[Federal Register Volume 68, Number 69 (Thursday, April 10, 2003)]
[Notices]
[Pages 17717-17718]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-8731]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47630; File No. SR-Phlx-2003-14]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of a Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to the Net Capital Calculation for Broker-
Dealer Accounts

April 3, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and rule 19b-4\2\ thereunder, notice 
is hereby given that on March 19, 2003, the Philadelphia Stock 
Exchange, Inc. (``Phlx'' or ``Exchange'') submitted to 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 Phlx. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Phlx rule 722(c)(5) (``Broker-Dealer 
Accounts'') to clarify that the haircut requirements of Exchange Act 
rule 15c3-1\3\ must be considered in computing the net capital of a 
broker-dealer that is extending margin to another broker-dealer and to 
harmonize it with other exchanges' rules.\4\
    Below is the text of the proposed rule change. Proposed new 
language is italicized. Proposed deletions are in [brackets].
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    \3\ 17 CFR 240.15c3-1.
    \4\ See Securities Exchange Act Release No. 46716 (October 24, 
2002), 67 FR 66434 (October 31, 2002) (SR-CBOE-2002-59) (relating to 
margin requirements for broker-dealer accounts). The Phlx notes that 
Chicago Board Options Exchange (``CBOE'') rule 12.3(g) is 
substantially similar to New York Stock Exchange, Inc. (``NYSE'') 
rule 431(e)(6)(A). See Securities Exchange Act Release No. 42453 
(February 24, 2000), 65 FR 11620 (March 3, 2000) (SR-NYSE-1997-27) 
(order approving a proposed rule change affecting the margin 
calculation for broker-dealer accounts).
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Rule 722. Margin Accounts \5\
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    \5\ The phrase, ``Rule 722. Margin Accounts'', reflects the 
correction of a typographical error from the rule text that Phlx 
submitted with the proposed rule change. Telephone conversation 
between Mark I. Salvacion, Director and Counsel, Phlx, and Tim Fox, 
Attorney, Division of Market Regulation, Commission on April 3, 
2003.
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* * * * *
    5. Broker-Dealer Accounts. A member organization may carry the 
proprietary account of another broker-dealer, which is registered with 
the Securities and Exchange Commission, upon a margin basis which is 
satisfactory to both parties, provided the requirements of Regulation T 
of the Board of Governors of the Federal Reserve System are adhered to 
and the account is not carried in a deficit equity condition. The 
amount of any deficiency between the equity maintained in the account 
and the [margin required by the other provisions of this rule] haircut 
requirements calculated pursuant to rule 15c3-1 of the Exchange Act, 
shall be deducted in computing the Net Capital of the member 
organization under rule 15c3-1 of the Exchange Act and rule 703.
* * * * *

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 Phlx 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 Phlx 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
    The Exchange proposes to amend Phlx rule 722(c)(5) (``Broker-Dealer 
Accounts''), to clarify that the haircut requirements of Exchange Act 
rule 15c3-1\6\ must be considered in computing the net capital of a 
broker-dealer extending margin to another broker-dealer. As amended, 
Phlx rule 722(c)(5) would be substantially similar to CBOE rule 
12.3(g).
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    \6\ 17 CFR 240.15c3-1.
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    Currently, Phlx rule 722 sets forth the rules governing the margin 
that must be maintained in margin accounts of customers of Phlx 
members, whether such customers are members themselves, partners of 
members, member firms, member corporations or stockholders therein, or 
non-members. Phlx rule 722(c) sets forth certain exceptions to the 
general margin requirements. Phlx rule 722(c)(5) provides that an 
Exchange member may carry the proprietary account of another broker-
dealer registered with the Commission, on a margin basis that is 
satisfactory to both parties (``broker-to-broker margin''); provided 
however, that the parties adhere to Regulation T of the Board of 
Governors of the Federal Reserve System,\7\ and the account is not 
carried in a deficit condition.
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    \7\ 12 CFR 220.1 et seq.
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    Phlx rule 722(c)(5) further provides that the amount of any 
deficiency between the equity maintained in the account and the 
``margin required by the other provisions of'' Phlx rule 722 shall be 
deducted in computing the net capital of the Phlx member carrying the 
account of another registered broker-dealer. The Phlx believes that 
this language does not accurately reflect that the haircut requirements 
specified in Exchange Act rule 15c3-1\8\ must also be considered in 
computing such Phlx member's net capital.
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    \8\ 17 CFR 240.15c3-1.
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    Accordingly, the Phlx proposes to delete the phrase ``margin 
required by the other provisions of,'' and clarify in its rule that the 
haircut requirements calculated pursuant to Exchange Act rule 15c3-1 
will be used to calculate the net capital of a Phlx member carrying the 
margin account of a registered broker-dealer customer. The Phlx notes 
that the CBOE and NYSE each has adopted a similar change to its margin 
rules.
2. Statutory Basis
    The Phlx believes that the proposed rule change harmonizes the 
margin treatment between Phlx's rule and analogous CBOE and NYSE rules. 
As such, the Phlx believes that its proposal is consistent with section 
6(b) of the Act \9\ in general, and furthers the objectives of section 
6(b)(5) of the Act \10\ in particular, in that it is designed to 
perfect the mechanism of a free and open market and to protect 
investors and the public interest.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    This proposed rule change does not impose any burden on competition 
that

[[Page 17718]]

is not necessary or appropriate in furtherance of the purposes of the 
Act.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Phlx has designated the foregoing proposed rule change as 
effecting a change that: (1) Does not significantly affect the 
protection of investors or the public interest; (2) does not impose any 
significant burden on competition; and (3) by its terms does not become 
operative for 30 days from the date of filing, or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest.\11\ Accordingly, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the Act 
\12\ and rule 19b-4(f)(6) thereunder.\13\ At any time within 60 days of 
the filing of such proposed rule change, the Commission may summarily 
abrogate such rule change if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act.
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    \11\ As required under Securities Exchange Act rule 19b-
4(f)(6)(iii), the Phlx provided the Commission with written notice 
of its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the filing date or such shorter period as 
designated by the Commission. See Prefiling Notice of Proposed Rule 
Change (SR-Phlx-2003-14), dated March 11, 2003.
    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-2003-14 and 
should be submitted by May 1, 2003.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-8731 Filed 4-9-03; 8:45 am]
BILLING CODE 8010-01-P