[Federal Register Volume 59, Number 239 (Wednesday, December 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30619]


[[Page Unknown]]

[Federal Register: December 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35055; File No. SR-Phlx-94-15]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Adopting a Limited 
Registration/Floor Member Registration Status and the Use of the Series 
7A Examination

December 7, 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 October 
3, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the self-
regulatory organization. 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, pursuant to Rule 19b-4 of the Act, proposes to amend Rule 
604, Registration and Termination of Registered Representatives, to 
adopt a limited registration provision applicable to persons conducting 
a professional customer business from the Phlx trading floor. The 
Exchange also proposes to adopt a requirement that persons conducting 
functions customarily performed by a registered representative must 
register and be qualified pursuant to Phlx Rule 604.
    The limited registration provision would require registration with 
the Exchange as a Limited Registration/Floor Member and completion of 
an examination, in lieu of registration as a Registered Representative 
and completion of the General Securities Registered Representative 
Examination (``Series 7''). The Exchange also proposes to adopt the 
Content Outline for the Examination Module for Floor Members Engaged in 
Public Business with Professional Customers.\1\
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    \1\The Exchange will use the Series 7A Examination that was 
approved in SR-NYSE-93-10 (Securities Exchange Act Release No. 32698 
(July 29, 1993), 58 FR 41539). The Series 7A Examination for Phlx 
members will be administered by the New York Stock Exchange, Inc. 
(``NYSE''). Telephone conversation between Edith Hallahan, Special 
Counsel, Regulatory Services, Phlx and Elisa Metzger, Senior 
Counsel, Office of Market Supervision, Division of Market 
Regulation, SEC, on December 5, 1994.
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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 self-regulatory organization 
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. The self-regulatory organization 
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

1. Purpose
    Access to the trading floor of the Exchange is available in 
different forms, including direct floor presence through Exchange 
membership, direct access through participation in automatic order 
routing systems, and indirect access through floor members via 
telephone. Direct access also refers to a telephone line that rings 
automatically to one location once the headset is lifted, as 
distinguished from speed-dialing capabilities. Direct access to the 
Exchange's trading floor is governed by Phlx Rule 606, which requires 
approval by the appropriate floor standing committee. For instance, 
such access has been approved by the Exchange's Floor Procedure 
Committee, permitting qualified equity floor members to apply for 
approval as limited registration/floor members on the Phlx.
    Accepting orders from non-member, non-broker-dealers constitutes a 
public business, such that any person accepting such orders must be 
Series 7 registered, pursuant to the proposed language in Rule 604(a). 
In addition, Phlx Rule 701, Permission to Deal With Public, requires a 
member or member organization to obtain prior approval from the 
Exchange's Business Conduct Committee to deal in securities with non-
members of the Exchange or persons not registered as over-the-counter 
brokers or dealers. In 1986, the Commission approved the use of the 
Series 7 examination by the Phlx to qualify persons seeking 
registration as general securities representatives.\2\
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    \2\Securities Exchange Act Release No. 23685 (October 6, 1986), 
51 FR 36621 (SR-Phlx-86-31).
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    At this time, the Exchange seeks to adopt a specific provision in 
Rule 604(a) bolstering the requirement for registered representatives 
to register as such. A registration requirement for qualified 
registered representatives was recently codified into Rule 604(a).\3\ 
The Phlx now proposes to expressly state that conducting a public 
business requires Series 7 registration, adding this missing 
requirement to Exchange rules.\4\
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    \3\Securities Exchange Act Release No. 32883 (September 14, 
1993) (File No. SR-Phlx-93-24).
    \4\The Exchange notes that its members who are also NYSE 
members, for example, are currently subject to the NYSE's definition 
and registration provisions; ``Phlx-only'' members would now be 
subject to a corresponding provision.
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    In addition to amending Rule 604(a), the Exchange seeks to adopt a 
new paragraph (c) of Rule 604 to permit a limited registration for 
persons conducting a professional customer business from the Phlx 
trading floor. In lieu of full registration as a registered 
representative, the proposed limited registration would apply to 
accepting orders from professional customers\5\ only, as defined in 
proposed Rule 604(c)(i). Limited registration/floor members would be 
required to register as such with the Exchange and pass an examination. 
This examination, a subset of the Series 7, would be tailored toward 
the professional customer business being conducted, testing knowledge 
required to conduct such a business. The advantage of such an 
examination is that it would cover important topics relevant to 
conducting a professional customer business, but not knowledge 
particular to conducting a retail business. For example, municipal 
securities, although covered on the Series 7, would not be tested on 
the proposed new examination, because such securities are not listed on 
the Exchange and would not be governed by the proposed rule. The 
outline of the information to be covered includes the following topics: 
federal and state securities laws; general characteristics of equity 
securities and corporate bonds; conduct respecting customer accounts; 
primary and secondary securities markets; and order execution, 
confirmation, settlement and recordkeeping.
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    \5\The proposal would define a professional customer to include 
a bank, trust company, insurance company, investment trust, state or 
political subdivision thereof, charitable or nonprofit educational 
institution regulated under the laws of the United States, or any 
state, or pension or profit sharing plan subject to ERISA or of an 
agency of the United States or of a state or political subdivision 
thereof or any person who has, or has under management, net tangible 
assets of at least sixteen million dollars. For purposes of this 
definition of professional customer, the term ``person'' shall mean 
the same as that term is defined in Rule 20, except that it shall 
not include natural persons.
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    The proposed rule change is intended to simplify the procedure for 
Phlx members to conduct business with non-member, non-broker-dealer 
professional customers. The Exchange believes that the new examination 
is appropriate, in lieu of the Series 7, because it nevertheless tests 
knowledge relevant to conducting a public business. For example, the 
rules governing customer accounts, as listed in the examination 
outline, would be covered, such that Limited Registration/Floor Members 
would be tested for competence regarding excessive trading, approval of 
accounts and discretionary transactions.
    The Phlx notes that conducting a public business with other than 
professional customers as defined in Rule 604(d) would require full 
Series 7 registration. In addition, conducting a professional customer 
business from off the Phlx trading floor, or in non-Phlx listed issues, 
would also require full Series 7 registration. Of course, persons who 
are Series 7 registered need not register as Limited Registration/Floor 
Members in order to conduct a professional customer business.
2. Statutory Basis
    The proposed rule change is consistent with Section 6 of the Act in 
general, and in particular, with Section 6(b)(5), in that it is 
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, as well as to protect investors and the 
public interest. The examination requirement is intended to protect 
investors and the public interest, namely the professional customers 
whose orders would be handled by Limited Registration/Floor Members, by 
requiring a minimum competence level. The Exchange also believes that 
the proposed limited registration requirements should facilitate direct 
access to professional customers, which should enhance liquidity in 
Exchange-listed securities. This, in turn, should promote just and 
equitable principles of trade.
    Accordingly, the proposed rule change is also consistent with 
Section 6(c)(3)(B) of the Act, which 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. Lastly, the Exchange believes that the proposed rule 
change is consistent with Section 15(b)(7) in that it is designed to 
ensure that a registered broker or dealer, prior to effecting any 
transaction in, or inducing the purchase or sale of, any security, meet 
certain standards of operational capability, training, experience, or 
competence.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 35 days of the publication of this notice in the Federal 
Register or within such other 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 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. 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. Sec. 552, will be available for inspection and copying at 
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 the Phlx. All 
submissions should refer to File No. SR-Phlx-94-15 and should be 
submitted by January 4, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30619 Filed 12-13-94; 8:45 am]
BILLING CODE 8010-01-M