[Federal Register Volume 61, Number 132 (Tuesday, July 9, 1996)]
[Notices]
[Pages 36099-36100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-17353]


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SECURITIES AND EXCHANGE COMMISSION
[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. Sec. 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

[[Page 36100]]

proposes to adopt this municipal securities pilot program on a 
permanent basis.
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    \1\ 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, a 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'').\2\
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    \2\ 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.\3\ In addition pilot program is not intended to 
otherwise alter the existing regulatory framework and oversight 
applicable to municipal securities trading.\4\ 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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    \3\ See Rule 5.46.
    \4\ 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); Rule 5.13(i) (comparance, settlement, and clearance); 
and Rule 5.46(xv) (exemption to offboard trading requirements). 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.\5\ 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 implication of 
the trading of such bonds.
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    \5\ To date, the Exchange has not listed or traded any municipal 
securities under the pilot program.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) of the Act in general and furthers the objectives of 
Section 6(b)(5) in particular in that it is designed to prevent 
fraudulent and manipulative acts and practices and to promote just and 
equitable principles of trade, and is not designed to permit unfair 
discrimination between customers, issuers, brokers and dealers.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes the proposed rule change will impose no 
burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such other period (i) as the Commission may 
designate up to 90 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 the self-regulatory organization consents, the Commission will:
    (A) by order approve the 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, 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. Sec. 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: July 30, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12) (1994).
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Jonathan G. Katz,
Secretary.
[FR Doc. 96-17353 Filed 7-8-96; 8:45 am]
BILLING CODE 8010-01-M