[Federal Register Volume 59, Number 239 (Wednesday, December 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30619]
[[Page Unknown]]
[Federal Register: December 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35055; File No. SR-Phlx-94-15]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Adopting a Limited
Registration/Floor Member Registration Status and the Use of the Series
7A Examination
December 7, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October
3, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') 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 Phlx, pursuant to Rule 19b-4 of the Act, proposes to amend Rule
604, Registration and Termination of Registered Representatives, to
adopt a limited registration provision applicable to persons conducting
a professional customer business from the Phlx trading floor. The
Exchange also proposes to adopt a requirement that persons conducting
functions customarily performed by a registered representative must
register and be qualified pursuant to Phlx Rule 604.
The limited registration provision would require registration with
the Exchange as a Limited Registration/Floor Member and completion of
an examination, in lieu of registration as a Registered Representative
and completion of the General Securities Registered Representative
Examination (``Series 7''). The Exchange also proposes to adopt the
Content Outline for the Examination Module for Floor Members Engaged in
Public Business with Professional Customers.\1\
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\1\The Exchange will use the Series 7A Examination that was
approved in SR-NYSE-93-10 (Securities Exchange Act Release No. 32698
(July 29, 1993), 58 FR 41539). The Series 7A Examination for Phlx
members will be administered by the New York Stock Exchange, Inc.
(``NYSE''). Telephone conversation between Edith Hallahan, Special
Counsel, Regulatory Services, Phlx and Elisa Metzger, Senior
Counsel, Office of Market Supervision, Division of Market
Regulation, SEC, on December 5, 1994.
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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
Access to the trading floor of the Exchange is available in
different forms, including direct floor presence through Exchange
membership, direct access through participation in automatic order
routing systems, and indirect access through floor members via
telephone. Direct access also refers to a telephone line that rings
automatically to one location once the headset is lifted, as
distinguished from speed-dialing capabilities. Direct access to the
Exchange's trading floor is governed by Phlx Rule 606, which requires
approval by the appropriate floor standing committee. For instance,
such access has been approved by the Exchange's Floor Procedure
Committee, permitting qualified equity floor members to apply for
approval as limited registration/floor members on the Phlx.
Accepting orders from non-member, non-broker-dealers constitutes a
public business, such that any person accepting such orders must be
Series 7 registered, pursuant to the proposed language in Rule 604(a).
In addition, Phlx Rule 701, Permission to Deal With Public, requires a
member or member organization to obtain prior approval from the
Exchange's Business Conduct Committee to deal in securities with non-
members of the Exchange or persons not registered as over-the-counter
brokers or dealers. In 1986, the Commission approved the use of the
Series 7 examination by the Phlx to qualify persons seeking
registration as general securities representatives.\2\
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\2\Securities Exchange Act Release No. 23685 (October 6, 1986),
51 FR 36621 (SR-Phlx-86-31).
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At this time, the Exchange seeks to adopt a specific provision in
Rule 604(a) bolstering the requirement for registered representatives
to register as such. A registration requirement for qualified
registered representatives was recently codified into Rule 604(a).\3\
The Phlx now proposes to expressly state that conducting a public
business requires Series 7 registration, adding this missing
requirement to Exchange rules.\4\
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\3\Securities Exchange Act Release No. 32883 (September 14,
1993) (File No. SR-Phlx-93-24).
\4\The Exchange notes that its members who are also NYSE
members, for example, are currently subject to the NYSE's definition
and registration provisions; ``Phlx-only'' members would now be
subject to a corresponding provision.
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In addition to amending Rule 604(a), the Exchange seeks to adopt a
new paragraph (c) of Rule 604 to permit a limited registration for
persons conducting a professional customer business from the Phlx
trading floor. In lieu of full registration as a registered
representative, the proposed limited registration would apply to
accepting orders from professional customers\5\ only, as defined in
proposed Rule 604(c)(i). Limited registration/floor members would be
required to register as such with the Exchange and pass an examination.
This examination, a subset of the Series 7, would be tailored toward
the professional customer business being conducted, testing knowledge
required to conduct such a business. The advantage of such an
examination is that it would cover important topics relevant to
conducting a professional customer business, but not knowledge
particular to conducting a retail business. For example, municipal
securities, although covered on the Series 7, would not be tested on
the proposed new examination, because such securities are not listed on
the Exchange and would not be governed by the proposed rule. The
outline of the information to be covered includes the following topics:
federal and state securities laws; general characteristics of equity
securities and corporate bonds; conduct respecting customer accounts;
primary and secondary securities markets; and order execution,
confirmation, settlement and recordkeeping.
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\5\The proposal would define a professional customer to include
a bank, trust company, insurance company, investment trust, state or
political subdivision thereof, charitable or nonprofit educational
institution regulated under the laws of the United States, or any
state, or pension or profit sharing plan subject to ERISA or of an
agency of the United States or of a state or political subdivision
thereof or any person who has, or has under management, net tangible
assets of at least sixteen million dollars. For purposes of this
definition of professional customer, the term ``person'' shall mean
the same as that term is defined in Rule 20, except that it shall
not include natural persons.
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The proposed rule change is intended to simplify the procedure for
Phlx members to conduct business with non-member, non-broker-dealer
professional customers. The Exchange believes that the new examination
is appropriate, in lieu of the Series 7, because it nevertheless tests
knowledge relevant to conducting a public business. For example, the
rules governing customer accounts, as listed in the examination
outline, would be covered, such that Limited Registration/Floor Members
would be tested for competence regarding excessive trading, approval of
accounts and discretionary transactions.
The Phlx notes that conducting a public business with other than
professional customers as defined in Rule 604(d) would require full
Series 7 registration. In addition, conducting a professional customer
business from off the Phlx trading floor, or in non-Phlx listed issues,
would also require full Series 7 registration. Of course, persons who
are Series 7 registered need not register as Limited Registration/Floor
Members in order to conduct a professional customer business.
2. Statutory Basis
The proposed rule change is consistent with Section 6 of the Act in
general, and in particular, with Section 6(b)(5), in that it is
designed to promote just and equitable principles of trade, remove
impediments to and perfect the mechanism of a free and open market and
a national market system, as well as to protect investors and the
public interest. The examination requirement is intended to protect
investors and the public interest, namely the professional customers
whose orders would be handled by Limited Registration/Floor Members, by
requiring a minimum competence level. The Exchange also believes that
the proposed limited registration requirements should facilitate direct
access to professional customers, which should enhance liquidity in
Exchange-listed securities. This, in turn, should promote just and
equitable principles of trade.
Accordingly, the proposed rule change is also consistent with
Section 6(c)(3)(B) of the Act, which provides that a national
securities exchange may examine and verify the qualifications of an
applicant to become a person associated with a member in accordance
with procedures established by the rules of the exchange, and require
any person associated with a member, or any class of such persons, to
be registered with the exchange in accordance with procedures so
established. Lastly, the Exchange believes that the proposed rule
change is consistent with Section 15(b)(7) in that it is designed to
ensure that a registered broker or dealer, prior to effecting any
transaction in, or inducing the purchase or sale of, any security, meet
certain standards of operational capability, training, experience, or
competence.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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, NW., Washington, DC 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, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the Phlx. All
submissions should refer to File No. SR-Phlx-94-15 and should be
submitted by January 4, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30619 Filed 12-13-94; 8:45 am]
BILLING CODE 8010-01-M
