1710 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

3 17 CFR 200.30–3(a)(12).

1 17 CFR 240.19b–4.

2 15 U.S.C. 78s(b)(1).

3Securities Exchange Act Release No. 43538

(November 9, 2000), 65 FR 69596.

4The Commission approved the Exchange’s

mediation program and administrative conference

rule on a two-year pilot basis through November 20,

2000. See Securities Exchange Act Release No.

40695 (November 19, 1998), 63 FR 65834

(November 30, 1998). On October 31, 2000, the

Exchange’s current pilot programs for mediation

and administrative conferences were extended for

an additional six months. See Securities Exchange

Act Release No. 43496, (October 31, 2000).

a conservative calculation that is a

function of: (1) Margin factors that are

designed to cover one day market

movements as least 95 percent of the

time but that typically exceed this

confidence level and (2) a cautious

disallowance scheme providing only

limited credits (benefits) for hedging

across offset classes (for example, GSCC

does not allow offsets of zeros against

non-zeros).

Furthermore, by calculating an

average POMA (based on a member’s

twenty highest POMA amounts

occurring in the most recent 75 business

days), GSCC ensures that it calculates a

historically sufficient receive/deliver

settlement component for a member

even when current activity results in a

relatively low requirement.

Finally, periodic studies conducted

by GSCC assessing the risks presented to

it from the potential default by a

member on its obligations to GSCC have

concluded that GSCC’s methodogies for

identifying and computing its risks

provide it with a high level of protection

on a individual and aggregate basis.

Second, the liquidation amount

ignores and negates much of the

protection afforded by a hedging

strategy. The more a member engages in

a hedging strategy with respect to its

trading, the more it protects its clearing

corporation from the risk of its failure.

However, GSCC believes that the

current 25 percent minimum margin

call effectively disregards the protection

afforded to GSCC by a member that

engages in trading activity on a fully

hedged basis. In addition, it penalizes

the member by forcing it to post

excessive collateral with GSCC.

In sum, the liquidation amount

calculation is necessary because it

recognizes the fact that an aberrational

yield curve may exist at the time of a

liquidation. However, GSCC believes

that the use of 25 percent is overly

conservative and ties up excessive

amounts of collateral of netting

members. Thus, GSCC believes that the

percentage in liquidation amount

calculation should be lowered to 10

percent.

GSCC believes that the proposed rule

change will revise GSCC’s risk

management processes in a prudent

manner that is consistent with

minimizing collateral and operational

burdens on and maximizing the

liquidity of GSCC netting members.

Thus, GSCC believes that the proposed

rule change is consistent with Section

17A of the Act because the proposed

rule change will facilitate the prompt

and accurate clearance and settlement of

securities transactions and will in

general protect investors and the public

interest.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

GSCC does not believe that the

proposed rule 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

Comments on the proposed rule

change have not yet been solicited.

Members will be notified of the rule

filing and comments will be solicited by

an Important Notice. GSCC will notify

the Commission of an written comments

received by GSCC.

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 GSCC 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 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 in Washington, DC. Copies of

such filing will also be available for

inspection and copying at the principal

office of GSCC. All submissions should

refer to File No. SR–GSCC–00–02 and

should be submitted by January 30,

2001.

For the Commission by the Divisioin of

Market Regulation pursuant to delegated

authority.3

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–539 Filed 1–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

(Release No. 34–43785; File No. SR–NYSE–

00–39)

Self-Regulatory Organizations; New

York Stock Exchange, Incorporated;

Order Approving Proposed Rule

Change To Amend Arbitration Rules

Regarding Pilot Programs for

Mediation and Administrative

Conferences

December 29, 2000.

I. Introduction

On September 29, 2000, the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘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

amending and extending the pilot

programs for mediation and

administrative conferences. Notice of

the proposal appeared in the Federal

Register on November 17, 2000.3 The

Commission received no comments on

the proposal. This order approves the

proposed rule change.

II. Description

The Exchange proposes to amend and

extend the pilot programs under NYSE

Rules 638 and 639 for mediation and

administrative conferences. The

Exchange is amending and extending

the pilot programs to continue to offer

mediation as a way for parties to settle

cases earlier with lower costs.4 The

Exchange believes that the

administrative conference allows the

Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices 1711

arbitrators to intervene early in the case

to set deadlines and resolve preliminary

procedural issues. The Exchange is also

proposing to amend both pilot programs

to include a greater number of cases by

lowering the threshold amount to

$250,000 from $500,000.

Since November of 1998, the

Exchange has sponsored a pilot

mediation program. Under the pilot

program, a single mediation session of

up to four hours is conducted in all

cases not involving public customers

submitted for arbitration where the

amount of the claim is $500,000 or

more. The Exchange pays the mediator

up to $500 for this single mediation

session. There are no costs assessed to

the parties unless they select a mediator

whose rate is higher or if the parties

agree to go beyond the single session.

The Exchange represents that of the

cases mediated under this provision of

the pilot, approximately 31 percent (15

of 48) have settled before arbitration.

Further, the Exchange believes that

early settlements reduce costs and

provide a greater measure of party

satisfaction.

Under the pilot, mediation is also

available in cases involving public

customers where the claim is $500,000

or more upon agreement of the parties.

These cases also qualify for the

Exchange’s $500 incentive payment to

the mediator. In all other cases,

mediation is available at the parties’

own expense. The Exchange, however,

will provide the parties with a list of

mediators, will assist in facilitating the

parties’ agreement to mediate and will

make its conference room facilities

available for the mediation.

To evaluate the pilot, the staff of the

Exchange met with mediators and

lawyers who participated in mediation

under the pilot. Based on the evaluators’

comments and the settlement rate, the

Exchange is proposing to extend the

pilot for two years, as amended.

To encourage greater use of

mediation, the Exchange proposes to

amend the mediation pilot program to

include all cases within a lowered

threshold of claims of $250,000 or more.

The Exchange represents that most

commentators supported the pilot’s

provision that a single mediation

session of up to four hours be conducted

in all cases with claims of $250,000 or

more. The Exchange believes that this

process relieves the parties from having

to suggest mediation because the

Exchange rule provides for it. Further,

the Exchange represents that many

parties believe that the other side will

view their suggestion to mediate as a

sign of weakness. The Exchange

believes that this process also assists

counsel in getting their clients to

consider mediation by making it part of

the arbitration process—with little or no

cost to them.

As amended, all cases with claims of

$250,000 or more will be included in

the pilot. This includes case involving

public customers. The Exchange

believes the pilot’s inclusion of

customer cases may lead to more and

earlier settlements. The Exchange

represents that under the present pilot,

where the parties have elected to

mediate, 78.9 percent (15 to 19) of the

customer cases with claims over

$500,000 have settled before arbitration.

Under the present pilot, a single

mediation session of up to four hours is

conducted. The process is voluntary

process and neither the Exchange nor

the mediator can require a party to

mediate. The mediation may last less

than four hours or the parties may

refuse to participate at all. The pilot’s

only requirement is that the Director of

Arbitration arrange for the mediation.

The Director will delegate to the

Exchange’s staff the tasks of sending the

parties a list of mediators and selecting

a mediator from the list if the parties do

not agree to a mediator. If the parties

object to all the names on the list, the

Director will appoint a mediator from

outside the list. Once the parties or the

Director selects a mediator, the Director

will schedule the mediation and advise

the parties. The mediator may contact

the parties to preliminarily discuss the

case. The pilot does not require the

parties to do anything they do not wish

to, including exchange information or

documents; and there is no required

pre-mediation exchange of exhibits. The

Exchange’s goal of scheduling

mediation is to encourage the parties to

try to resolve the dispute as quickly and

efficiently as possible. Unless the

parties otherwise agree, mediation will

not delay the arbitration.

The Exchange will continue to pay

the mediator’s fee for one session, up to

$500, in cases where the rule provides

that a single mediation session is to be

conducted. The Exchange represents

that many commentators noted that the

Exchange’s provision for a single

mediation session and incentive

payment of the mediator’s fee, up to

$500, is helpful in encouraging their

clients to agree to try mediation.

Further, the Exchange represents that

the average mediation settles or reaches

an impasse after approximately two

sessions.

The Exchange is also proposing to

allow parties to mediate without first

filing for arbitration. The current pilot

only applies to cases already filed with

the NYSE for arbitration. Allowing the

parties to mediate prior to filing an

arbitration may save the parties some

costs of arbitration. The party requesting

mediation will be required for

arbitration under Rule 629 for claims of

the same amount. If the case does not

settle after mediation, the Exchange will

apply the fee to the non-refundable

filing fee for arbitration. The parties are

also required to pay the mediator’s fee

and agree on how the fee will be shared.

The parties’ agreement to mediate will

not toll the time limitation for

submission of a claim to arbitration.

As under the original pilot, cases with

claims for less than $250,000 may also

be mediated when the parties agree.

However, in these cases the parties are

responsible for payment of the entire

mediator’s fee. The Exchange represents

that during the pilot program, where the

parties have agreed to mediate claims

below $500,000, 76 percent (16 of 21)

have settled.

Since November of 1998, the pilot

program has provided for an

administrative conference with the

parties and arbitrators in cases over

$500,000. The conference allows the

arbitrators to set deadlines early in the

case and resolve preliminary issues with

the aim of expediting the arbitration.

The Exchange represents that to date,

124 administrative conferences have

been conducted and most commentators

supported the administrative conference

with certain changes. The Exchange is

proposing to amend and extend the

pilot for two years.

In order to expedite a greater number

of claims, the Exchange is proposing to

lower the threshold for administrative

conferences from $500,000 to $250,000.

The Exchange is also proposing that, be

default, the chairperson of the panel

conduct the conference by telephone.

The Exchange believes that this will

allow the staff to schedule the

conference earlier because it will

involve coordinating the schedules of

fewer persons. In cases involving public

customers, a public arbitrator will

conduct the administrative conference

unless the public customer requests, in

writing, a securities arbitrator. The

Chairperson shall have discretion to

conduct the conference in-person and

may request that all of the arbitrators

attend the conference. Under the

amended pilot, the Director of

Arbitration will schedule the conference

90 days after service of the Statement of

Claim, rather than 30 days after the

answer is filed. The additional period of

time is intended to permit the parties to

frame the issues for the administrative

conference. The administrative

conference pilot does not affect the

parties’ right to request a pre-hearing

1712 Federal Register / Vol. 66, No. 6 / Tuesday, January 9, 2001 / Notices

5 In approving this rule, the Commission has

considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f). 6 15 U.S.C. 78f.

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

8 17 CFR 200.30–3(a)(12).

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

2The Commission has modified the text of the

summaries prepared by OCC.

3See OCC Rule 805(d)(2).

4Securities Exchange Act Release No. 41089

(February 23, 1999), 64 FR 10051 (March 1, 1999).

conference to resolve discovery disputes

and other preliminary matters under

NYSE Rule 619.

III. Discussion

After careful review, 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 5 and, in particular,

the requirements of Section 6 and the

rules and regulations thereunder.6

Specifically, the Commission believes

the proposal is consistent with the

Section 6(b)(5) requirements that the

rules of an exchange be designed to

promote just and equitable principles of

trade, to prevent fraudulent and

manipulative acts, and, in general, to

protect investors and the public interest.

In particular, the Commission believes

that the proposed rule change will

continue to help ensure that NYSE

members, member organizations, and

the public have a fair and impartial

forum for the resolution of their

disputes.

Mediation is a method of dispute

resolution where a mediator attempts to

facilitate a settlement of the dispute.

The Commission believes that it is

reasonable and consistent with the Act

to extend mediation to more cases

because it may result in savings of time

and money for a greater number of

parties. The Commission notes that the

Exchange is amending and extending

this pilot program based on its

evaluation of the effectiveness of the

current pilot program. The Exchange

represents that lowering the threshold to

claims of $250,000 or more and

including cases involving public

customers may lead to more and earlier

settlements. In addition, the Exchange

represents that early settlements reduce

costs and increase party satisfaction.

The Commission believes that it is

consistent with the Act to require an

administrative conference between the

parties and the arbitrators in cases

where the amount of the claim is

$250,000 or more, to expedite the

arbitration process and reduce costs of

the arbitration. An administrative

conference early in the process will

allow the arbitrators to intervene to

establish discovery schedules, resolve

discovery disputes and other

preliminary matters, and to attempt to

narrow the issues in dispute and avoid

costly contests over procedural matters.

The Commission believes that reducing

the threshold for administrative

conferences from $500,000 to $250,000

should provide these benefits to a

greater number of claims. Further, the

procedural amendments to the pilot

program should expedite the process for

conducting administrative conferences.

It is therefore ordered, pursuant to

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

proposed rule change (SR–NYSE–00–

39) is approved. The mediation

program, NYSE Rule 638, and the

administrative conference rule, NYSE

Rule 639, are each approved on a twoyear pilot basis through December 30,

2002.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–541 Filed 1–8–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43782; File No. SR–OCC–

00–04]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing of a Proposed Rule Change

Relating to the Definition of Marking

Price and Closing Price

December 29, 2000.

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

Securities Exchange Act of 1934 (‘‘Act’’)

notice is hereby given that on May 2,

2000, The Options Clearing Corporation

(‘‘OCC’’) 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 OCC.

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 would

amend OCC’s price determination rules

by conforming the definition of

‘‘marking price’’ to the definition of

‘‘closing price.’’ The rule change would

also revise both definitions to clarify

that OCC will normally determine

underlying stock prices based on the

last reported sale price during regular

business hours.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

OCC 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. OCC 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

The purpose of the proposed rule

change is to conform the definition of

‘‘marking price’’ in OCC Rule 601 to the

definition of ‘‘closing price’’ in OCC

Rule 805. The rule change would also

revise both definitions to clarify that

OCC will normally determine

underlying stock prices based on the

last reported sale price during regular

business hours.

Background

OCC Rule 805(j) defines the term

‘‘closing price’’ for purposes of OCC’s

exercise by exception procedure. Under

this procedure, unless a clearing

member specifically instructs OCC to

the contrary, expiring equity options in

the clearing member’s accounts are

exercised without any affirmative action

by the clearing member if the ‘‘closing

price’’ of the underlying stock exceeds

(in the case of a call) or is less than (in

the case of a put) the strike price of the

option by a specified interval. That

interval is three-quarters of a point in a

customers’ account and one-quarter of a

point in any other clearing member

account.3

Before February 1999, Rule 805(j)

defined ‘‘closing price’’ to mean the

closing price of an underlying stock ‘‘on

its primary market.’’ In recognition of

the increasing fragmentation of the

equity markets, the rule was amended in

February 1999 to refer instead to the last

reported sale price ‘‘on such national

securities exchange or other domestic

securities market as [OCC] shall

determine.’’ 4 Thus, the rule change gave

OCC the discretion to designate the

market whose closing price will serve as

the benchmark in order to avoid