[Federal Register Volume 61, Number 72 (Friday, April 12, 1996)]
[Notices]
[Pages 16274-16277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9146]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37067; File No. SR-CHX-96-11]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Inc. Relating to Examinations
April 4, 1996.
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 March 6,
1996, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
the proposed rule change, on March 18, 1996, filed Amendment No. 1 to
the proposed rule change,\1\ and on April 4, 1996, filed Amendment No.
2 to the proposed rule change,\2\ 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
[[Page 16275]]
comments on the proposed rule change from interested persons.
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\1\ See Letter from David T. Rusoff, Foley & Lardner, to Elisa
Metzger, SEC dated March 14, 1996 (``Amendment No. 1'').
\2\ See Letter from Charles R. Haywood, Foley & Lardner, to
Elisa Metzger, SEC dated April 4, 1996 (``Amendment No. 2'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rules 2 and 3 of Article VI (and the
interpretations and policies thereunder) to clarify existing rules,
adopt a new Floor Membership Exam, adopt a new Market Maker Exam, adopt
a new Co-Specialist Exam, and adopt examinations applicable to persons
conducting a customer business from the CHX trading floor. The Exchange
also proposes to adopt the Content Outline for the Examination Module
for Floor Members Engaged in a Public Business with Professional
Customers and the Content Outline for the Examination Module for Floor
Clerks of Members engaged in a Public Business with Professional
Customers (collectively, the ``Content Outline'').\3\
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\3\ The Exchange will use the Series 7A Examination that was
approved in Sec. Exch. Act Release No. 32698 (July 29, 1993), 58 FR
41539 (File No. SR-NYSE-93-10). The Exchange will use the Series 7B
Examination that was approved in Sec. Exch. Act Release No. 34334
(July 8, 1994) 59 FR 35964 (File No. SR-NYSE-94-13). The Series 7A
and 7B Examinations for CHX members will be administered by the
National Association of Securities Dealers, Inc. (``NASD'').
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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 statement 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
CHX Rule 3, Article VI authorizes the Exchange to require the
successful completion of an examination in connection with the
registration of partners, officers, options principals, branch officer
managers and registered representatives of member firms and member
corporations. Pursuant to this Rule, in 1987 the Commission approved
the use of the Series 7 examination by the CHX to qualify persons
seeking registration as general securities representatives. The purpose
of the proposed rule change is to (1) Adopt the requirement that
members located on the floor of the CHX who wish to accept orders
directly from the public must take and pass the Series 7 examination;
(2) allow members located on the floor of the CHX to accept orders
directly from professional investors for execution on the trading floor
without taking the Series 7 exam so long as they take and pass the
Series 7A exam; (3) allow floor clerks/ floor employees to accept
orders from professional customers in support of members or member
organizations previously approved to conduct a public business so long
as they take and pass the Series 7B exam, (4) codify the existing
requirement that all potential floor members successfully complete a
``Floor Membership Exam'' (5) codify the existing requirement that all
potential market makers successfully complete a ``Market Maker Exam''
in addition to the Floor Membership Exam; and (6) codify the existing
requirement that all potential co-specialists successfully complete a
``Co-Specialist'' exam in addition to the Floor Membership Exam, all as
more fully described below.
Series 7
All floor members that accept orders directly from non-broker-
dealer will be deemed to be transacting business with the public. As
such, except as provided below, any person accepting such orders must
successfully complete the Series 7 examination. This requirement is in
proposed interpretation and policy .01(d) to Rule 3 of Article VI of
the CHX Rules.
Series 7A
The level of knowledge, skills and abilities required to perform
the activities engaged in by Exchange members who conduct a public
business that is limited to accepting orders from professional
investors is less than needed to conduct a full service business with
retail customers. As a result, the NYSE has developed the Series 7A
Examination as a module of the General Securities Registered
Representative Examination (``Series 7'') to test the knowledge of
relevant securities laws and Exchange rules required of members who
accept orders from professional customers \4\ for execution on the
trading floor. The CHX proposes to amend its Interpretations and
Policies to Rule 3, Article VI to establish a new limited registration
category for floor members who have successfully completed the Series
7A examination.
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\4\ The proposal defines 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 a political subdivision
thereof; or any person who has, or has under management, net
tangible assets of at least sixteen million dollars. As used in this
definition, the term ``person'' would not include natural persons.
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This new limited registration will simplify the procedure for CHX
members to conduct business with 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 including rules on excessive trading,
approval of accounts and discretionary transactions would be covered by
the new exam.
Conducting a professional customer business from off the CHX
trading floor would still require a full Series 7 registration. Of
course, persons who are Series 7 registered need not take or pass the
Series 7A exam in order to conduct a professional customers business.
Series 7B
The Exchange is adopting the Series 7B examination as a subset of
the Series 7 examination to test the knowledge of relevant securities
laws and Exchange rules required of floor clerks/floor employees of
members who accept public orders only from professional customers for
execution on the trading floor. These orders may only be accepted if
the member with whom the floor clerk/floor employee works has
successfully completed the Series 7 or Series 7A examination. A floor
clerk/floor employee that seeks to deal with customers who are not
professional customers must successfully complete the Series 7
examination. Any person who has successfully completed the Series 7
examination will not be required to complete the Series 7B examination.
Implementation
To minimize any burden imposed by the Series 7, Series 7A and
Series 7B exam requirements, the Exchange will phase-in these new
requirements over a designated period of time after the proposed rule
change has been approved. This will provide persons subject to the exam
with an opportunity to study for and take the new examinations without
unnecessary business disruptions. The phase-in
[[Page 16276]]
period is as follows: (a) Members who were not required to successfully
complete the Series 7 or Series 7A examination prior to approval of
this rule change and floor clerks/floor employees subject to the Series
7B exam will have 180 days from the effective date of this proposed
rule change to take the appropriate exam. In the event the member or
floor clerk/floor employee fails such examination, such member or floor
clerk/floor employee must, nonetheless, successfully complete such
examination within 270 days from the effective date of this proposed
rule change.
Floor Membership Exam
All new applicants for membership on the Exchange that request a
floor presence will be required to successfully complete a revised
Floor Membership Exam. This exam tests basic trading knowledge and
ability and tests familiarity with the Exchange's trading rules.
Market Maker Exam
In order for a member to become qualified as a market maker after
the approval date of this proposed rule change, the member must
successfully complete the revised Floor Membership Examination and the
revised Market Maker Examination. The revised Market Maker Exam tests
the member's understanding of a market maker's duties and obligations.
Co-specialists registered as such are exempt from the Market Maker
Exam, even if they act as a market maker.
Co-Specialist Exam
In order for a member to be qualified as a co-specialist after the
approval date of this proposed rule change, the member must
successfully complete the revised Co-Specialist Exam. A member is
eligible to take the exam if the member has successfully completed the
Floor Membership Exam and has been recognized by the Floor Procedure
Committee as a Member/Relief Specialist under supervision for at least
90 days. Upon passing the Co-Specialist Exam, the co-specialist may
petition the Floor Procedure Committee to be removed from supervision
and to function as a co-specialist.
Registration of Personnel
The proposed rule change also clarifies current Exchange
requirements for registering personnel and makes technical changes to
the registration procedure. The proposed rule change adds a definition
of ``control person'' to Article VI, Rule 2 and specifies that all such
persons at, as well as certain other shareholders of, members and
member organization must be acceptable to the Exchange.\5\
Additionally, the proposed change clarifies that nominees of member
firms must be registered with the Exchange.
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\5\ A ``control person'' is a person with the power, directly or
indirectly, to direct the management or policies of a company
whether through ownership of securities, by contract or otherwise,
and at a minimum, means all directors, general partners or officers
exercising executive responsibility (or having similar status or
functions), all persons directly or indirectly having the right to
vote 10% or more of a class of a voting security or having the power
to sell or direct the sale of 10% or more of a class of voting
securities, or in the case of a partnership, having the right to
receive upon dissolution, as having contributed, 10% or more of the
capital.
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The filing also makes technical changes to Rule 2 of Article VI. In
this regard, the filing changes the term ``Form B/D'' to ``Form BD,''
changes ``Schedule D'' to ``Schedule DRP,'' and changes ``Series VII''
to ``Series 7'' to conform to recent changes in the names of those
forms. In addition, the filing changes the term ``exchange'' to ``self-
regulatory organization'' in order to include within the language of
the rule self-regulatory organizations that do not meet the statutory
definition of ``exchange,'' such as the National Association of
Securities Dealers.\6\ The filing moves Interpretation and Policy. 01,
.02, and .03 from Rue 3 of Article VI to Rule 2 of that Article \7\ and
moves the location of a portion of Interpretation and Policy .02(b) of
Rule 2 relating to options to another location in the same
interpretation. The proposed rule change revises Interpretation and
Policy .01(2) of Rule 2, Article VI to delete the requirement that a
Notice of Acceptance of Registration Form from the NASD be submitted to
the Exchange because this form no longer exists. The proposed rule
change also deletes Interpretation and Policy .01(3) of Rule 2, Article
VI because revised Interpretation and Policy .01 gives the Exchange the
authority to permit firms to submit revised forms directly to any SRO.
Thus, the carve-out for NYSE member firms provided for in this
interpretation is no longer needed.
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\6\ The term ``self-regulatory organization'' is to have the
statutory meaning. See Amendment No. 2.
\7\ In Interpretation and Policy .02, the change from ``would
be'' to ``are'' is a stylistic change intended to make no
substantive alteration in the rule. See Amendment No. 2.
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The proposed rule change also revises Rule 2 of Article VI,
Interpretation and Policy .01 to clarify the procedures to be followed
when registering persons with the Exchange. Specifically, a member firm
that registers persons with the Exchange must submit, among other
things, a completed Form U-4 for such individual to the Exchange (or to
another SRO designated by the Exchange). The member firm must also
submit an amended Form BD for the firm if the individual's registration
requires the Form BD to be amended. Additionally, the member firm must
update its Form BD and Form U-4s whenever information on those Forms
becomes inaccurate or incomplete.
Finally the filing proposes to amend Rule 3 of Article VI to
clarify that the examinations and training courses required by the rule
apply to individual members as well as persons at member firms and
member organizations.
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 requirements are intended to protect
investors and the public interest.
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. Finally, the Exchange also 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.
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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 form 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, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the CHX. All
submissions should refer to File No. SR-CHX-96-11 and should be
submitted by May 3, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9146 Filed 4-11-96; 8:45 am]
BILLING CODE 8010-01-M
