated comparison system and

should promote accurate pricing and

securities descriptions in the MSRB

Transaction Reporting System which is

linked to the automated comparison

system.

Collectively, the amendments should

facilitate automated comparison of

transactions in municipal securities and

foster cooperation and coordination

with persons involved in the clearance

and settlement of municipal securities

by making MSRB rules and clearing

agency processing capabilities

consistent thus enabling the municipal

securities market to maximize the

benefits and efficiencies from the

automated comparison system and by

helping to ensure more timely

confirmation of certain municipal

transactions thereby increasing the

likelihood that such transactions will

settle within the shorter settlement

cycle established in this proposal.

Finally, the proposal should remove

impediments to and perfect the

mechanisms of a free and open market

in municipal securities by requiring

more efficient and accurate reporting of

transaction information by underwriters

to clearing agencies and thus to the

MSRB Transaction Reporting System.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and in

particular Section 15B of the Act 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–

MSRB–95–14) be, and hereby is,

approved.

For the Commission by the Division

of Market Regulation, pursuant to

delegated authority.10

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00040 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36612; File No. SR–NASD–

95–30]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the National

Association of Securities Dealers, Inc.,

Relating to the Commencement of

Third Market Trading in Initial Public

Offerings of Exchange-Listed

Securities

December 20, 1995.

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 June 19,

1995, 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 have been prepared by the

self-regulatory organization. On

December 15, 1995, the NASD filed with

the Commission Amendment No. 1 to

the proposal which clarifies the

operation of the proposed amendment,

and requests accelerated effectiveness of

the proposed rule change.3 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 and Substance

of the Proposed Rule Change

The NASD proposes to amend Section

4 of Schedule G to the NASD By-Laws

to prohibit NASD members from

executing over-the-counter transactions

in an exchange-listed security that is the

subject of an initial public offering

(‘‘IPO security’’) until the security has

opened for trading on the exchange that

lists the security.4 (Additions are in

italics; deletions are bracketed.)

Schedule G

Sec. 1. Definitions

(a)–(f). No change.

(g) The term ‘‘over-the-counter

transaction’’ shall mean a transaction in an

eligible security effected otherwise than on a

national securities exchange.

(h) A security is subject to an ‘‘initial

public offering’’ if: (1) the offering of the

security is registered under the Securities Act

of 1933; and (2) the issuer of the security,

immediately prior to filing the registration

statement with respect to such offering, was

not subject to the reporting requirements of

Section 13 or 15(d) of the Securities

Exchange Act of 1934.

* * * * *

Sec. 4. Trading Practices

(a)–(h). No change.

(i) No member or person associated with a

member shall execute or cause to be

executed, directly or indirectly, an over-thecounter transaction in a security subject to an

initial public offering until such security has

first opened for trading on the national

securities exchange listing the security, as

indicated by the dissemination of an opening

transaction in the security by the listing

exchange via the Consolidated Tape.

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 Section

A, B, and C below, of the most

significant aspects of such statements.