1708 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

8 17 CFR 200.30–3(A)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 43530

(November 7, 2000), 65 FR 69355.

4 In approving this rule, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f).

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

6 15 U.S.C. 78f(b)(5).

7 15 U.S.C. 78s(b)(2).

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

publishers its reasons for so finding or

(ii) as to which the Exchange 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,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW,

Washington, DC 20549–0609. 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 CBOE. All

submissions should refer to File No.

SR–CBOE–00–41 and should be

submitted by January 30, 2001.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–540 Filed 1–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43787; File No. SR–CHX–

00–28]

Self-Regulatory Organizations; The

Chicago Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Relating to Automatic

Execution of Agency Limit Orders for

Dual Trading System Issues

January 2, 2001.

I. Introduction

On September 14, 2000, the Chicago

Stock Exchange, Inc. (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change

relating to automatic execution of

agency limit orders for dual trading

system issues. The proposed rule

change was published for comment in

the Federal Register on November 16,

2000.3 The Commission received no

comments on the proposal. This order

approves the proposed rule change.

II. Description of the Proposal

The Exchange proposes to amend

CHX Rule 37(b)(6) under Article XX

relating to the automatic execution of

agency limit orders for dual trading

system issues in the event of a tradethrough. Under the proposal, a

specialist would be allowed to elect, on

an issue-by-issue basis, to either

manually or automatically execute limit

orders when a trade-through occurs in

the primary market. The current rule

provides that agency limit orders (that

are not marketable when entered into

the Exchange’s MAX automatic

execution system) will automatically be

filled at the limit price when there is a

price penetration of the limit price in

the primary market for the subject

security or securities. Under the

proposal, automatic execution of such

limit orders will no longer be required.

A CHX specialist may elect to provide

for automatic execution of agency limit

orders at the limit price when there is

a price penetration of the limit price in

the primary market for the subject

security or securities. The obligation to

fill the order at the limit price remains

the same, whether executed manually or

automatically. The Exchange believes

that the proposed amendment

reasonably anticipates the impact that

the decimal pricing environment will

have on the national market system,

where the number of small orders

executed at multiple price levels may

increase the number of inadvertent

trade-throughs that could otherwise lead

to unwarranted automatic executions of

large orders in a CHX specialist’s limit

order book, exposing the specialist to

increased liability in a decimal pricing

environment.

III. Discussion

The Commission has reviewed

carefully the CHX’s proposed rule

change and finds, for the reasons set

forth below, that the proposal is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to a national

securities exchange,4 and with the

requirements of Section 6(b).5 In

particular, the Commission finds the

proposal is consistent with Section

6(b)(5) 6 in that it is designed to promote

just and equitable principles of trade, to

remove impediments and to perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest. The Commission

believes the proposal is reasonably

designed to guard against the possible

situation where the number of small

orders executed on the Exchange at

multiple price levels increases the

number of inadvertent trade-throughs

that could otherwise lead to

unwarranted automatic executions of

large orders in a specialist’s limit order

book, resulting in increased liability to

CHX specialists. The Commission

believes the proposal is designed to

provide a safeguard as the national

market system converts to a decimal

pricing environment, and should result

in grater stability during the transition.

Furthermore, the Commission finds that

the proposal is consistent with the

section 6(b)(5) requirement that the

Exchange’s rules be designed to promote

just and equitable principles of trade,

because the obligation to fill orders at

the limit price remains constant,

regardless of whether executions are

manual or automatic.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices 1709

8 17 CFR 200.30–3(a)(12).

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

2The Commission has modified parts of these

statements.

proposed rule change (SR–CHX–00–28),

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–537 Filed 1–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43791; File No. SR–GSCC–

00–02]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Notice of Filing of a

Proposed Rule Change Relating to the

Enhancement of Risk Management

Processes

January 2, 2001.

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

Securities Exchange Act of 1934

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

April 17, 2000, the Government

Securities Clearing Corporation

(‘‘GSCC’’) 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 primarily by GSCC.

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 proposed rule change will

enhance one of the components of

GSCC’s clearing fund formula by

reducing the liquidation amount from

25 percent to 10 percent.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

GSCC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments it received on the propose

rule change. The text of these statements

may be examined at the places specified

in Item IV below. GSCC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

As part of its ongoing review of its

risk management process, GSCC is

seeking authority to enhance one of the

components of its clearing fund

formula. Specifically, GSCC is

proposing to lower the liquidation

amount from 25 percent to 10 percent.

GSCC believes that this would more

appropriately balance the level of

margin it collects against the liquidity

needs of its members.

Background

A netting member’s clearing fund

requirement is based on a formula

designed to take into account the three

basic risks posed to GSCC by netting

members. These risks include: (1) That

a member might not pay a funds only

settlement amount due to GSCC; (2) that

a member may fail to settle a long-term

repo; and (3) that a member might not

deliver or take delivery of securities that

comprise a net settlement position.

As a result, there are three

components to each member’s clearing

fund deposit requirement, as described

below, with the sum of the three being

a member’s overall requirement:

Funds Adjustment (FAD) Component

This component is based on each

member’s average funds only settlement

amount. The relevant variable in this

calculation is the size of the settlement

amount. It does not matter whether the

funds are to be collected from the

member or paid to the member.

Repo Volatility Component

This component reflects the interest

rate exposure incurred by GSCC in

guaranteeing the contractual rate of

interest on a repo transaction. The repo

volatility factor essentially represents an

estimate of the amount that repo.

Receive/Deliver Settlement Component

This component is based on the size

and nature of net settlement positions.

The margin collected on net settlement

positions is determined by applying

margin factors that are designed to

estimate security price movements. The

factors are expressed as percentages and

are determined by in historical daily

price volatility. By multiplying security

settlement values by their

corresponding margin factors, GSCC

estimate the amount of loss to which it

is potentially exposed from price

changes.

Margin amounts on receive (long) and

deliver (short) positions are allowed to

offset each other. The extent to which

an offset is allowed is determined by

product and the degree of similarly in

time remaining to maturity.

GSCC computes four receive/deliver

settlement amounts each day. The four

results are compared daily, and the

largest amount is applied to the clearing

fund requirement. The four receive/

deliver computations are as follows:

(1) Post-Offset Margin Amount

(POMA): This computation offsets gains

against losses in liquidating a member’s

positions that are anticipated based on

historical experience. The POMA

essentially is the total margin on the

current day’s positions and forward net

settlement positions taking into account

allowable offset percentages.

(2) Average POMA: This computation

is based on the member’s twenty highest

POMA amounts occurring in the most

recent 75 business days.

(3) Adjusted POMA: This computation

is the same as the POMA with the

exception that it excludes all trades that

are scheduled to settle on the current

day. This is done based on the

assumption that those trades will in fact

settle on the current day and that

calculating POMA in this manner will

more accurately reflect GSCC’s

settlement exposure during the current

day.

(4) Liquidation Amount: This

computation is a floor amount designed

to ensure that if the margin offsets

ordinarily allowed in calculating the

receive/deliver settlement component

do not reflect actual market conditions

during a liquidation period, GSCC

nonetheless will have a sufficient level

of collateral protection. In other words,

this minimum requirement, which is 25

percent of the total margin on all net

long and short positions without offsets,

protects against the risk that during a

liquidation period the yield curve will

be aberrational. In such a situation,

collection of a minimum amount of

margin based on gross calculation

should ensure that GSCC will have

sufficient collateral to cover liquidation

losses.

Proposed Change

GSCC proposes to lower the

percentage calculated on the net long

and net short positions in the

liquidation amount calculation from 25

percent to 10 percent. GSCC believes

that 25 percent is overly conservative

for the reasons set forth below.

First, the current received/deliver

settlement component calculation is

overly conservative. GSCC’s experience

has demonstrated that its POMA and

average POMA calculations provide

adequate protection against potential

settlement risks. The POMA, by itself, is