02-1102. Self-Regulatory Organizations; Stock Clearing Corporation of Philadelphia; Order Approving a Proposed Rule Change Relating to the Eligibility of Holders of Equity Trading Permits Issued by the Philadelphia Stock Exchange, Inc. To Be ...

January 9, 2002.

On January 12, 2000, the Stock Clearing Corporation of Philadelphia (“SCCP”) filed with the Securities and Exchange Commission (“Commission”) and on May 31, 2000, amended a proposed rule change (File No. SR-SCCP-00-01) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).^[1] Notice of the proposal was published in the Federal Register on September 1, 2000.^[2] No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

I. Description

The rule change amends SCCP's rules to permit holders of Equity Trading Permits (“ETPs”) issued by the Philadelphia Stock Exchange, Inc. (“PHLX”) to be eligible to become SCCP participants. SCCP Rule 3 provides that, subject to certain conditions,^[3] any person who is a broker-dealer registered under the Act and a member in good standing of PHLX is eligible to be a SCCP participant.^[4] The rule change amends SCCP Rule 3 to permit holders of PHLX ETPs to be considered “members” of PHLX for purposes of SCCP's participant qualification requirements.^[5] ETP holders would thus be eligible to apply to be participants in SCCP.

The rule change also makes a corresponding amendment to Article 2 of SCCP's Articles of Incorporation. Article 2 currently includes as one of SCCP's corporate purpose the carrying of securities “for members, member firms and/or member corporation of the Philadelphia Stock Exchange. * * *” The rule change amends Article 2 to add a statement that SCCP's Board of Directors may determine by rule the identity of PHLX “members, member firms and/or member corporations.”

II. Discussion

PHLX has proposed the creation of ETPs in order to reduce the cost of access to the exchange's equity trading floor as well as to provide an opportunity to attract additional order flow and new business and services. All trades on the PHLX in equity securities are processed through SCCP and require a SCCP participant to be involved. ETP holders will not be required to be SCCP participants themselves. Like PHLX members, ETP holders may elect instead to enter into a correspondent arrangement with another SCCP participant whereby the SCCP participant assumes responsibility for the clearance and settlement of the ETP holder's trades. The herein approved amendments to SCCP Rule 3 and SCCP's Articles of Incorporation simply assure that those ETP holders wishing to become SCCP participants themselves will be treated by SCCP in he same fashion as SCCP participants who are PHLX members. In doing so, the amendments also provide a clear basis upon which the SCCP board of directors can determine by rule, as and when future circumstances may warrant, the identity of such “members, member firms and/or member corporations.”

Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions.^[6] The Commission believes that the approval of SCCP's Rule 3 change and Article 2 amendment is consistent with this section because these changes allow holders of ETPs issued by the PHLX to be eligible to become SCCP participants just as PHLX members are. As a result, more broker-dealers will have access to and be able to utilize SCCP.

III. Conclusion

On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of section 17A of the Act and the rules and regulations thereunder.

It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (File No. SR-SCCP-00-01) be and hereby is approved.^[7]

For the Commission, by the Division of Market Regulation, pursuant to the delegated authority.

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  Securities Exchange Act Release No. 43210 (August 25, 2000), 64 FR 53259.

3.  SCCP approves applicants for participant status only upon a determination that the applicant meets certain standards of financial condition, operational capability, and character set forth in SCCP's rules. Each participant is required to make a contribution to the SCCP Participant's Fund and to comply with SCCP's By-laws and Rules as well as with a participant's agreement. ETP holders must apply for SCCP membership and will be subject to the same admission criteria as PHLX members.

4.  The Commission has approved two rule changes proposed by PHLX. PHLX 00-02 adds new Article Twenty-First to PHLX's Certificate of Incorporation which enables PHLX to issue ETPs. PHLX 00-03 implements PHLX Rule 23 which sets forth the terms and conditions of the ETPs. Under PHLX Rule 23, holders of ETPs generally have the same rights under PHLX rules as PHLX members without options privileges except that ETP holders do not have the right to vote. ETPs are not transferable and their holders are not entitled to any residual interest in PHLX assets upon a liquidation of PHLX. Holders of ETPs are generally subject to the same obligations as PHLX members, except with respect to certain fees. Securities Exchange Act Release No. 45254 (January 9, 2002).

5.  The amendment to SCCP Rule 3 states, “For purposes of this Rule 3 as well as all provisions of the Corporation's Certificate of Incorporation, By-laws, rules, regulations, requirements, orders, directions and decisions adopted or made in accordance therewith, holders of Equity Trading Permits (“ETPs”) issued pursuant to PHLX Rule 23 shall be deemed to be members of PHLX, and holders of Regular ETPs issued pursuant to PHLX Rule 23 who transact business from a location on the PHLX's equity floor shall be deemed to be PHLX floor members.” Off-Floor ETPs, the other class of ETPs, allows holders electronic and telephone access, but not physical access, to the Exchange floor. Accordingly, SCCP would treat ETP holders, regardless of class, just like PHLX members both in terms of SCCP participant qualification requirements and privileges of SCCP participant status.

6.  15 U.S.C. 8q-1(b)(3)(F).

7.  17 CFR 200.30-3(a)(12).