[Federal Register Volume 61, Number 198 (Thursday, October 10, 1996)]
[Notices]
[Pages 53253-53254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-26062]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37781; File No. SR-PSE-96-16]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Order
Approving Proposed Rule Change and Notice of Filing and Order Granting
Accelerated Approval of Amendment No. 1 Thereto Relating to Listing and
Trading Guidelines for Municipal Bonds
October 3, 1996.
On June 5, 1996, the Pacific Stock Exchange, Inc. (``PSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to adopt on a permanent basis
rules for the listing and trading of municipal bonds.
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\1\ 15 U.S.C. 78s(b)(1) (1988 & Supp. V 1993).
\2\ 17 CFR 240.19b-4 (1994).
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Notice of the proposed rule change was published for comment and
appeared in the Federal Register on July 9, 1996.\3\ No comments were
received on the proposal. On October 1, 1996, PSE submitted Amendment
No. 1 (``Amendment No. 1'') to the proposal to adopt additional
maintenance criteria.\4\ This order approves the proposal, as amended.
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\3\ See Securities Exchange Act Release No. 37385 (June 28,
1996), 61 FR 36099.
\4\ Letter from Michael Pierson, PSE, to Stephen M. Youhn, SEC,
dated September 30, 1996.
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I. Description of the Proposal
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'').\5\ The
Exchange now proposes to adopt this municipal securities pilot program
on a permanent basis.
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\5\ See 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 12, 1994). The pilot program
expired in November 1994.
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Under the pilot program, and municipal security may be eligible for
Exchange listing provided it is rated as investment grade by at least
one nationally recognized rating service, and satisfies the Exchange's
distribution criteria for bonds of issuers whose corporate securities
are not listed on the Exchange, i.e., the size of issue must be at
least $20 million principal amount/aggregate market value, with at
least 100 holders. In addition, the Exchange may consider such other
information as it deems necessary to evaluate the appropriateness of
the issue for exchange trading, including the financing structure and/
or arrangement of the issuer.
Any municipal securities listed by the Exchange must be assigned to
a specialist and traded in accordance with all PSE regulations
otherwise applicable to the trading of securities listed on the
Exchange. As with corporate bonds, trade reports and quotation
information for municipal securities will be disseminated over Network
B. However, to ensure uniformity of practice within the securities
industry, proposed Rule 5.13(i) provides that all aspects of the trade
reconciliation process, including comparison, settlement and clearing
will be governed by the applicable requirements of the Municipal
Securities Rulemaking Board (``MSRB'').\6\
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\6\ MSRB Rule G-3 provides specific qualification requirements
for municipal securities principals and representatives. In light of
the PSE's qualification requirements for specialists, the Exchange
believes it is appropriate for the PSE to rely on these requirements
for its specialists in lieu of the Rule G-3 standards. It is
important, however, that any specialist selected by the PSE for a
listed municipal security be familiar with the characteristics of
municipal securities.
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Under the pilot program, any purchase or sale of a municipal
security shall be exempt from the provisions of the Exchange's off-
board trading rules.\7\ In addition, the pilot program is not intended
to otherwise alter the existing regulatory framework and oversight
applicable to municipal securities trading.\8\ Finally, a municipal
security would be subject to delisting in the event it were no longer
rated as investment grade by a nationally recognized rating service.
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\7\ See Rule 5.46.
\8\ The National Association of Securities Dealers (``NASD'')
has the authority to enforce the MSRB rules. The Exchange notes that
it will also be responsible for enforcing MSRB rules for the listed
municipal securities. The PSE's enforcement in this regard will not
preempt or limit in any manner the NASD's authority to act in this
area.
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To accommodate the listing of municipal securities, the PSE
proposes to apply the same rules and conditions of the pilot program,
as noted above, on a permanent basis. In addition, the Exchange
proposes to adopt the following rules on a permanent basis: Rule
3.2(e)(3) (basic listing requirements); Rule 3.5(d)(5) (maintenance
requirements);\9\ Rule 5.13(i) (comparance, settlement, and clearance);
and Rule 5.46(xv) (exemption to off-board trading requirements).
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\9\ In addition to requiring a particular issue to be rated as
investment grade by at least one nationally recognized rating
service, PSE will require the issue to have a market value or
principal amount outstanding of at least $400,000. See Amendment No.
1. The Commission also notes that PSE Rule 3.5(s), which sets forth
reasons for suspending or delisting a security, will also apply to
municipal securities.
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The Exchange proposes that any municipal security that it lists be
assigned to a specialist and traded in accordance with all PSE
regulations otherwise applicable to the trading of securities on the
Equity Floors of the Exchange.\10\ Finally, the Exchange represents
that it will require that its members who trade municipal bonds listed
on the Exchange will have an adequate understanding of the tax
[[Page 53254]]
implication of the trading of such bonds.
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\10\ To date, the Exchange has not listed or traded any
municipal securities under the pilot program.
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II. Discussion
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).\11\ In particular, the
Commission believes the proposal is consistent with the Section 6(b)(5)
requirement that the rules of exchange be designated to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling and
processing information with respect to, and facilitating transactions
in, securities, and, in general, to protect investors and the public
interest.
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\11\ 15 U.S.C. 78f(b)(5) (1982).
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Only municipal bond issuers that qualify under PSE's proposed non-
listed corporate issuer distribution criteria will be considered for
listing on the Exchange. These criteria, along with any other
information relevant to determine whether the issue is appropriate for
exchange trading, should ensure that only municipal bond issues that
can support a liquid trading market will be listed on the Exchange.
Moreover, the regulatory scheme in place for municipal securities now
would continue to apply to PSE-listed municipal securities, with the
additional coverage of PSE-listed municipal securities, with the
additional coverage of the PSE surveillance program to the trading of
the listed municipal securities. Finally, PSE-listed municipal
securities will be traded like other PSE-listed bonds and will be
subject to applicable MSRB Rules. For these reasons, the Commission
believes the PSE proposal is consistent with the requirements of
Section 6(b) of the Act.
The Commission finds good cause to approve Amendment No. 1 to the
filing prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. The Amendment requires that
outstanding municipal issues maintain a market value or principal
amount of at least $400,000. The Commission believes that this
standard, when considered with the existing requirement that an issue
be rated as investment grade by at least one nationally recognized
rating service, will ensure that only those issues which are
sufficiently liquid for exchange trading will continue to trade on the
PSE. In addition, the Commission notes that the Amendment adopts
criteria which makes the PSE's maintenance criteria substantially
similar to standards which exist at the American and Philadelphia Stock
Exchanges. Accordingly, consistent with Section 6(b)(5) of the Act, the
Commission believes that good cause exists to approve Amendment No. 1
to the filing on an accelerated basis.
III. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1. 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 at the Commission's Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such filing will also be
available for inspection and copying at the principal office of the
PSE. All submissions should refer to File No. SR-PSE-96-16 and should
be submitted by October 31, 1996.
It therefore is ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (SR-PSE-96-16) is approved, as
amended.
\12\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-26062 Filed 10-9-96; 8:45 a.m.]
BILLING CODE 8010-01-M
