[Federal Register Volume 62, Number 244 (Friday, December 19, 1997)]
[Notices]
[Pages 66709-66711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33195]
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SECURITIES AND EXCHANGE COMMISSION
Release No. 34-39445; File No. SR-PHLX-97-59
Self-Regulatory Organizations; Philadelphia Stock Exchange,
Incorporated, Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change Relating to the Decision to Limit its
Clearance and Settlement Business and to Withdraw From the Securities
Depository Business
December 11, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 14, 1997, the
Philadelphia Stock Exchange, Incorporated, (``PHLX'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change (File No. SR-PHLX-97-59) as described in Items I and II below,
which items have been primarily prepared by PHLX. The Commission is
publishing this notice and order to solicit comments from interested
parties and to grant accelerated approval of the proposal.
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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 Proposal Rule Change
The proposed rule change will allow PHLX to limit its clearing
services and to stop providing depository services that it currently
operates through its wholly owned subsidiaries, Stock Clearing
Corporation of Philadelphia (``SCCP'') and Philadelphia Depository
Trust Company (``Philadep''), respectively, in order to focus its
resources on the operation of the exchange. PHLX has entered into an
agreement with SCCP, Philadep, The Depository Trust Company (``DTC''),
and the National Securities Clearing Corporation (``NSCC''), dated June
18, 1997, that set forth the arrangements relating to PHLX's decision
(``Agreement'').\2\
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\2\ SCCP, Philadep, DTC, and NSCC have submitted rule filings
relating to the Agreement which are being addressed in a separate
order. Securities Exchange Act Release Nos. 39220 (October 8, 1997,
62 FR 53848 (October 16, 1997) [File No. SR-NSCC-97-08]; 39221
(October 8, 1997), 62 FR 53680 (October 15, 1997), [File No. SR-
Philadep-97-04]; 39222 (October 8, 1997), 62 FR 53847 62 FR 53847
(October 16, 1997) [File No. SR-DTC-97-16]; and 39223; (October 8,
1997), 62 FR 53681 (October 15, 1997) [File No. SR-SCCP-97-04].
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[[Page 66710]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for the Proposed Rule Change
In its filing with the Commission, PHLX included statements
concerning the purpose of, and the basis for, the proposed rule change
and discussed any comments it received on the proposed rule change. The
text of these statements have been examined at the places specified in
Item IV below. PHLX has prepared summaries, as set forth in sections A,
B, and C below, of the most significant aspects of these statements.\3\
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\3\ The Commission has modified the text of the summaries
prepared by PHLX.
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A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
PHLX seeks to limit its clearance and settlement business and to
close its securities depository business offered through its wholly
owned subsidiaries, SCCP and Philadep, respectively, in order to focus
its resources on the operations of the Exchange itself and to settle an
administrative proceeding initiated against SCCP and Philadep by the
Commission.\4\ The purpose of the Agreement is to enable PHLX, SCCP,
and Philadep to achieve this objective while affording participants of
SCCP and Philadep the opportunity to become participants of NSCC or
DTC, respectively, or to utilize the services of other clearing and
depository service providers.
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\4\ Securities Exchange Act Release No. 38918 (August 11, 1997)
(Administrative Proceeding File No. 3-9360).
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Under the Agreement, for a period of five years PHLX, Philadep, and
SCCP may not engage in the clearance and settlement and securities
depository businesses. However under the Agreement, SCCP will be
permitted to offer certain clearing services to PHLX members. In this
regard, SCCP has proposed in a separate filing to amend its rules to
restrict participation in SCCP to PHLX members.\5\ SCCP will provide
margin accounts to certain PHLX floor members and will settle their
transactions through a SCCP sponsored omnibus account at NSCC. The PHLX
will guarantee to NSCC all liabilities and obligations arising in
connection with the SCCP omnibus account, including any such
liabilities which may arise as a result of NSCC sponsoring a SCCP
account at DTC. Such guarantee shall be signed in a form satisfactory
to NSCC.
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\5\ Securities Exchange Act Release No. 39223 (October 8, 1997),
62 FR 53681. Pursuant to the Agreement, SCCP shall no longer open or
maintain Continuous Net Settlement (``CNS'') account for its
participants. SCCP may only continue to offer clearing and margin
services to: (i) PHLX equity specialists for their specialist and
alternate specialist transactions, and for their proprietary
transactions in securities for which they are not appointed as
specialists or alternate specialists and (ii) those PHLX members
listed on schedule who are not PHLX equity specialists for their
proprietary transactions. SCCP may add other PHLX members to such
schedule subject to NSCC's approval.
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PHLX, SCCP, and Philadep will cooperate with NSCC and DTC in
assuring an orderly transition regarding PHLX's limiting its clearance
and settlement services and withdrawal from the securities depository
business. In this regard, NSCC will offer sole SCCP participants an
opportunity to become NSCC participants if they meet NSCC's
qualifications and desire to become NSCC members. Moreover, PHLX and
Philadep will assist DTC and sole Philadep participants in having the
latter become DTC participants if they meet DTC qualifications and
desire to become a DTC participant. The parties will cooperate to
effect the orderly transfer of securities positions and securities from
SCCP to NSCC and from the custody of Philadep to the custody of DTC.
PHLX believes that the proposed rule change is consistent with
Section 6(b)(5) of the Act \6\ insofar as it will enable PHLX to
concentrate its efforts on its core business, the exchange. Thus, PHLX
believes that this proposal promotes just and equitable principles of
trade, remove impediments to, and perfects the mechanism of a free and
open market and a national market system, and, in general, protects the
investors and public interest. In addition, PHLX believes that the
proposal will foster cooperation and coordination with persons engaged
in clearing and settlement of securities transactions.
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\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
PHLX believes that the proposed rule change will not impose an
impermissible burden on competition as contemplated by the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received with respect
to the proposed rule change.\7\
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\7\ The Commission received one comment letter, which pertained
to DTC and NSCC, expressing concern that PHLX's decision to withdraw
from the clearance and settlement business reduced competition in
the market. The comment letter was from P. Howard Edelstein,
President, Electronic Settlement Group, Thomson Financial Services,
Inc. (November 4, 1997). DTC responded to the Comment letter in a
letter from Richard S. Nesson, Executive Vice President and General
Counsel (November 14, 1997).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Section 6(b)(5) of the Act \8\ requires, among other things, that
the rules of an exchange be designed to prevent further fraudulent and
manipulative acts and practices, to promote just and equitable
principals of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, setting, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general to
protect investors and the public interest. The Commission believes that
PHLX's proposed rule change is consistent with Section 6(b)(5) of the
Act in that it will enable PHLX to focus its resources and efforts on
implementing a more viable and profitable long-term strategy for its
core business, the exchange, and to settle the administrative
proceeding initiated against SCCP and Philadep by the Commission.\9\
The Commission anticipates that the proceeds of the proposed
transaction also will help provide liquidity for the operations of the
exchange and that the transaction will allow PHLX to avoid significant
future capital expenditures for the businesses of SCCP and Philadep.
Consequently, the Commission believes that the proposal should help
promote just and equitable principles of trade, remove impediments and
perfect the mechanism of a free and open market and a national market
system, and in general, protect investors and the public interest.\10\
In addition, the Commission believes the proposal provides for an
orderly closing of services by SCCP and Philadep and an orderly
transition for participants to other clearing and depository service
providers. Thus, the proposal fosters cooperation and coordination with
persons engaged in the clearance and settlement of securities
transactions.
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\8\ 15 U.S.C. 78f(b)(5).
\9\ Securities Exchange Act Release No. 38918 (August 11, 1997)
(Administrative Proceeding File No. 3-9360).
\10\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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PHLX has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after
[[Page 66711]]
publication of the notice of filing. The Commission finds good cause
for approving the proposed rule change prior to the thirtieth day after
publication of the notice of the filing because by so approving PHLX
will be able to close on the Agreement and move forward on its plans to
limit its clearance and settlement services and withdraw from the
securities depository business.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making such 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. 552, will be available for inspection and copying in 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 PHLX. All
submissions should refer to the File No. SR-PHLX-97-59 and should be
submitted by January 9, 1998.
It is therefore Ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-PHLX-97-59) be and hereby is
approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3 (a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33195 Filed 12-18-97; 8:45 am]
BILLING CODE 8010-01-M
