[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]


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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.
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    \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).
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    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.
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    \4\A similar rule is in effect at the Chicago Board Options 
Exchange, Inc. (``CBOE''). See CBOE Rule 13.2.
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    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\
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    \5\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-5000 Filed 3-3-94; 8:45 am]
BILLING CODE 8010-01-M