[Federal Register Volume 59, Number 43 (Friday, March 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5000]
[[Page Unknown]]
[Federal Register: March 4, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33692; File No. SR-Phlx-94-04]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Amending the Net
Capital Requirements in Rule 703
February 28, 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 January
28, 1994, the Philadelphia Stock Exchange (``Phlx'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Phlx. 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 proposes to amend Rule 703 (Financial Responsibility and
Reporting) to correspond to recent Commission amendments to SEC Rule
15c3-1 (``SEC Net Capital Rule'').\1\ Pursuant to these amendments to
the SEC Net Capital Rule, all specialists, except options market
makers, who are currently exempt from the net capital requirements of
Rule 703, will be subject to a minimum net capital requirement of
$100,000.\2\ As a result, the Exchange believes that the amendments to
the SEC Net Capital Rule require the deletion of Phlx Rule 703(a)
(iii), (iv), and (v). Currently Rule 703 (a) (iii), (iv), and (v)
impose a minimum net liquid asset\3\ requirement of $50,000 for equity
specialists, $75,000 for options specialists, and $100,000 for firms
which are both equity and options specialists.
---------------------------------------------------------------------------
\1\See Securities Exchange Act Release No. 32737 (August 11,
1993), 58 FR 43555 (August 17, 1993).
\2\In addition, for certain purposes under the SEC Net Capital
Rule, certain specialists will be exempt from the application of the
rules haircut and undue concentration charges with respect to their
specialty securities. Id.
\3\``Net liquid assets'' is defined in Phlx Rule 703(b).
---------------------------------------------------------------------------
The Exchange also proposes to amend Rule 703 to require each member
organization and participant organization to notify the Exchange if it
fails to maintain the minimum net capital required by the SEC Net
Capital rule or it fails to maintain liquid assets in accordance with
Phlx Rule 703. Specifically, the Exchange is proposing to add a new
paragraph (v) to Phlx Rule 703(a) which would require a member
organization or participant organization to promptly notify the
Exchange if it ceases to be in compliance with the SEC Net Capital Rule
or Phlx Rule 703(a) (iii) or (iv) (i.e., former sections (a)(vi) or
(a)(vii)).
Lastly, the Phlx proposes to amend paragraph (c)(vi) of Rule 703 to
add the requirement that a floor broker's clearing agent guarantee
orders entrusted on the floor with that floor broker, in addition to
transactions and balances carried in the account.
The text of the proposed rule change is available at the Office of
the Secretary, Phlx, 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 to 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
On August 11, 1993, the Commission adopted amendments to its rules
regarding minimum net capital requirements for broker-dealers.
Specifically, the amendments to the SEC Net Capital Rule make all
specialists, except options market makers, that previously were exempt
from this rule under subparagraph (b)(1), subject to the rule. The
amendments to the SEC Net Capital Rule will become effective on April
1, 1994.
The Phlx represents that the amendments to the SEC Net Capital Rule
will have the following effects on Phlx specialists: instead of the
current minimum net liquid assets requirements under Phlx Rule 703(a)
of $50,000 for equity specialists, $75,000 for options specialists, and
$100,000 for firms that act as both equity and options specialists, the
SEC's minimum net capital requirement of $100,000 for dealer's would
apply. As a result, existing paragraphs (iii)-(v) of Phlx Rule 703(a)
are proposed to be deleted. Certain aspects of both the SEC Net Capital
Rule and Rule 703 remain unchanged. Options market makers, who remain
exempt from the net capital rule, continue to be subject to the
financial requirements of Phlx Rule 703. New paragraph (a)(iii), which
was previously paragraph (a)(vi), requires $25,000 in net liquid assets
for market makers without a letter of guarantee; and new paragraph
(a)(iv), which was previously paragraph (a)(vii), requires market
makers with a letter of guarantee issued by a clearing member
organization to maintain positive equity. In addition, Rule 703(a)(ii)
continues to require net liquid assets of $25,000 upon admission.
With respect to the proposed notification requirement, new
paragraph (v) of Rule 703(a) would require notification to the Exchange
if a member organization or participant organization falls below the
net capital requirement of the SEC Net Capital Rule or paragraphs (iii)
or (iv) of Phlx rule 703(a).\4\ Currently, Commission Rule 17a-11
requires, among other things, prompt telegraphic notice to a broker-
dealer's designated examining authority, as well as the SEC, when a
broker-dealer falls below its minimum net capital requirement pursuant
to the SEC Net Capital Rule. This rule does not apply to options market
makers, because they are exempt from the SEC Net Capital Rule. The
Exchange's proposed notification provision would apply to all member
organizations and participant organizations, including options market
makers.
---------------------------------------------------------------------------
\4\A similar rule is in effect at the Chicago Board Options
Exchange, Inc. (``CBOE''). See CBOE Rule 13.2.
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act, in that it is designed to promote just and
equitable principles of trade, to prevent fraudulent and manipulative
acts and practices, and to protect investors and the public interest,
by amending Phlx Rule 703 to correspond to the Commission's recent
amendments to the SEC Net Capital Rule. The Exchange also believes that
the requirement that a floor brokers' clearing agent guarantee orders
entrusted on the floor with that floor broker should promote just and
equitable principles of trade as well as protect investors and the
public interest by promoting liquidity and confidence in the
credibility of floor broker orders, consistent with Section 6(b)(5) of
the Act. In addition, the Exchange believes that the proposed
notification requirement should prevent fraudulent and manipulative
acts and practices and protect investors and the public interest by
providing the Exchange with the ability to respond promptly to such
notification, especially respecting options market makers.
(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
Written comments on the proposed rule change were neither solicited
nor received.
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 self-regulatory organization consents, the Commission will:
(a) By order approve such 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. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, NW.,
Washington, DC. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the File
No. SR-Phlx-94-04 and should be submitted by March 25, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
---------------------------------------------------------------------------
\5\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5000 Filed 3-3-94; 8:45 am]
BILLING CODE 8010-01-M
