Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Notices 36097

4 In 1986, ISCC and the London Stock Exchange

(‘‘LSE’’) entered into a linkage agreement which

allows ISCC to obtain comparison and settlement

services in the United Kingdom from the LSE on

behalf of ISCC members. At that time, the LSE

settled trades on a fornightly basis with all trades

that occurred during a two week period settling on

the same day. On July 18, 1994, the LSE moved to

a ten day rolling settlement cycle with trades

settling ten days after trade date. On June 26, 1995,

the LSE moved to a five day rolling settlement

period. In response to the change to a rolling

settlement cycle, ISCC adjusted its method of

calculating its clearing fund requirements.

5For example, ISCC calculates a member’s

clearing fund requirement on Tuesday, August 2,

based on trades due to settle on Tuesday, August

2, through Monday, August 8 (i.e., trades conducted

on Tuesday, July 26, through Monday, August 1).

Because an ISCC member has three business days

after the calculation to make additional deposits,

under the five day rolling settlement cycle, ISCC

generally is calculating and collecting clearing fund

contributions based on trades which already have

settled. Under the prior ten day rolling settlement

system, the clearing fund formula was based on the

actual largest daily obligation of a member during

the relevant time period, and the clearing fund

deposit could be calculated and collected prior to

the settlement day.

6Members will continue to be required to

contribute a minimum of $50,000 to the clearing

fund.

7Under the INS system, redeliveries of securities

from ISCC members to institutional participants can

occur automatically through the LSE. Therefore,

ISCC generally is not required to pay the LSE for

these securities. The debits arising from these

redeliveries may be offset only partially because

these securities may be reclaimed (i.e., returned) by

the receiver, and in such circumstance, ISCC is

liable to the LSE for the full value of the

reclamation.

8 ISCC bases its clearing fund calculations on the

assumption that it will take one day to sell all of

a defaulting participant’s positions. Under a five

day settlement period, this results in a six day

exposure for market risk with five days between

trade date and settlement date and one day between

settlement date and close out of positions. There

also is a one day exposure for foreign exchange risk

because ISCC converts U.S. dollars to British

pounds on the settlement date and converts the

proceeds from the sale of the positions to U.S.

dollars the following day.

9The Foreign Exchange Factor is the product of

the Gross Debit Value and the Estimated Foreign

Exchange Volatility less the produce of the Gross

Debit Value times the Market Risk Factor times the

Estimated Foreign Exchange Volatility.

10 During the period from 1989 to 1992, the

maximum fluctuation in the U.S. dollar-British

pound exchange rate was 4.445%. ISCC will

continue to review annually the foreign exchange

risk factor.

11 15 U.S.C. § 78q–1 (1988). 12 17 CFR 200.30–3(a)(12) (1995).

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule is

to extend approval of ISCC’s clearing

fund formula.4 ISCC is obligated to the

London Stock Exchange (‘‘LSE’’) to pay

for all securities delivered to ISCC

through the ISCC–LSE link. ISCC has no

responsibility to complete open pending

trades (i.e., once a member fails, ISCC

no longer accepts delivery of securities

for such member through the link). To

adequately cover ISCC’s exposure, each

member’s clearing fund deposit

requirement is calculated and collected

on a weekly basis. Each member is

required to deposit the greater of (a) the

largest deposit requirement imposed

over the last 365 day period or (b) the

deposit that would be required based on

the clearing fund calculation using

trades due to settle over the next week.

Calculations are made each Tuesday,

and members are required to deposit

additional clearing fund amounts within

three days.5

ISCC’s clearing fund formula is:

(Gross Debit Value) x (Market Risk

Factor) + (Foreign Exchange Factor).6

The Gross Debit Value is a member’s

largest single daily gross debit value

based on debit values for five

consecutive business days including the

day on which the calculation is

performed less 15% of the Institutional

Net Settlement (‘‘INS’’) receive value for

that same day.7 The Market Risk Factor

is based on the largest calculated

percentage change in the Financial

Times Index over a six day period over

a minimum of 365 days.8 The Market

Risk Factor will continue to be set at

7%. The Foreign Exchange Factor is

based in part on the Estimated Foreign

Exchange Volatility, which is an amount

that is equal to the largest one day

percentage change in the U.S. dollar/

British pound foreign exchange rate

over a minimum of 365 days.9 The

Estimated Foreign Exchange Volatility

will continue to be set at 4%.10 The

Market Risk Factor and Foreign

Exchange Risk Factor for members on

surveillance can be increased in the

discretion of ISCC by 3%, 5%, and 7%

for members on Advisory, Class A, and

Class B surveillance, respectively.

The proposed rule change will permit

ISCC to safeguard securities and funds

in its custody or control and is therefore

consistent with Section 17A of the

Act 11 and the rules and regulations

thereunder.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

ISCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

ISCC will notify the Commission of

any written comments received by ISCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within thirty-five 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

ninety 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 ISCC 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 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

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 ISCC. All submissions should

refer to the file number (ISCC–96–03)

and should be submitted by: July 30,

1996.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Jonathan G. Katz,

Secretary.

[FR Doc. 96–17356 Filed 7–8–96; 8:45 am]

BILLING CODE 8010–01–M
36098 Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Notices

1Securities Exchange Act Release No. 27975 (May

1, 1990), 55 FR 19124.

2With the Commission’s approval of File No. SR–

NASD–93–24, the universe of securities eligible for

quotation in the OTCBB now includes certain

equities listed on regional stock exchanges that do

not qualify of dissemination of transaction reports

via the facilities of the Consolidated Tape

Association.

3Securities Exchange Act Release No. 36292

(September 28, 1995), 60 FR 52241.

4Securities Exchange Act Release No. 30766

(June 1, 1992), 57 FR 24281.

5On November 24, 1992, the NASD filed an

application with the Commission for interim

designation of the Service as an automated

quotation system for penny stocks, pursuant to

Section 17B(b) of the Act. On December 30, 1992,

the Commission granted Qualifying Electronic

Quotation System (‘‘QEQS’’) status for the Service

for purposes of certain penny stock rules that

become effective on January 1, 1993. On August 26,

1993, the Commission granted the NASD’s request

for an extension of QEQS status until such time as

the OTCBB meets the statutory requirements of

Section 17B(b)(2).

[Release No. 34–37387; File No. SR–NASD–

96–27]

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 an Interim Extension of the

OTC Bulletin Board Service through

December 31, 1996

June 28, 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 28, 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 and is

simultaneously approving the proposal.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

On June 1, 1990, the NASD, through

a subsidiary corporation, initiated

operation of the OTC Bulletin Board

Service (‘‘OTCBB Service’’ or ‘‘Service’’)

in accord with the Commission’s

approval of File No. SR–NASD–88–19,

as amended.1 The OTCBB Service

provides a real-time quotation medium

that NASD member firms can elect to

use to enter, update, and retrieve

quotation information (including

unpriced indications of interest) for

securities traded over-the-counter that

are not listed on The Nasdaq Stock

Marketsm nor on a registered national

securities exchange (collectively

referred to as ‘‘OTC Equities’’).2

Essentially, the Service supports NASD

members’ market making in OTC

Equities through authorized Nasdaq

Workstation units. Real-time access to

quotation information captured in the

Service is available to subscribers of

Level 2/3 Nasdaq service as well as

subscribers of vendor-sponsored

services that now carry OTCBB Service

data. The Service is currently operating

under an interim approval that expires

on June 30, 1996.3

The NASD hereby files this proposed

rule change, pursuant to Section

19(b)(1) of the Act and Rule 19b-4

thereunder, to obtain authorization for

an interim extension of the Service

through December 31, 1996. During this

interval, there will be no material

change in the OTCBB Service’s

operational features, absent Commission

approval of a corresponding Rule 19b-4

filing.

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 is 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 this filing is to ensure

continuity in the operation of the

OTCBB Service while the Commission

considers an earlier NASD rule filing

(File No. SR–NASD–92–7 that requested

permanent approval of the Service.4 For

the month ending May, 1996, the

Service reflected the market positions of

407 NASD member firms displaying

quotations/indications of interest in

approximately 5,514, OTC Equities.

During the proposed extension,

unregistered foreign securities and

American Depositary Receipts

(collectively, ‘‘Foreign Equity

Securities’’) will remain subject to the

twice-daily, update limitation that

traces back to the Commission’s original

approval of the OTCBB Service’s

operation. As a result, all priced bids/

offers displayed in the Service for

unregistered Foreign Equity Securities

will remain indicative.

In conjunction with the launch of the

Service in 1990, the NASD implemented

a filing requirement (currently under

NASD Rule 6740) and review

procedures to verify member firms’

compliance with Rule 15c2–11 under

the Act. During the proposed extension,

this review process will continue to be

an important component of the NSAD’s

self-regulatory oversight of brokerdealers’ market making in OTC Equities.

The NASD also expects to work closely

with the Commission staff in developing

further enhancements to the Service,

including those related to the market

structure requirements mandated by the

Securities Enforcement Remedies and

Penny Stock Reform Act of 1990

(‘‘Reform Act’’), particularly Section

17B of the Act.5 The NASD notes that

implementation of the Reform Act

entails Commission rulemaking in

several areas, including the

development of mechanisms for

gathering and disseminating reliable

quotation/transaction information for

‘‘penny stocks.’’

2. Statutory Basis

The NASD believes that this proposed

rule change is consistent with Sections

11A(a)(1), 15A(b)(6) and (11), and

Section 17B of the Act. Section

11A(a)(1) sets forth the Congressional

findings and policy goals respecting

operational enhancements to the

securities markets. Basically, the

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.

Section 15A(b)(6) requires, among other

things, that the NADS’s rules promote

just and equitable principles of trade,

facilitate securities transactions, and

protect public investors. Subsection (11)

thereunder authorizes the NASD to

adopt rules governing the form and

content of quotations for securities

traded over-the-counter for the purposes

of producing fair and informative

quotations, preventing misleading

quotations, and promoting orderly

procedures for collecting and

disseminating quotations. Finally,

Section 17B contains Congressional

findings and directives respecting the

collection and distribution of quotation

information on low-priced equity
Federal Register / Vol. 61, No. 132 / Tuesday, July 9, 1996 / Notices 36099

6 17 CFR 200.30–3(a)(12).

1See Securities Exchange Act Release No. 33721

(March 7, 1994), 59 FR 11636 (March 11, 1994). On

July 5, 1994, the Commission approved a 120-day

extension to the Exchange’s Municipal Bond

Trading Pilot Program. See Securities Exchange Act

Release No. 34317 (July 5, 1994), 59 FR 35546 (July

Continued

securities that are neither Nasdaq nor

exchange-listed.

The NASD believes the extension of

the Service through December 31, 1996

is fully consistent with the foregoing

provisions of the Act.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD believes that the 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 NASD requests that the

Commission find good cause, pursuant

to Section 19(b)(2) of the Act, for

approving the proposed rule change

prior to the 30th day after its

publication in the Federal Register to

avoid any interruption of the Service.

The current authorization for the

Service extends through June 30, 1996.

Hence, it is imperative that the

Commission approve the instant filing

on or before that date. Otherwise, the

NASD will be required to suspend

operation of the Service pending

Commission action on the proposed

extension.

The NASD believes that accelerated

approval is appropriate to ensure

continuity in the Service’s operation

pending a determination on permanent

status for the Service, as requested in

File No. SR–NASD–92–7. Continued

operation of the Service will ensure the

availability of an electronic quotation

medium to support member firms’

market making in approximately 5,514

OTC Equities and the widespread

dissemination of quotation information

on these securities. The Service’s

operation also expedites price discovery

and facilitates the execution of customer

orders at the best available price. From

a regulatory standpoint, the NASD’s

capture of quotation data from

participing market makers supplements

the transctional data now reported by

member firms pursuant to NASD Rule

6600.

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 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 30, 1996.

V. Commission’s Findings and Order

Granting Accelerated Approval

The Commission finds that approval

of the proposed rule change is

consistent with the Act and the rules

and regulations thereunder, and in

particular with the requirements of

Section 15A(b)(11) of the Act, which

provides that the rules of the NASD

relating to quotations must be designed

to produce fair and informative

quotations, prevent ficititious or

misleading quotations and promote

orderly procedures for collecting,

distributing, and publishing quotations.

The Commission finds good cause for

approving the proposed rule change

prior to the 30th day after the date of

publishing notice of the filing thereof.

The Commission finds that approval of

this proposed rule change to continue

operation of the pilot program is

customers’ orders at the best available

price. Additionally, continued operation

of the Service will materially assist the

NASD’s surveillance of trading in OTC

Equities that are quoted in the Service,

including certain non-Tape B securities

that are listed on regional exchanges

and quoted in the Service.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change be, and hereby is,

approved for an interim period through

December 31, 1996.

For the Commission, by the Division of

Market Regulation, pusuant to delegated

authority.6

Jonathan G. Katz,

Secretary.

[FR Doc. 96–17351 Filed 7–8–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37385; File No. SR–PSE–

96–16]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Stock Exchange, Inc.

Relating to Listing and Trading

Guidelines for Municipal Bonds

June 28, 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 5, 1996, the

Pacific Stock Exchange, Inc. (‘‘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 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 PSE proposes to adopt on a

permanent basis rules for the listing and

trading of municipal bonds.

The text of the proposed rule change

is available at the Office of the

Secretary, PSE 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

PSE 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 PSE 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

On March 7, 1994, the Commission

approved an Exchange pilot program

providing for the listing and trading of

‘‘municipal securities,’’ as defined in

Section 3(a)(29) of the Act (‘‘pilot

program’’) 1 The Exchange now