[Federal Register Volume 62, Number 244 (Friday, December 19, 1997)]
[Notices]
[Pages 66709-66711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33195]


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SECURITIES AND EXCHANGE COMMISSION

Release No. 34-39445; File No. SR-PHLX-97-59


Self-Regulatory Organizations; Philadelphia Stock Exchange, 
Incorporated, Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Relating to the Decision to Limit its 
Clearance and Settlement Business and to Withdraw From the Securities 
Depository Business

December 11, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 14, 1997, the 
Philadelphia Stock Exchange, Incorporated, (``PHLX'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-PHLX-97-59) as described in Items I and II below, 
which items have been primarily prepared by PHLX. The Commission is 
publishing this notice and order to solicit comments from interested 
parties and to grant accelerated approval of the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposal Rule Change

    The proposed rule change will allow PHLX to limit its clearing 
services and to stop providing depository services that it currently 
operates through its wholly owned subsidiaries, Stock Clearing 
Corporation of Philadelphia (``SCCP'') and Philadelphia Depository 
Trust Company (``Philadep''), respectively, in order to focus its 
resources on the operation of the exchange. PHLX has entered into an 
agreement with SCCP, Philadep, The Depository Trust Company (``DTC''), 
and the National Securities Clearing Corporation (``NSCC''), dated June 
18, 1997, that set forth the arrangements relating to PHLX's decision 
(``Agreement'').\2\
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    \2\ SCCP, Philadep, DTC, and NSCC have submitted rule filings 
relating to the Agreement which are being addressed in a separate 
order. Securities Exchange Act Release Nos. 39220 (October 8, 1997, 
62 FR 53848 (October 16, 1997) [File No. SR-NSCC-97-08]; 39221 
(October 8, 1997), 62 FR 53680 (October 15, 1997), [File No. SR-
Philadep-97-04]; 39222 (October 8, 1997), 62 FR 53847 62 FR 53847 
(October 16, 1997) [File No. SR-DTC-97-16]; and 39223; (October 8, 
1997), 62 FR 53681 (October 15, 1997) [File No. SR-SCCP-97-04].

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[[Page 66710]]

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for the Proposed Rule Change

    In its filing with the Commission, PHLX included statements 
concerning the purpose of, and the basis for, the proposed rule change 
and discussed any comments it received on the proposed rule change. The 
text of these statements have been examined at the places specified in 
Item IV below. PHLX has prepared summaries, as set forth in sections A, 
B, and C below, of the most significant aspects of these statements.\3\
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    \3\ The Commission has modified the text of the summaries 
prepared by PHLX.
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A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

    PHLX seeks to limit its clearance and settlement business and to 
close its securities depository business offered through its wholly 
owned subsidiaries, SCCP and Philadep, respectively, in order to focus 
its resources on the operations of the Exchange itself and to settle an 
administrative proceeding initiated against SCCP and Philadep by the 
Commission.\4\ The purpose of the Agreement is to enable PHLX, SCCP, 
and Philadep to achieve this objective while affording participants of 
SCCP and Philadep the opportunity to become participants of NSCC or 
DTC, respectively, or to utilize the services of other clearing and 
depository service providers.
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    \4\ Securities Exchange Act Release No. 38918 (August 11, 1997) 
(Administrative Proceeding File No. 3-9360).
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    Under the Agreement, for a period of five years PHLX, Philadep, and 
SCCP may not engage in the clearance and settlement and securities 
depository businesses. However under the Agreement, SCCP will be 
permitted to offer certain clearing services to PHLX members. In this 
regard, SCCP has proposed in a separate filing to amend its rules to 
restrict participation in SCCP to PHLX members.\5\ SCCP will provide 
margin accounts to certain PHLX floor members and will settle their 
transactions through a SCCP sponsored omnibus account at NSCC. The PHLX 
will guarantee to NSCC all liabilities and obligations arising in 
connection with the SCCP omnibus account, including any such 
liabilities which may arise as a result of NSCC sponsoring a SCCP 
account at DTC. Such guarantee shall be signed in a form satisfactory 
to NSCC.
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    \5\ Securities Exchange Act Release No. 39223 (October 8, 1997), 
62 FR 53681. Pursuant to the Agreement, SCCP shall no longer open or 
maintain Continuous Net Settlement (``CNS'') account for its 
participants. SCCP may only continue to offer clearing and margin 
services to: (i) PHLX equity specialists for their specialist and 
alternate specialist transactions, and for their proprietary 
transactions in securities for which they are not appointed as 
specialists or alternate specialists and (ii) those PHLX members 
listed on schedule who are not PHLX equity specialists for their 
proprietary transactions. SCCP may add other PHLX members to such 
schedule subject to NSCC's approval.
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    PHLX, SCCP, and Philadep will cooperate with NSCC and DTC in 
assuring an orderly transition regarding PHLX's limiting its clearance 
and settlement services and withdrawal from the securities depository 
business. In this regard, NSCC will offer sole SCCP participants an 
opportunity to become NSCC participants if they meet NSCC's 
qualifications and desire to become NSCC members. Moreover, PHLX and 
Philadep will assist DTC and sole Philadep participants in having the 
latter become DTC participants if they meet DTC qualifications and 
desire to become a DTC participant. The parties will cooperate to 
effect the orderly transfer of securities positions and securities from 
SCCP to NSCC and from the custody of Philadep to the custody of DTC.
    PHLX believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \6\ insofar as it will enable PHLX to 
concentrate its efforts on its core business, the exchange. Thus, PHLX 
believes that this proposal promotes just and equitable principles of 
trade, remove impediments to, and perfects the mechanism of a free and 
open market and a national market system, and, in general, protects the 
investors and public interest. In addition, PHLX believes that the 
proposal will foster cooperation and coordination with persons engaged 
in clearing and settlement of securities transactions.
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    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    PHLX believes that the proposed rule change will not impose an 
impermissible burden on competition as contemplated by the Act.

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

    Written comments were neither solicited nor received with respect 
to the proposed rule change.\7\
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    \7\ The Commission received one comment letter, which pertained 
to DTC and NSCC, expressing concern that PHLX's decision to withdraw 
from the clearance and settlement business reduced competition in 
the market. The comment letter was from P. Howard Edelstein, 
President, Electronic Settlement Group, Thomson Financial Services, 
Inc. (November 4, 1997). DTC responded to the Comment letter in a 
letter from Richard S. Nesson, Executive Vice President and General 
Counsel (November 14, 1997).
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III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Section 6(b)(5) of the Act \8\ requires, among other things, that 
the rules of an exchange be designed to prevent further fraudulent and 
manipulative acts and practices, to promote just and equitable 
principals of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, setting, processing 
information with respect to, and facilitating transactions in 
securities, 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. The Commission believes that 
PHLX's proposed rule change is consistent with Section 6(b)(5) of the 
Act in that it will enable PHLX to focus its resources and efforts on 
implementing a more viable and profitable long-term strategy for its 
core business, the exchange, and to settle the administrative 
proceeding initiated against SCCP and Philadep by the Commission.\9\ 
The Commission anticipates that the proceeds of the proposed 
transaction also will help provide liquidity for the operations of the 
exchange and that the transaction will allow PHLX to avoid significant 
future capital expenditures for the businesses of SCCP and Philadep. 
Consequently, the Commission believes that the proposal should help 
promote just and equitable principles of trade, remove impediments and 
perfect the mechanism of a free and open market and a national market 
system, and in general, protect investors and the public interest.\10\ 
In addition, the Commission believes the proposal provides for an 
orderly closing of services by SCCP and Philadep and an orderly 
transition for participants to other clearing and depository service 
providers. Thus, the proposal fosters cooperation and coordination with 
persons engaged in the clearance and settlement of securities 
transactions.
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    \8\ 15 U.S.C. 78f(b)(5).
    \9\ Securities Exchange Act Release No. 38918 (August 11, 1997) 
(Administrative Proceeding File No. 3-9360).
    \10\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
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    PHLX has requested that the Commission find good cause for 
approving the proposed rule change prior to the thirtieth day after

[[Page 66711]]

publication of the notice of filing. The Commission finds good cause 
for approving the proposed rule change prior to the thirtieth day after 
publication of the notice of the filing because by so approving PHLX 
will be able to close on the Agreement and move forward on its plans to 
limit its clearance and settlement services and withdraw from the 
securities depository business.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making such 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, N.W., 
Washington, D.C. 20549. Copies of such filing will also be available 
for inspection and copying at the principal office of PHLX. All 
submissions should refer to the File No. SR-PHLX-97-59 and should be 
submitted by January 9, 1998.
    It is therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-PHLX-97-59) be and hereby is 
approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3 (a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33195 Filed 12-18-97; 8:45 am]
BILLING CODE 8010-01-M