[Federal Register Volume 65, Number 73 (Friday, April 14, 2000)]
[Notices]
[Pages 20236-20237]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9327]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42653; File No. SR-CHX-99-20]


Self-Regulatory Organizations; Order Granting Approval to 
Proposed Rule Change by the Chicago Stock Exchange, Inc. Relating to 
Minimum Net Capital and Excess Net Capital Requirements for Members

April 7, 2000.

I. Introduction

    On September 24, 1999, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 \2\ thereunder, a 
proposed rule change. In its proposal, CHX seeks to modify its minimum 
net capital and excess net capital requirements for members who are 
specialists or who carry the accounts of specialist. The proposed rule 
change was published for comment in the Federal Register on December 
22, 1999. \3\ The Commission received no comments on the filing. This 
order approves the proposal.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 42239 (December 15, 
1999), 64 FR 71835.
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II. Description of the Proposal

    The Exchange proposes to amend Article XI, Rule 3 of the Exchange's 
rules to modify the minimum net capital and excess net capital 
requirements applicable to members who are specialists or who carry 
accounts of specialists. CHX is amending its rules because it and the 
Midwest Clearing Corporation (``MCC'') have determined to discontinue 
the sponsored account program on June 30, 2000, after which time the 
MCC will be dissolved and the Exchange will no longer guarantee the 
MCC's obligations to qualified clearing agencies. \4\
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    \4\ ``Qualified clearing agencies'' is a defined term in the 
Midwest Clearing Corporation (``MCC'') Rules. See MCC Rules, Art. 
XI, Rule 1.
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    Currently, the rules of the Exchange and the MCC permit floor 
members for

[[Page 20237]]

the Exchange to establish ``sponsored accounts'' pursuant to which the 
MCC provides sponsored participants with access to clearance, 
settlement and delivery via a qualified clearing agency such as the 
National Securities Clearing Corporation (``NSCC''). The Exchange in 
turn provides a guaranty to the NSCC (and through the NSCC to The 
Depository Trust Company (``DTC'')) from time to time to guarantee the 
obligations of the MCC with respect to liabilities that could be 
generated in sponsored accounts. \5\ As stated above, the Exchange and 
the MCC have decided to discontinue the sponsored account program on 
June 30, 2000.
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    \5\ See CHX Rules, Art. XXI, Rule 14.
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    Because of this change, all current sponsored participants will 
have to become direct participants in qualified clearing agencies such 
as NSCC and DTC. The Exchange therefore proposes to amend Article XI, 
Rule 3 to incorporate the minimum net capital and excess net capital 
requirements currently required for direct participation in NSCC, 
subject to the amended phase-in periods set forth in Interpretation and 
Policy .01 to the amended rule. The Exchange anticipates that the 
proposed phase-in periods will ameliorate any financial burden that 
might otherwise be placed on members who are specialists or who carry 
accounts of specialists.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act.\6\ In particular, the Commission 
finds the proposal is consistent with Section 6(b)(5) \7\ of the Act. 
Section 6(b)(5) requires, among other things, that the rules of an 
exchange be designed to promote just and equitable principles of trade 
and to protect investors and the public interest.
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    \6\ In reviewing the proposal, pursuant to Section 3(f) of the 
Act, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Commission believes that the proposal is consistent with the 
Act and rules thereunder because the CHX is amending its rules to 
require net capital and excess net capital levels that are consistent 
with its current business plan, in light of CHX and MCC's decision to 
discontinue the sponsored account program. Because of this change in 
business plans, sponsored participants now need to become direct 
participants in clearing agencies such as NSCC and DTC. The proposed 
rule change allows for this change by making certain the CHX's net 
capital requirements for specialists and members who carry the accounts 
of specialists are consistent with those of NSCC. Further, CHX has 
given these members advance notice of the change and has provided for a 
reasonable phase-in period to prepare these members for the change.

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (SR-CHX-99-20) is approved.

    \8\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-9327 Filed 4-13-00; 8:45 am]
BILLING CODE 8010-01-M