[Federal Register Volume 59, Number 66 (Wednesday, April 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8161]
[[Page Unknown]]
[Federal Register: April 6, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33838; File No. SR-Phlx-94-04]
Self-Regulatory Organizations; Order Granting Accelerated
Approval and Notice of Filing and Order Granting Accelerated Approval
of Amendment Nos. 1 and 2 to a Proposed Rule Change by the Philadelphia
Stock Exchange, Inc., Amending the Net Capital Requirements in Phlx
Rule 703
March 30, 1994.
On January 28, 1994, the Philadelphia Stock Exchange, Inc.
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend Rule 703 (Financial
Responsibility and Reporting) to correspond to recent Commission
amendments to SEC Rule 15c3-1 (``SEC Net Capital Rule'').\3\ Notice of
the proposed rule change appeared in the Federal Register on March 4,
1994.\4\ No comment letters were received on the proposed rule change.
The Exchange subsequently filed Amendment Nos. 1 and 2 to the proposed
rule change.\5\ This order approves the Exchange's proposal, as
amended.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1992).
\3\These amendments go into effect on April 1, 1994. See
Securities Exchange Act Release No. 32737 (August 11, 1993), 58 FR
43555 (August 17, 1993) (``Exchange Act Release No. 32737'').
\4\See Securities Exchange Act Release No. 33692 (February 28,
1994), 59 FR 10447 (March 4, 1994).
\5\Amendment No. 1 to the proposal (1) added the phrase
``foreign currency option'' before ``participant organization'' in
proposed Rule 703(a)(v), and (2) deleted the word ``tentative''
before the phrase ``net capital'' in proposed Rule 703(c)(ii)(A).
Amendment No. 1 also clarified that the proposed rule change does
not alter the Exchange's current net capital requirements applicable
to Registered Options Traders (``ROTs''). See Letter from Gerald
O'Connell, Vice President, Market Surveillance, Phlx, to Sharon
Lawson, Assistant Director, Office of Derivatives and Equity
Regulation, Division of Market Regulation, Commission, dated March
1, 1994 (``Amendment No. 1''). Amendment No. 2 requests accelerated
approval of the proposed rule change. See Letter from Edith
Hallahan, Special Counsel, Regulatory Services, Phlx, to Sharon
Lawson, Assistant Director, Office of Derivatives and Equity
Regulation, Division of Market Regulation, Commission, dated March
11, 1994.
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Pursuant to the amendments to the SEC Net Capital Rule, all
specialists, except options market makers,\6\ who are currently exempt
from the net capital requirements of Rule 703, will be subject to a
minimum net capital requirement of $100,000.\7\ As a result, the
Exchange believes that these amendments 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\8\ requirement of $50,000 for
equity specialists, $75,000 for options specialists, and $100,000 for
firms which are both equity and options specialists.
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\6\Phlx ROTs qualify as options market makers that are exempt
from the SEC Net Capital Rule. ROTs, however, are, and will continue
to be, subject to a minimum net capital requirement of $25,000
pursuant to Phlx Rule 703. See Amendment No. 1, supra note 5.
\7\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. See Exchange Act Release No. 32737, supra note
3.
\8\``Net liquid assets'' is defined in Phlx Rule 703(b).
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The Exchange also proposes to amend Rule 703 to require each member
organization and participant organization, including each ROT, 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 foreign currency option 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 Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, the requirements of Section 6(b)(5),\9\ in that the
proposal 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. Specifically, the amendments
to the SEC Net Capital Rule make all specialists, except options market
makers, that previously were exempt from the SEC Net Capital Rule under
subparagraph (b)(1), subject to the rule. The amendments to the SEC Net
Capital Rule, therefore, 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.\10\ The Commission
finds that the proposal will conform Rule 703 to the SEC Net Capital
Rule, as amended, and is therefore consistent with the Act.
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\9\15 U.S.C. 78f(b)(5) (1988).
\10\See supra note 6.
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The Commission believes that the notification portion of the
proposed rule change may 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. 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. As a result, the Commission finds that the proposed
notification provision is consistent with the Act, in general, and with
SEC Rule 17a-11, in particular.
Finally, the Commission finds that the proposed requirement that a
floor broker's clearing agent guarantee orders entrusted on the floor
with that floor broker may serve to 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.
The Commission finds good cause for approving the proposed rule
change and Amendment Nos. 1 and 2 to the proposed rule change prior to
the thirtieth day after the date of publication of notice of filing
thereof in the Federal Register in order to ensure that the amendments
to Rule 703 are in place prior to the April 1, 1994, effective date of
the Commission's amendments to the SEC Net Capital Rule. The Commission
believes that by granting accelerated approval, the potential for any
confusion between the current net capital standards provided in Rule
703 and those that will apply on April 1, 1994, pursuant to the SEC Net
Capital Rule, will be adequately minimized. Finally, the original
proposal was published for the full 21-day comment period and no
comments were received, and Amendment Nos. 1 and 2 are simply
clarifications of the original proposal. As a result, the Commission
finds good cause for accelerating approval of the proposed rule change
and Amendment Nos. 1 and 2 to the proposed rule change.
Interested persons are invited to submit written data, views and
arguments concerning Amendment Nos. 1 and 2. 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 April 27, 1994.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-Phlx-94-04), as amended, is
hereby approved on an accelerated basis.
\11\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8161 Filed 4-5-94; 8:45 am]
BILLING CODE 8010-01-M
