[Federal Register Volume 72, Number 30 (Wednesday, February 14, 2007)]
[Notices]
[Pages 7106-7107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-2550]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55256; File No. SR-Phlx-2005-68]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
Relating to Deletion of Rule 702, Carrying Accounts

February 8, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on November 9, 2005, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III, below, which Items have been 
substantially prepared by the Phlx. The Phlx filed Amendment No. 1 to 
the proposed rule change on January 18, 2007.\3\ 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.
    \3\ Amendment No. 1 replaces and supersedes the original filing 
in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to delete Rule 702, Carrying Accounts. The text 
of Rule 702, proposed to be deleted, is set forth below. Brackets 
indicate deletion.
    [Rule 702. Carrying Accounts
    No member, doing business as an individual, shall carry accounts 
for customers, except as provided in Rule 903.]

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 purpose of the proposed rule change to delete Rule 702, 
Carrying Accounts, is to eliminate an unnecessary and confusing 
Exchange rule. Currently, Rule 702 provides that ``[n]o member, doing 
business as an individual, shall carry accounts for customers, except 
as provided in Rule 903.'' \4\
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    \4\ The reference to Rule 903 is clearly an incorrect reference 
which should be to Rule 904, Use of a Partnership Name, which 
provides that ``[n]o member shall conduct business under a 
partnership firm name unless he has at least one general partner, 
provided, however, that if by death or otherwise a member becomes 
the sole general partner in a member organization that is a 
partnership he may continue business under the partnership name for 
such period as may be allowed by the Committee.''
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    The term ``member'' (as opposed to ``member organization'') is 
defined in Exchange rules as a permit holder which has not been 
terminated in accordance with the by-laws and rules of the Exchange.\5\ 
Currently, the only issued and outstanding Exchange permits are Series 
A-1 Permits, the terms and conditions of which are governed by Rule 
908. Section (b) of Rule 908, Series A-1 Permits, provides in part 
that, with one narrow exception not relevant here, a Series A-1 permit 
shall only be issued to an individual.\6\
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    \5\ See Exchange By-Law Article I, Section 1(t) and Exchange 
Rule 1(n). Exchange By-Law Article XII, Section 1(b) provides in 
part that ``[e]xcept as otherwise set forth in the rules of the 
Exchange or any resolution of the Board of Governors authorizing a 
specific class or series of permits, a permit will confer upon and 
subject the holder thereof to all the privileges and obligations of 
a member pursuant to these By-Laws and the rules of the Exchange, * 
* * and to conduct business on the Exchange as provided in these By-
Laws and such rules.''
    \6\ Rule 908(b) provides that a Series A-1 Permit may also be 
issued to ``a corporation meeting the requirements of Section 12-4 
of the By-Laws.'' Section 12-4 of the By-Laws, Admission of 
Corporation, provides that ``[a] corporation may be issued a permit 
by the Exchange, provided such corporation is incorporated under the 
laws of the Commonwealth of Pennsylvania, and all of its capital 
stock is owned by the Exchange.'' This By-Law provision was intended 
to permit Exchange membership for the Exchange's subsidiary, Stock 
Clearing Corporation of Philadelphia.
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    The Exchange believes that Rule 702 is unnecessary. Additionally, 
since virtually all members are individuals, Rule 702's proscription 
against the carrying of customer accounts by a member ``doing business 
as an individual'' is confusing. The Exchange has in the past 
interpreted the rule as prohibiting any individual member from carrying 
customer accounts. Rule 908

[[Page 7107]]

requires any Series A-1 Permit Holder to maintain a primary affiliation 
with an eligible member organization at all times that such holder 
holds a permit. Member organizations, which do not include individuals 
but which are defined as ``a corporation, partnership (general or 
limited), limited liability partnership, limited liability company, 
business trust or similar organization'' which meet certain criteria, 
are not covered by the Rule 702 prohibition.
    The Exchange is proposing the deletion of Rule 702 not only because 
it is confusing, but also because a member's ability to carry customer 
accounts is in many ways dictated by the member's ability to comply 
with relevant securities laws and regulations including, but not 
limited to, Exchange Act Rules 15c3-1 and 15c3-3,\7\ and related rules, 
which do not make distinctions on the basis of a member's 
organizational and corporate structure.\8\ The Exchange believes that 
Rule 702 is therefore superfluous.
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    \7\ 17 CFR 240.15c3-1 and 240.15c3-3.
    \8\ For example, the customer protection provisions of Rule 
15c3-3 under the Act requires broker-dealers to maintain physical 
possession or control of customer fully-paid and excess margin 
securities. Further, Phlx member firms for which the Exchange is the 
DEA generally do not carry public customer accounts. If a Phlx 
member firm carries customer accounts it is required to become a 
member of a national securities association (e.g., the National 
Association of Securities Dealers (``NASD'')). Under agreements that 
the Phlx has entered into with other self-regulatory organizations 
(``SROs'') in accordance with Rule 17d-2 under the Act, any Phlx 
member that is also a member of another SRO (including the NASD) 
would be assigned to another DEA.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act in general, and furthers the objectives of Section 
6(b)(5) of the Act in particular, in that it is designed to promote 
just and equitable principles of trade, 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, 
by eliminating a confusing and unnecessary Exchange rule.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that 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

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer 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 Phlx consents, the Commission shall: (a) By order approve such 
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, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Phlx-2005-68 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2005-68. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 the filing 
also will be available for inspection and copying at the principal 
office of the Phlx. All comments received will be posted without 
change; the Commission does not edit personal identifying information 
from submissions. You should submit only information that you wish to 
make available publicly. All submissions should refer to File Number 
SR-Phlx-2005-68 and should be submitted on or before March 7, 2007.
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    \9\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
Nancy M. Morris,
Secretary.
[FR Doc. E7-2550 Filed 2-13-07; 8:45 am]
BILLING CODE 8010-01-P