[Federal Register Volume 61, Number 228 (Monday, November 25, 1996)]
[Notices]
[Pages 59919-59920]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30024]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37962; File No. SR-PHLX-96-40]
Self-Regulatory Organizations; Philadelphia Stock Exchange,
Incorporated; Notice of Filing of Proposed Rule Change Relating to
Equity Margin Rules
November 19, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 1, 1996, the
Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``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.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
the PHLX, pursuant to Rule 19b-4 of the Act,\2\ hereby proposes to
amend Rules 721, 722, and 723.
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\2\ 17 CFR 240.19b-4.
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1. The proposed amendment to PHLX Rule 721 will now provide for
initial customer margin requirements. Specifically, a customer must
deposit at least the greater of the amount specified by Regulation T or
$2,000 equity, except that cash need not be deposited in excess of any
security purchased.
2. The proposed amendment to PHLX Rule 722 will now provide for
good faith margin requirements in instances where a member organization
carries the proprietary account of another broker-dealer in compliance
with the requirements of Regulation T. The rule will further provide
that the member organization may not carry the account in a deficit
position and must deduct from its own net capital the difference
between the margin required by other sections of this rule and the
equity on deposit.
3. Rule 723 will be completely restated. Revised Rule 723 will
specifically be applicable to customer day-trading activities. This
rule will require a customer to have sufficient equity to meet the
margin required on either the long or short transaction, whichever
occurred first on an intra-day basis. For purposes of this rule, the
term ``customer'' will be defined, as it is in Rule 722(e)(2), to not
include ``a broker or dealer from whom a security has been purchased or
to whom a security has been sold for the account of a member
organization or its customers.''
In addition, a prohibition against free riding in a customer's cash
account has been included in order to preclude a customer from making a
practice of paying for a security by selling the same security on an
intra-day basis.
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 self-regulatory organization
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 self-regulatory organization
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
The PHLX intends to amend Rules 721, 722, and 723 in order to
harmonize the PHLX's margin rules with those of the other self-
regulatory organizations (``SROs'').
Specifically, amended Rule 721 will be identical to the initial
customer equity margin requirements of the New York Stock Exchange
(``NYSE''), the American Stock Exchange (``AMEX'') and the Pacific
Stock Exchange (``PSE'').\3\
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\3\ See Rule 431(b); AMEX Rule 462; PSE Rules 2.15(e), 2.16(a).
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The proposed amendment to Rule 722 is intended to provide for good
faith margin in instances where a member organization carries the
proprietary account of another broker-dealer in compliance with the
requirements of Regulation T. The PHLX proposes adding these provisions
so as to parallel its margin rule with that of the NYSE.\4\
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\4\ See Rule 431(e)(6).
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Rule 723 is proposed to be completely restated. In this regard,
Exchange research has identified that the current text of Rule 723 has
not been amended since at least 1937.\5\ Accordingly, the arcane text
predates all modern margin and capital rules of the PHLX. In lieu of
the outdated provisions of Rule 723,
[[Page 59920]]
The Exchange proposes replacing such text with the current customer
day-trading provisions and the prohibition against free-riding which
have been promulgated by the other major SROs.\6\ The pre-amended
version of Rule 723 applied to member and member firm trading which is
now governed by PHLX Rules 722 and 703.\7\
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\5\ In researching the history of Rule 723 the PHLX reviewed
Exchange guides from as far back as the 1930's, wherein, the rule
appeared exactly as it now reads. Furthermore, rule 723 itself makes
no reference to ever having been amended. See PHLX Rule 723.
\6\ The PHLX proposes adopting the language promulgated by the
New York Stock Exchange. See NYSE Rule 431(f)(8)(B)(C) and (f)(9).
\7\ Rule 722 concerns margin accounts, and Rule 703 concerns
financial responsibility and reporting.
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Other major SROs do not have any intra-day margin requirements
governing member trading.\8\ The ``daylight'' trading requirements of
the PHLX serve no current purposes other than to force PHLX members to
meet intra-day trading requirements on transactions which were not
specifically exempted by the obsolete rule. In addition, because other
major exchanges do not have these intra-day requirements, the PHLX has
been placed at a competitive disadvantage. Members are forced to
actively manage non-exempted transactions on an intra-day basis in
order to maintain compliance with the rule, while other exchanges'
margining and capital requirements are only imposed at the end of the
business day. Furthermore, the proposed day trading and free riding
provisions provide additional protection in the market where it is most
needed. Accordingly, the PHLX rules should be brought into harmony with
the other exchanges so as to relieve these competitive disadvantages.
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\8\ The NYSE, AMEX and the PSE do not have intra-day margining
requirements for members. The NYSE does however, have intra-day
margining requirements for customers.
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2. Statutory Basis
The proposed rule change is based on Section 6(b)(5) of the Act in
that it is designed to remove impediments to and perfect the mechanism
of a national market system and to protect investors and the public
interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
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 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 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. 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 Exchange. All
submissions should refer to File No. SR-PHLX-96-40 and should be
submitted by December 16, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30024 Filed 11-22-96; 8:45 am]
BILLING CODE 8010-01-M
