[Federal Register Volume 66, Number 194 (Friday, October 5, 2001)]
[Notices]
[Pages 51084-51085]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24976]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44872; File No. SR-Phlx-99-52]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change and Amendment No. 1 
Thereto Adopting Rule 51, Enforcement of Capital Funding Fee

September 28, 2001.
    On December 6, 1999, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with 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 adopt Phlx Rule 51, 
Enforcement of the Capital Funding Fee. New Rule 51 (``Rule'') permits 
the Exchange to take certain specified measures if an owner of a 
membership fails to pay (or have paid on its behalf) any capital 
funding fee imposed by the Exchange when due. The Phlx filed an 
amendment to the proposal on August 9, 2001.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Letter from Cynthia Hoekstra, Counsel, Phlx, to Nancy 
Sanow, Assistant Director, Commission, dated August 8, 2001 
(``Amendment No. 1''). In Amendment No. 1 the Phlx represented that 
the Rule complies with Delaware corporate law, Pennsylvania contract 
law, and the Exchange's Certificate of Incorporation, by-laws, and 
rules. In addition, the Phlx modified the timing of the enforcement 
procedures for failure to pay the capital funding fee and included a 
provision for equitable reversion.
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    The Rule specifies what enforcement action may be taken against an 
owner for failure to pay any capital funding fee imposed by the 
Exchange. The Exchange represented that a new rule is required because 
existing Exchange rules do not comprehensively address situations in 
which owners, as opposed to members or member organizations, are 
required to pay the Exchange any fees. The Phlx Board determined that 
the enforcement mechanisms outlined in the Rule were necessary to 
effectuate the Exchange's capital funding fee, a central aspect of the 
Exchange's capital plan, for the continued viability and 
competitiveness of the Exchange.
    The Rule delineates the remedies that shall be taken by the Board 
if the capital funding fee is not paid. The Rule allows for a variety 
of remedies ranging from the imposition of a late fee to reversion and 
sale by the Exchange of the equitable title to a membership. The 
remedies are set forth in such a way as to apply the less onerous 
remedies (i.e., like fees) first and the more serious remedies (i.e., 
suspension of right to trade or lease and reversion of membership) only 
after the Exchange has not received payment within 90 days after the 
date of the original invoice (or such longer period for which a lease 
agreement is in effect as a result of the election by a lessee to 
continue paying the capital funding fee). By allowing this graduated 
scale of remedies, the owners are put on notice as to what remedies 
will be imposed if payment is not received in a timely manner, with the 
more serious remedies being applied after a longer period of time. In 
addition, the Rule delineates the Board's responsibilities and 
authority for handling instances in which an owner fails to pay the 
capital funding fee when due. The Rule is designed to protect innocent 
lessees from being unexpectedly dispossessed from their memberships and 
trading rights in the event of a nonpayment by their lessors. By 
electing to pay the capital funding fee on behalf of an owner, the 
lessee may continue trading under his/her existing membership for up to 
three months. At the end of this period, or in the event that the 
lessee elects not to pay the fee on behalf of the lessor, the lessee 
may apply for temporary trading privileges.
    The proposed rule change, as amended, was published for comment in 
the Federal Register on August 29, 2001.\4\ The Commission received no 
comments on the proposal.
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    \4\ See Securities Exchange Act Release No. 44733 (August 22, 
2001), 66 FR 45716.
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the Act and the rules and regulations under the Act

[[Page 51085]]

applicable to a national securities exchange \5\ and, in particular, 
the requirements of Section 6 of the Act \6\ and the rules and 
regulations thereunder. The Commission finds specifically that the 
proposed rule change is consistent with the requirement of Section 
6(b)(5) \7\ because it is designed to promote just and equitable 
principles of trade and to protect investors and the public interest by 
providing for enforcement action in the event that an owner fails to 
pay capital funding fee. The proposed rule change is also consistent 
with Section 6(b)(5) of the Act \8\ because it enables lessees to 
continue trading on the Exchange even when their respective lessors 
fail to pay fees owned to the Exchange when due.
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    \5\ In approving this proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
    \8\ Id.
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    The Commission is not required under Section 19(b)(2) of the Act 
\9\ to find that a proposed rule change by a self-regulatory 
organization is lawful under state corporation law; in approving this 
proposal, the Commission is relying on the Phlx's representation that 
it has the general power under applicable provisions of Delaware law to 
adopt the Rule. The Commission is also relying on the Phlx's 
representations that the Rule is permissible under Pennsylvania 
contract law. The Commission has not independently evaluated the 
accuracy of Phlx's representations regarding Delaware or Pennsylvania 
law.
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    \9\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change, as amended, (SR-Phlx-99-52) is 
approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    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. 01-24976 Filed 10-4-01; 8:45 am]
BILLING CODE 8010-01-M