[Federal Register Volume 60, Number 18 (Friday, January 27, 1995)]
[Notices]
[Pages 5449-5450]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2074]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35258; File No. SR-Phlx-94-15]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Limited 
Registration/Floor Member Registration Status and the Use of the Series 
7A Examination

January 20, 1995.
    On October 3, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
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 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 and to adopt the Content 
Outline for the Examination Module for Floor Members Engaged in Public 
Business with Professional Customers (``Content Outline''). 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.

    \1\15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
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    The proposed rule changes were published for comment in Securities 
Exchange Act Release No. 35055 (December 7, 1994), 59 FR 64452 
(December 14, 1994). No comments were received on the proposals. This 
order approves the proposed rule changes.

I. Proposal

    Phlx Rule 604, Registration and Termination of Registered 
Representatives, currently requires every registered representative of 
a member or participant organization to be registered with and approved 
by the Phlx. The Phlx proposes to amend Rule 604 to clarify that not 
only registered representatives, but also persons conducting functions 
customarily performed by a registered representative must register and 
be qualified pursuant to Phlx Rule 604.\3\ The Exchange seeks to 
clarify this requirement by adopting a specific provision in Rule 
604(a) which would expressly state that conducting a public business 
requires registration pursuant to the General Securities Registered 
Representative (``Series 7'') Examination.\4\

    \3\The Exchange notes that its members who are also NYSE 
members, for example, are currently subject to the NYSE's 
registration provisions; ``Phlx-only'' members would now be subject 
to a corresponding provision.
    \4\The Series 7 Examination is an industry-wide qualification 
examination for persons seeking registration as general securities 
representatives. The Commission recently approved a proposed rule 
change that updated the Series 7 Examination. Securities Exchange 
Act Release No. 34853 (October 18, 1994), 59 FR 53694.
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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 only, as defined in 
proposed Rule 604(c)(i).\5\ Limited registration/floor members would be 
required to register as such with the Exchange and pass an 
examination.\6\ This examination, a subset of the Series 7 Examination, 
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. The Content 
Outline details the topics contained in the examination: 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.

    \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 Phlx Rule 20, except that it 
shall not include natural persons.
    \6\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. Discussion

    The Commission finds that the proposed rule changes are 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\ Section 6(b)(5) requires, among other things, that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest. Section 
6(c)(3)(B) 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.

    \7\15 U.S.C. Sec. 78f(b)(5) and (c)(3)(B) (1988).
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    The Commission also believes that the proposed rule changes are 
consistent with Section 15(b)(7) of the Act\8\ which stipulates that 
prior to effecting any transaction in, or inducing the purchase or sale 
of, any security, a registered broker or dealer must meet certain 
standards of operational capability, and that such broker or dealer 
(and all natural persons associated with such broker or dealer) must 
meet certain standards of training, experience, competence, and such 
other qualifications as the Commission finds necessary or appropriate 
in the public interest or for the protection of investors.

    \8\15 U.S.C. Sec. 78o(b)(7) (1988).
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    The Commission also believes that the amendment to Rule 604(a) will 
clarify [[Page 5450]] and put all persons on notice that any person who 
conducts a public business is required to be registered and qualified 
as a registered representative. Such registration would require, among 
other things, that a person complete the Series 7 examination, as 
described in rule 604(a)(ii).
    The Commission believes that the Series 7A Examination requirement 
should help to ensure that only those floor members with a 
comprehensive knowledge of Exchange rules, as well as an understanding 
of the Act, will be able to conduct a public business limited to 
accepting orders directly from professional customers for execution on 
the trading floor. The Commission has determined that the Content 
Outline for the Series 7A Examination is sufficiently detailed and 
covers the appropriate information so as to provide an adequate basis 
for studying the topics covered on the examination. This outline should 
help to ensure that those persons taking the Series 7A Examination 
fully understand the subject matter of the examination.
    Finally, the Commission believes that the proposed limited 
registration requirement for floor members engaged in a public business 
with professional customers is reasonable and is consistent with the 
requirements of Sections 6(b)(5) and 6(c)(3)(B) of the Act. This new 
category of registration would permit only those floor members who have 
demonstrated adequate skills and knowledge to conduct a public business 
which is generally limited to accepting orders directly from 
professional customers, as defined in the rule,\9\ for execution on the 
trading floor. The Phlx has argued that the level of knowledge, skills 
and abilities necessary to conduct such business is less than that 
needed to conduct a full service business with retail customers. The 
Commission believes that, because the Phlx will ensure that floor 
members handling professional customer business are adequately 
qualified through the use of either the Series 7 or Series 7A 
Examination, it is consistent with the Phlx's regulatory 
responsibilities to establish this category of limited registration.

    \9\See supra note 5.
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-Phlx-94-15) is approved.

    \10\15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\

    \11\17 CFR 200.30-3(a)(12) (1991).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-2074 Filed 1-26-95; 8:45 am]
BILLING CODE 8010-01-M