01-18642. Self-Regulatory Organizations; Stock Clearing Corporation of Philadelphia; Notice of Filing of Proposed Rule Change to Increase the Margin Threshold for Margin Members in Certain Nasdaq National Market Securities

July 20, 2001.

Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] notice is hereby given that on April 30, 2001, the Stock Clearing Corporation of Philadelphia (“SCCP”) 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 primarily by SCCP. 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 proposed rule change would implement a margin financing threshold rate of 25 percent for specialist and alternate specialist margin members for certain Nasdaq National Market (“NM”) securities.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, SCCP 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. SCCP has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.^[2]

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

The purpose of the proposed rule change is to implement a higher margin financing threshold rate for Nasdaq NM securities for SCCP margin members,. SCCP Rule 9 provides in part that SCCP will provide margin accounts for margin members that clear and settle their transactions through SCCP's omnibus clearance and settlement account. SCCP provides margin for such accounts based on SCCP's Rule 9 and other relevant SCCP rules, by-laws, and procedures and Regulation T of the Board of Governors of the Federal Reserve System. Currently, margin members who are designated as specialists or alternate specialists in an exchange listed security are extended margin financing at a threshold rate of 15 percent for positions in those securities held in their specialist accounts. Members holding positions for which they are not designated as specialist or alternate specialist are extended a non-specialist margin rate of 50 percent. Pursuant to Rule 9, SCCP may issue margin calls to any margin member when the margin requirement excess the account equity.

SCCP proposed to amend its procedures to specify a margin financing threshold rate of 25 percent shall be extended to specialists and alternate specialists registered in Nasdaq NM securities. It should be noted that the Philadelphia Stock Exchange, Inc. (“Phlx”) has recently proposed to reinstate its over the counter/unlisted trading privileges (“OTC/UTP”) pilot program for trading activity during regular trading hours.^[3] Margin members are expected to be registered in certain of the eligible Nasdaq NM securities once the Phlx receives approval of that proposal and begins trading Nasdaq NM securities again.

As a result, SCCP determined it would be prudent to require a higher margin financing threshold rate of 25 percent for Nasdaq NM securities because the levels of volatility for such securities are still higher than comparable exchange listed securities.^[4] It should be noted that no other aspects of the SCCP procedures respecting Rule 9 are being modified; only the margin financing threshold rate for margin members registered as specialists or alternative specialists in certain Nasdaq NM securities is being established at 25 percent.

SCCP believes that the proposed rule change will help to ensure compliance with SCCP's rules regarding margin and Regulation T. Therefore, SCCP believes that the proposed rule change is consistent with the requirements of Section 17A of the Act and the rules and regulations thereunder. In particular, SCCP believes that the proposed rule change is consistent with section 17A(b)(3)(F) of the Act ^[5] because the proposed higher margin financing threshold rate for Nasdaq securities should serve to protect SCCP, its members, investors, and the public interest.

B. Self-Regulatory Organization Statement on Burden on Competition

SCCP 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

No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule change and Timing for Commission Action

Within thirty-five 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 ninety days of such date if it find such longer period (i) the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reason for so finding or (ii) as to which SCCP 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, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 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 20549. Copies of such filing will also be available for inspection and copying at the principal office of SCCP. All submissions should refer to File No. SR-SCCP-2001-06 and should be submitted by August 16, 2001.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[6]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  The Commission has modified parts of these statements.

3.  Securities Exchange Act Release Nos. 43692 (December 8, 2000), 65 FR 78240 (December 14, 2000) (notice of filing Phlx-00-20) and 44533 (July 10, 2001), 66 FR 37083 (July 16, 2001) (amendment to filing Phlx-00-20).

4.  A recent review of volatility levels for the Nasdaq 100 index and Nasdaq Composite index as compared to the Dow Jones Industrial average and the NYSE Composite index indicated significantly higher volatility levels over 10 day, 20 day, 50 day, and 90 day time periods.

5.  15 U.S.C. 78q-1(b)(3)(F).

6.  17 CFR 200.30-3(a)(12).