Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Notices 34915

19 15 U.S.C. § 78q–1(b)(3)(F) (1988). 20 17 CFR 200.30–3(a)(12)(1995).

However, a clearing fund deficiency call

does not need to be satisfied before

10:00 a.m. regardless of when the call

actually is made.

II. Discussion

Section 17A(b)(3)(F) 19 of the Act

requires that the rules of a clearing

agency be designed to assure the

safeguarding of securities and funds

which are in the custody or control of

the clearing agency or for which it is

responsible. The Commission believes

GSCC’s proposed rule change is

consistent with the requirements of

Section 17A(b)(3)(F) because the

proposal, by enhancing and revising

GSCC’s risk management mechanism,

should help ensure that the mechanism

accurately reflects GSCC’s risk and

provides CSCC appropriate risk

protection while increasing members’

liquidity and minimizing the

operational burdens on GSCC netting

members.

Specifically, based upon its

assessment of historical data, GSCC has

found that certain components of its

clearing fund formula are overly

conservative. Therefore, GSCC is

revising the Average POMA calculation

of the receive/deliver component, the

funds adjustment component, and the

repo volatility component of its clearing

fund formula to utilize the twenty

largest, rather than the ten largest,

POMA amounts, funds-only settlement

amounts, and repo offset amounts

during the most recent seventy-five

business days. GSCC also is modifying

the funds adjustment component of its

clearing fund formula to eliminate the

twenty-five percent cushion in the

component’s calculation. Because GSCC

will retain the right to reinstitute at its

discretion all or part of the twenty-five

percent cushion for a temporary period,

GSCC will be able to react quickly to

changing market conditions. GSCC also

is lowering the liquidation amount of

the receive/deliver component of its

clearing fund requirement from fifty

percent to twenty-five percent of the

total gross margin on all long and short

positions without offsets. GSCC believes

that, based on historical performance,

the twenty-five percent floor should

provide sufficient protection to GSCC

from the risk that its margin offsets will

not reflect actual market conditions

during a liquidation period while

enabling members that engage in

activity on a fully hedged basis to

receive the benefits afforded by being

fully hedged. Because these

modifications are based upon GSCC’s

assessment of historical data, the

changes should ensure appropriate risk

protection for GSCC, while providing

members with increased liquidity.

GSCC also is revising its rules to

permit its Membership and Standards

Committee to lower a margin factor

subject to a predefined limitation if the

Committee determines it appropriate

based on its review of historical price

volatility and if GSCC’s Board of

Directors approves such a lower margin

factor. The Committee reviews the

appropriateness of its margin factors on

an ongoing basis. Thus, the proposed

rule change should provide GSCC with

the flexibility to lower margin factors

more readily for the benefit of its

members without compromising GSCC’s

risk protection. The limitation on the

Committee’s ability to lower margins

(95% of all movements during the last

quarter or year) should ensure that

GSCC will always have a sufficient level

of protection. GSCC also is lowering

certain margin factors for zeros to reflect

more accurately GSCC’s needs based

upon GSCC’s data at the ninety-nine

percent level over the past two years.

Accordingly, members will not be

subject to margin requirements that

exceed GSCC’s current needs.

In addition, GSCC is introducing a

tiered surveillance status mechanism.

The new surveillance mechanism

should enable GSCC to monitor more

effectively the potential risk posed by its

members and to react more swiftly to

changes in a member’s condition.

Finally, as a step toward GSCC’s goal to

develop an automated mechanism by

which GSCC will receive clearing fund

collateral by the time that the securities

Fedwire opens, GSCC is eliminating the

noon alternative deadline for

satisfaction of a clearing fund deficiency

call and to require a member to satisfy

a deficiency call within two hours after

it is received. By increasing the

efficiency of GSCC risk management

processes, the tiered surveillance

mechanism and the modifications to

GSCC’s clearing fund deficiency call

rules should help GSCC fulfill its

obligation to safeguard securities and

funds which are in its custody or

control or for which it is responsible.

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 17A 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–

GSCC–96–01) be and hereby is

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16922 Filed 7–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37370; File No. SR–NASD–

96–23]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by National

Association of Securities Dealers, Inc.

Relating to Small Order Execution

System Tier Size Classifications

June 26, 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 June 17, 1996, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

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

have been prepared by the NASD. 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 submitting this filing to

effectuate The Nasdaq Stock Market,

Inc.’s (‘‘Nasdaq’’) periodic

reclassification of Nasdaq National

Market (‘‘NNM’’) securities into

appropriate tier sizes for purposes of

determining the maximum size order for

a particular security eligible for

execution through Nasdaq’s Small Order

Execution System (‘‘SOES’’) and the

minimum quote size requirements for

Nasdaq market makers in NNM

securities. Specifically, under the

proposal, 728 NNM securities will be

reclassified into a different SOES tier

size effective July 1, 1996. Since the

NASD’s proposal is an interpretation of

existing NASD rules, there are no

language changes.

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
34916 Federal Register / Vol. 61, No. 129 / Wednesday, July 3, 1996 / Notices

1The classification criteria is set forth in NASD

Rule 4613(a)(2) and the footnote to NASD Rule

4710(g).

2Notwithstanding the NASD’s announcement in

NTM 96–40 that Microsoft and U.S. Robotics are

scheduled to be moved to the 500-share SOES tier

size level, the NASD has determined that The

Nasdaq Stock Market will keep these stocks in the

1,000-share tier level. Even though these stocks fall

within the 500-share tier level, pursuant to the

criteria for determining tier levels, the NASD has

determined to keep these stocks at the 1,000-share

level because of their large market capitalization

and high trading volume. See, letter to Howard L.

Kramer, Associate Director, Office of Market

Supervision, Division of Market Regulation, SEC,

from Thomas R. Gira, Associate General Counsel,

The Nasdaq Stock Market, Inc., dated June 25, 1996. 3 17 CFR 200.30–3(a)(12) (1989).

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

The purpose of the rule change is to

effectuate Nasdaq’s periodic

reclassification of NNM securities into

appropriate tier sizes for purposes of

determining the maximum size order for

a particular security eligible for

execution through SOES and the

minimum quote size requirements for

Nasdaq market makers in NNM

securities. Nasdaq periodically reviews

the SOES tier size applicable to each

NNM security to determine if the

trading characteristics of the issue have

changed so as to warrant a tier size

adjustment. Such a review was

conducted using data as of March 31,

1996, pursuant to the following

established criteria:1

NNM securities with an average daily nonblock volume of 3,000 shares or more a day,

a bid price less than or equal to $100, and

three or more market makers are subject to

a minimum quotation size requirement of

1,000 shares and a maximum SOES order

size of 1,000 shares;

NNM securities with an average daily nonblock volume of 1,000 shares or more a day,

a bid price less than or equal to $150, and

two or more market makers are subject to a

minimum quotation size requirement of 500

shares and a maximum SOES order size of

500 shares; and

NNM securities with an average daily nonblock volume of less than 1,000 shares a day,

a bid price less than or equal to $250, and

less than two market makers are subject to a

minimum quotation size requirement of 200

shares and a maximum SOES order size of

200 shares.

Pursuant to the application of this

classification criteria, 728 NNM

securities will be reclassified effective

July 1, 1996. These 728 NNM securities

are set out in the NASD’s Notice To

Members 96–40 (June 1996).2

In ranking NNM securities pursuant

to the established classification criteria,

Nasdaq followed the changes dictated

by the criteria with two exceptions.

First, an issue was not moved more than

one tier size level. For example, if an

issue was previously categorized in the

1,000-share tier size, it would not be

permitted to move to the 200-share tier

even if the reclassification criteria

showed that such a move was

warranted.

In adopting this policy, Nasdaq was

attempting to maintain adequate public

investor access to the market for issues

in which the tier size level decreased

and to help ensure the ongoing

participation of market makers in SOES

for issues in which the tier size level

increased. Second, for securities priced

below $1 where the reranking called for

a reduction in tier size, the tier size was

not reduced.

The NASD believes that the proposed

rule change is consistent with Section

15A(b)(6) of the Act. Section 15A(b)(6)

requires, among other things, that the

rules of the NASD governing the

operation of The Nasdaq Stock Market

be designed to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, and

processing information with respect to

facilitating transactions in securities,

and to remove impediments to and

perfect the mechanism of a free and

open market. The NASD believes that

the reclassification of NNM securities

within SOES tier size levels and

minimum quotation size levels will

further these objectives by providing an

efficient mechanism for small, retail

investors to execute their orders on

Nasdaq and by providing investors with

the assurance that they can effect trades

up to a certain size at the best prices

quoted on Nasdaq.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD believes that the proposed

rule change will not result in 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

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change has become

effective immediately pursuant to

Section 19(b)(3)(A)(i) of the Act and

subparagraph (e) of Rule 19b–4

thereunder in that the reranking of NNM

securities into appropriate SOES tier

sizes was done pursuant to the NASD’s

stated policy and practice with respect

to the administration and enforcement

of two existing NASD rules. Further, in

the SOES Tier Size Order, the

Commission requested that the NASD

provide this information as an

interpretation of an existing NASD rule

under Section 19(b)(3)(A) of the Act.

At any time within sixty (60) days of

the filing of a proposed rule change

pursuant to Section 19(b)(3)(A) of the

Act, the Commission may summarily

abrogate the rule change if it appears to

the Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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 in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to the file

number in the caption above and should

be submitted by July 24, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–16923 Filed 7–2–96; 8:45 am]

BILLING CODE 8010–01–M