[Federal Register Volume 63, Number 177 (Monday, September 14, 1998)]
[Notices]
[Pages 49147-49148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24527]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40406; File No. SR-Phlx-98-22]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.,
Order Approving Proposed Rule Change and Amendment No. 1 Thereto
Relating to Amendments to Phlx Rule 931 Regarding Approved Lessors
September 4, 1998.
I. Introduction
On May 18, 1998, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``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 Phlx Rule 931,
``Approved Lessor.'' On June 8, 1998, the Phlx filed an amendment to
the proposal.\3\ The proposed rule change and Amendment No. 1 were
published for comment in the Federal Register on July 15, 1998.\4\ No
comments were received regarding the proposal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Murray L. Ross, Esq., Vice President and
Secretary, Phlx, to Michael Walinskas, Esq., Deputy Associate
Director, Division of Market Regulation (``Division''), Commission,
dated June 6, 1998 (``Amendment No. 1''). In Amendment No. 1, the
Phlx consent to have the proposed rule change published for notice
and comment and treated pursuant to Section 19(b)(2) of the Act. In
addition, in Amendment No. 1 the Phlx proposes to adopt Commentary
.01 to Phlx Rule 931 which will require approved lessors to update
any Form U-4 (Uniform application for Securities Industry
Registration or Transfer), submitted pursuant to Phlx Rule 931(d),
within thirty days of learning that the information contained in
Form U-4 has become incomplete or inaccurate. Where an amendment to
Form U-4 involves a statutory disqualification as defined in
Sections 3(a)(39) and 15(b)(4) of the Act, Commentary .01 will
require that the amended Form U-4 be submitted not later than ten
days after the statutory disqualification occurs.
\4\ Securities Exchange Act Release No. 40180 (July 8, 1998), 63
FR 38223.
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II. Description of the Proposal
The Phlx proposes to make several amendments to Phlx Rule 931.
First, the Phlx proposes to amend Phlx Rule 931 to substitute the word
``Exchange'' for the word ``corporation'' throughout the rule. Second,
the Phlx proposes to amend Phlx Rule 931(d) to require a lessor who is
a natural person to file with the Exchange an attestation as to the
source of funds used to purchase the membership. Under Phlx Rule
931(d), as amended, an approved lessor who is not a natural person must
file with the Exchange a statement of assets, liabilities and net worth
and (1) if a partnership, an executed partnership agreement along with
executed Form U-4 for all partners who are natural persons; (2) if a
limited liability entity other than a corporation, an executed copy of
the operating agreement along with accompanying Form U-4 for all such
members who are natural persons; or (3) if a corporation, the corporate
articles of incorporation, corporate by-laws, a listing of all
officers, directors and shareholders along with accompanying Form U-4s.
Third, under new Phlx Rule 931(e) each lessor who is not a natural
person is required to submit certain information to the Exchange,
including: (1) as of the last business day of each calendar quarter, a
list of all limited partners if the lessor is a limited partnership; a
membership list if the lessor is a limited liability entity other than
a corporation along with any new subscription agreement; and a
shareholder list if the lessor is a corporation, and (2) any material
change in the corporate or organization's structure within ten days of
the change in the structure.
According to the Phlx, the amended rule codifies existing practices
of the Exchange's Office of the Secretary and Examinations Department
respecting processing of applications for approval as an approved
lessor of the Phlx.\5\ The proposal will allow the Exchange to monitor
any changes in ownership interest respecting the membership or
memberships held by approved lessors.\6\ The proposal will also allow
the Exchange to monitor for any potential statutory disqualifications
respecting shareholders, partners and members of limited liability
entities by requiring the filing of Form U-4 and amendments to Form U-4
for natural persons as well as various corporate, organizational
agreements or partnership interest disclosures for other entities.
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\5\ Upon approval, an approved lessor of the Phlx must sign a
pledge to abide by the constitution, bylaws and rules of the
Exchange. Telephone conversation between Murray L. Ross, Esq., Vice
President and Secretary, Phlx, and Marc McKayle, Attorney, Division,
Commission (August 19, 1998).
\6\ Pursuant to Phlx Rule 17, a lessor leases legal title of his
membership to a lessee while retaining the equitable title.
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III. Discussion
After careful consideration the Commission has determined to
approve the proposed rule change. For the reasons discussed below, 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, with
the requirements of Sections 6(b)(5) and 6(c)(3)(B) of the Act \7\ In
particular, the Commission believes the proposal is consistent with the
Section 6(b)(5) \8\ requirements that the rules of an exchange be
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, to prevent fraudulent and manipulative acts,
and, in general, to protect investors and the public. Section
6(c)(3)(B) \9\ 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.
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\7\ 15 U.S.C. 78f(b)(5) and (c)(3)(B).
\8\ 15 U.S.C. 78f(b)(5).
\9\ 15 U.S.C. 78f(c)(3)(B).
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The Commission believes that the amendments to Phlx Rule 931 will
clarify, as well as codify, existing Exchange policy requiring the
maintenance of current information for persons associated with member
organizations. The proposed rule change should facilitate compliance
with the Phlx's registration requirements and help ensure that all
persons who are or will be affiliated with a member's securities
business are registered with the Phlx. The Commission believes that the
amendments to Phlx Rule 931, which should enable the Exchange to (1)
monitor changes in ownership interest respecting the membership or
memberships held by approved lessors, (2) monitor for any potential
statutory disqualifications respecting shareholders, partners and
members of limited liability entities, and (3) monitor the source of
funds utilized to purchase ownership interests affiliated with the
membership or memberships held by approved lessors, are appropriate
means for the Exchange to ensure the high standard of competence and
integrity required of a person affiliated with a national securities
exchange. The
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Commission also believes that it is appropriate to permit the Exchange
to formulate and administer standards of training, experience,
competence, and such other membership qualifications as the Exchange
may find necessary or appropriate in the public interest or for the
protection of investors, subject to Commission oversight and review.
Finally, the Commission notes that the requirements of new Phlx Rule
931 are consistent with the purpose of, and similar to, Rules 3.5, 3.6,
and 3.9 of the Chicago Board of Options Exchange, and Paragraph 9174 of
the American Stock Exchange (``Amex'') Constitution and Amex Rules 310
and 311.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-Phlx-98-22), as amended, is
approved.
\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland
Deputy Secretary.
[FR Doc. 98-24527 Filed 9-11-98; 8:45 am]
BILLING CODE 8010-01-M
