[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: 94-30711]


[[Page Unknown]]

[Federal Register: December 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35060; File No. SR-NYSE-94-31]

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to the 
Reporting by Members and Member Organizations of Decreases in Net 
Capital and Tentative Net Capital

December 7, 1994.
    On September 13, 1994, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') submitted to 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 Rule 325 to require 
members and member organizations to notify the Exchange in the event 
the member's net capital\3\ or tentative net capital\4\ declined below 
certain threshold amounts. On October 27, 1994, the Exchange submitted 
to the Commission Amendment No. 1 to the proposed rule change.\5\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\For purposes of Rule 325, as proposed to be amended, net 
capital is computed in accordance with Rule 15c3-1 under the Act, 17 
CFR 240.15c3-1 (1993). Under Rule 15c3-1, net capital is computed by 
adding to a broker-dealer's net worth, determined in accordance with 
generally accepted accounting principles, certain liabilities 
subordinated to the claims of customers and by deducting from net 
worth assets not readily convertible into cash and certain 
percentages (called ``haircuts'') of the market value of all 
proprietary positions held by the applicable broker-dealer.
    \4\As proposed to be amended, Rule 325 defines ``tentative net 
capital'' as net capital before the application of haircuts and 
undue concentration charges.
    \5\See letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Glen Barrentine, Senior Counsel, SEC, dated 
October 26, 1994. Amendment No. 1 clarified the definition of the 
term ``tentative net capital.'' The amendment also added a reference 
to Rule 15c3-1 under the Act.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 34924 (November 1, 1994), 59 FR 55719 
(November 8, 1994). No comments were received on the proposal.
    Among other matters, the amendments being adopted require all 
members and member organizations that are subject to the Commission's 
net capital rule, Rule 15c3-1 under the Act,\6\ to notify the Exchange 
forthwith if such member's net capital, after deduction of all capital 
withdrawals including maturities, if any, scheduled during the next six 
months, falls below the applicable percentage indicated below:
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    \6\17 CFR 240.15c3-1 (1993).
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    1. If the net capital minimum dollar amount requirement is 
applicable,\7\--150% or such greater percentage as may from time-to-
time be designated by the Exchange;
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    \7\There are two methods that a broker-dealer may use to 
determine its net capital requirement. Under the basic or 
``aggregate indebtedness'' method, a broker-dealer's aggregate 
indebtedness may not exceed 1,500% of its net capital. In addition 
to the percentage requirement and regardless of its aggregate 
indebtedness, a broker-dealer calculating its capital under the 
basic method must maintain a minimum level of net capital based upon 
the nature of its business. A broker-dealer that elects to determine 
its net capital requirement under the ``alternative'' method must 
maintain net capital equal to the greater of 2% of aggregate debit 
items computed in accordance with the Formula for Determination of 
Reserve Requirements for Brokers and Dealers under Exhibit A to Rule 
15c3-3 under the Act, 17 CFR 240.15c3-3a (1933), or $250,000.
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    2. If the ratio of aggregate indebtedness to net capital is 
applicable--10% of aggregate indebtedness; or
    3. If the alternative net capital requirement percentage is 
applicable, the greater of 5% of the aggregate debit items in the 
Formula for Determination of Reserve Requirements for Brokers and 
Dealers under Exhibit A to Rule 15c3-3 under the Act,\8\ or, if the 
broker-dealer is registered as a Futures Commission Merchant, 7% of the 
funds required to be segregated pursuant to the Commodity Exchange Act 
and the regulations thereunder.
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    \8\17 CFR 240.15c3-3a (1933).
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    Additionally, the amendments require all members and member 
organizations to notify the Exchange, in writing, within forty-eight 
hours whenever such member's tentative net capital (net capital before 
application of haircuts and undue concentration charges), as computed 
under the net capital rule, has declined 20% or more from the amount 
reported in the most recent FOCUS Report filed with the Exchange.\9\ 
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    \9\A FOCUS Report is a combined financial and operational report 
on Form X-17A-5 that every registered broker-dealer is required to 
file periodically pursuant to Rule 17a-5 under the Act, 17 CFR 
240.17a-5 (1993).
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    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, including the 
requirements of Section 6(b) of the Act.\10\ In particular, the 
Commission believes the proposal is consistent with the Section 6(b)(5) 
requirements that the rules of an exchange be designed to promote just 
and equitable principles of trade, to prevent fraudulent and 
manipulative acts, and, in general, to protect investors and the 
public.
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    \10\15 U.S.C. 78f(b) (1988).
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    The Commission believes that this rule will protect investors and 
the public interest by providing the NYSE with an early warning of 
potential financial difficulties at members and member organizations 
and by otherwise enhancing the NYSE's ability to monitor the continued 
financial well being of such firms. Moreover, the proposed rule will 
help the NYSE to ensure its members' compliance with the requirements 
of the Commission's net capital rule.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (SR-NYSE-94-31) is approved.

    \11\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\ 
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    \12\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30711 Filed 12-13-94; 8:45 am]
BILLING CODE 8010-01-M