[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]


-----------------------------------------------------------------------

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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \9\15 U.S.C. 78f(b)(5) (1988).
    \10\See supra note 6.
---------------------------------------------------------------------------

    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).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\17 CFR 200.30-3(a)(12) (1993).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8161 Filed 4-5-94; 8:45 am]
BILLING CODE 8010-01-M