[Federal Register Volume 60, Number 226 (Friday, November 24, 1995)]
[Notices]
[Pages 58126-58128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28622]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36482; File No. SR-PHLX-95-73]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to New 
Organizational Structures for Members

November 14, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 


[[Page 58127]]
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October 
4, 1995, the Philadelphia Stock Exchange, Inc. (``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 self-regulatory 
organization. On October 11, 1995, the Exchange submitted to the 
Commission Amendment No. 1 to the proposed rule change,\1\ and on 
November 1, 1995, the Exchange submitted Amendment No. 2 to the 
proposed rule change.\2\ The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.

    \1\ See Letter from Murray L. Ross, Secretary, Phlx, to Glen 
Barrentine, Senior Counsel, SEC, dated October 2, 1995. Amendment 
No. 1 renumbered the rule filing.
    \2\ See Letter from Murray L. Ross, Secretary, Phlx, to Glen 
Barrentine, Senior Counsel, SEC, dated October 25, 1995. See infra 
notes 6 and 7 for a description of Amendment No. 2.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange hereby proposes to amend the definition of ``member 
firm'' found in Article I, Section 1-1(c) of its By-Laws and Rule 3 of 
the Rules of the Board of Governors to include within such definition 
newly recognized business entities which are essentially similar to 
those forms of business concerns (i.e., partnerships and corporations) 
already allowed to become member organizations. The Exchange also 
proposes to amend Article I, Section 1-1(c) and Rule 3 to make the 
provisions in its By-Laws and Rules that pertain to partners of 
partnership member firms applicable to those persons performing similar 
functions in non-partnership member firms.

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
    Recently, Pennsylvania law and the laws of 46 other jurisdictions 
have recognized the existence of new legal entities such as limited 
liability companies (``LLCs''),\3\ limited liability partnerships 
(``LLPs''),\4\ and business trusts.\5\ As of February 5, 1995, 
Pennsylvania has authorized the existence of LLCs and LLPs. Presently, 
the Exchange's By-Laws and Rules recognize two types of member 
organizations: partnerships under the term ``member firm'' and 
corporations under the term ``member corporation.''

    \3\ An LLC combines various characteristics of both corporations 
and partnerships. For example, an LLC is a non-corporate entity 
under which neither the owners nor those managing the business are 
personally liable for the entity's obligations, however, the LLC is 
treated as a pass-through entity for federal income tax purposes. 
See Robert R. Keatinge et al., The Limited Liability Company: A 
Study of the Emerging Entity, 47 Bus. Law. 378 (1992).
    \4\ An LLP differs from a traditional partnership entity in two 
significant ways. First, in an LLP the liability of a partner or the 
partnership is no longer joint and several among the partners; 
instead, a partner generally will be personally liable only for his 
or her own conduct and that of those under his or her direct 
supervision. Second, an LLP is treated as a pass-through entity for 
federal income tax purposes. See Sharon Kanovsky, LLPs: A New Form 
of Organization, 25 Tax Advisor 409 (1994).
    \5\ The term ``business trust'' is generally used to describe a 
trust in which the managers are principals and the shareholders are 
cestuis que trust. Its essential attribute is that property is 
placed in the hands of trustees who manage and deal with it for the 
use and benefit of beneficiaries. Black's Law Dictionary 180 (5th 
ed. 1979).
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    The proposed rule change would allow the Exchange to recognize 
these new legal entities as Phlx member firms by amending the 
definitions of ``member firm'' found in Article I, Section 1-1(c) of 
the By-Laws and Rule 3 to encompass organizations that are essentially 
similar to member firms including, but not limited to, LLCs, LLPs, and 
business trusts.\6\

    \6\ In Amendment No. 2 other Exchange stated that Phlx staff 
will review each exchange member firm application of any entity, 
such as an LLC, LLP, or business trust on a case by case basis, and 
prior to approving such entity for membership, the staff will 
satisfy itself that: (a) Such entity would be structured in such a 
format that would qualify as a broker or dealer registered with the 
SEC pursuant to the Act; (b) the Phlx would legally have appropriate 
jurisdiction over such entity; and (c) the permanency of such 
entity's capital is consistent with that required of other member 
firms.
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    The Exchange also proposes to amend Article I, Section 1-1(c) and 
Rule 3 to make provisions in the Phlx By-Laws and Rules which pertain 
to general, special or limited partners in partnership member firms 
applicable, as appropriate, to those persons who perform essentially 
similar functions as such partners in non-partnership member firms.\7\

    \7\ Amendment No. 2 added this provision to the proposed rule 
change. Amendment No. 2 also withdrew a proposed change to Rule 902 
that would have required a member intending to form a non-
partnership member firm to submit certain specified documentation to 
the Exchange, as the proposed change to Rule 3 gives the Exchange 
the authority to require the submission of such documentation under 
the current Rule 902.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act \8\ in that it is designed to promote just and equitable principals 
of trade, to remove impediments to and perfect the mechanism of a free 
and open market, and in general, to protect investors and the public 
interest.

    \8\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx 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

    The Exchange solicited comment from its membership for the proposed 
change to its By-Laws in Phlx Circular 120-95 (July 20, 1995). No 
written comments were received.

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, N.W., Washington, D.C. 20549. 
Copies of the submission, all subsequent 

[[Page 58128]]
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 at the Commission's Public 
Reference Section, 450 Fifth Street, N.W., Washigton, D.C. 20549. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the Exchange. All submissions should refer 
to File No. SR-Phlx-95-73 and should be submitted by December 15, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28622 Filed 11-22-95; 8:45 am]
BILLING CODE 8010-01-M