[Federal Register Volume 63, Number 233 (Friday, December 4, 1998)]
[Notices]
[Pages 67164-67165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32327]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40710; File No. SR-PCX-97-49]
Self-Regulatory Organizations; Notice of Filing of Amendment No.
1 to Proposed Rule Change by the Pacific Exchange, Inc. Relating to
Capital and Margin Requirements for Joint Back Office Arrangements
November 25, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 8, 1998, the Pacific Exchange, Inc. (``Exchange'' or
``PCX'') filed with the Securities and Exchange Commission
(``Commission'') Amendment No. 1 to the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on Amendment No. 1 to the proposed rule change from interested
persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange seeks to amend its proposed rule change regarding
Joint Back Office (``JBO'') arrangements to: (i) reduce the net capital
requirements for certain member organizations carrying and clearing, or
carrying JBO accounts from $10 million to $7 million; (ii) add
notification requirements for JBO clearing firms in the event their
tentative net capital or net capital fall below prescribed levels; and
(iii) require member organizations carrying JBO accounts to margin such
accounts in accordance with customer margin requirements if the JBO
participants fail to maintain minimum liquidating equity of $1 million
in their JBO accounts for more than five business days.
The text of the proposed rule change, as amended, is available at
the Office of the Secretary, the Exchange, 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 Exchange 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 Exchange 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
a. Background. On December 18, 1997, the Exchange filed with the
Commission a proposal establishing margin and net capital requirements
for member organizations that carry and clear, or carry JBO accounts.
Notice of the Exchange's proposal was issued on February 18, 1998.\3\
Under the proposal, a member organization that carries and clears, or
carries JBO accounts would be required to maintain minimum tentative
net capital of $25 million, except that a member organization whose
primary business consisted of the clearance of options market-maker
accounts could carry JBO accounts provided that it maintained minimum
net capital of $10 million.
---------------------------------------------------------------------------
\3\ See Securities Exchange Act Release No. 39680 (Feb. 18,
1998), 63 FR 9622 (Feb. 25, 1998).
---------------------------------------------------------------------------
The Exchange notes that its JBO rule filing is similar to the JBO
rule filings submitted to the Commission by the New York Stock Exchange
(``NYSE'') and the Chicago Board Options Exchange (``CBOE'').\4\ The
NYSE and CBOE recently submitted amendments to their JBO rule filings
which propose to reduce the capital requirements for JBO clearing firms
from $10 million to $7 million; add notification requirements for JBO
clearing firms in the event their tentative net capital or net capital
falls below prescribed levels; and require the application of customer
margin requirements to JBO participants if such participants do not
maintain
[[Page 67165]]
sufficient equity in their JBO accounts.\5\ Amendment No. 1 to the
Exchange's proposal is consistent with these revisions proposed by the
NYSE and CBOE.
---------------------------------------------------------------------------
\4\ The NYSE's JBO filing, SR-NYSE-97-28, was filed with the
Commission on October 2, 1997, and notice of its filing was issued
on December 29, 1997. See Securities Exchange Act Release No. 39497
(Dec. 29, 1997), 63 FR 899 (Jan. 7, 1998). The CBOE's JBO filing,
SR-CBOE-97-58, was filed with the Commission on October 27, 1997,
and notice of its filing was issued on December 10, 1997. See
Securities Exchange Act Release No. 39418 (Dec. 10, 1997), 62 FR
66154 (Dec. 17, 1997).
\5\ The NYSE filed Amendment No. 1 to its JBO filing on May 21,
1998, and Amendment No. 2 on September 28, 1998. Notice of Amendment
Nos. 1 and 2 was issued on November 25, 1998. See Securities
Exchange Act Release No. 40709 (Nov. 25, 1998). The CBOE filed
Amendment No. 1 to its JBO filing on July 27, 1998. Notice of
Amendment No. 1 was issued on November 25, 1998. See Securities
Exchange Act Release No. 40708 (Nov. 25, 1998).
---------------------------------------------------------------------------
b. Amendment No. 1. The Exchange seeks to amend its JBO rule filing
to allow a member organization to carry and clear, or carry JBO
accounts provided that the member organization's net capital, as
computed pursuant to Exchange Act Rule 15c3-1,\6\ does not fall below
$7 million for a period in excess of three consecutive business days.
This revision modifies the Exchange's original proposal which required
a carrying and clearing, or carrying member organization to maintain
minimum net capital of $10 million.
---------------------------------------------------------------------------
\6\ The Commission's net capital rule, ``Net Capital
Requirements for Brokers or Dealers,'' is designated as Commission
Rule 15c3-1. See 17 CFR 240.15c3-1.
---------------------------------------------------------------------------
The Exchange further proposes to require JBO clearing members to
provide immediate telegraphic or facsimile notice to the Exchange if
the clearing member determines that its tentative net capital or net
capital has fallen below the prescribed levels. In addition, such
clearing member will be subject to the prohibitions against withdrawal
of equity capital set forth in Exchange Act Rule 15c3-1(e), and must
observe the prohibitions against reduction, prepayment, and repayment
of subordination agreements set forth in Exchange Act Rule 15c3-1d(b),
as if such member's net capital were below the minimum standards
specified by each of those sections.
Finally, the Exchange proposes to require carrying member
organizations to margin JBO accounts in accordance with the customer
margin requirements of Regulation T \7\ when such JBO accounts lack
sufficient minimum liquidating equity (i.e., $1 million) for a period
of more than five business days.
---------------------------------------------------------------------------
\7\ Regulation T is entitled ``Credit by Brokers and Dealers''
and was issued by the Board of Governors of the Federal Reserve
System pursuant to the Act. See 12 CFR 220.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change, as amended, is
consistent with Section 6(b) of the Act,\8\ in general, and further,
the objectives of Section 6(b)(5),\9\ in particular, in that it is
designed to perfect the mechanisms of a free and open market, and to
protect investors and the public interest.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78F(B).
\9\ 15 U.S.C. 78F(B)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will not 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 did not solicit or receive written comments with
respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of 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 Exchange 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 Amendment No. 1, including whether the proposed
rule change, as modified by Amendment No. 1, is consistent with the
Act. 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 submissions, 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 persons, 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 Pubic
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-PCX-97-49 and should be submitted by December 28, 1998.
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\10\
---------------------------------------------------------------------------
\10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-32327 Filed 12-3-98; 8:45 am]
BILLING CODE 8010-01-M
