Self-Regulatory Organizations; Chicago Stock Exchange, Incorporated; Order Approving a Proposed Rule Change Amending the Net Capital Requirements for Specialists

[Federal Register Volume 64, Number 85 (Tuesday, May 4, 1999)]
[Notices]
[Pages 23885-23886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11142]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41335; File No. SR-CHX-99-01]
April 27, 1999.


Self-Regulatory Organizations; Chicago Stock Exchange, 
Incorporated; Order Approving a Proposed Rule Change Amending the Net 
Capital Requirements for Specialists

I. Introduction

    On February 26, 1999, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') submitted to the Securities and Exchange 
Commission (``Commission'' or ``SEC''), 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 increase the minimum net 
capital requirements for specialists. Notice of the proposed rule 
change appeared in the Federal Register on March 23, 1999.\3\ The 
Commission received no comment letters concerning the proposed rule 
change. This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 41167 (March 12, 1999), 
64 FR 14032.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend CHX Rule 3 of Article XI and add 
interpretation and policy .01. The proposal would increase the net 
capital requirements for non-clearing specialists, self-clearing 
specialists, and members and member organizations, that clear the 
accounts of other CHX specialists and establish a phase-in period for 
the increase.
    The proposal would require non-clearing specialists to maintain, at 
a minimum, the greater of (i) $100,000, or (ii) the amount set forth in 
Rule 15c3-1 under the Act,\4\ which now is $100,000. The proposal also 
would

[[Page 23886]]

require self-clearing specialists in less than 200 securities to 
maintain, at a minimum, the greater of (i) $250,000, or (ii) the amount 
set forth in the Net Capital Rule. The proposal would require self-
clearing specialists in 200 or more securities to maintain, at a 
minimum, the greater of (i) $350,000, or (ii) the amount set forth in 
the Net Capital Rule. Finally, the proposal would require members that 
clear the accounts of other CHX specialists to maintain, at a minimum, 
the greater of (i) $500,000, or (ii) the amount set forth in the Net 
Capital Rule. Under the proposal, specialists would continue to be 
required to comply with the Exchange requirement that subordinated cash 
borrowings and secured demand notes equal or exceed 50% of their total 
subordinated borrowings to the extent that the borrowings are part of 
their equity total.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.15c3-1 (``Net Capital Rule'').
---------------------------------------------------------------------------

    The Exchange proposes to implement the increased net capital 
requirements over three phase-in dates during a twelve-month period. 
The phase-in dates would be issued in a Notice to Members within 30 
days following approval of this proposal by the Commission. The 
$100,000 requirement for non-clearing specialists would apply on the 
first phase-in date. The applicable net capital requirements for self-
clearing specialists registered in less than 200 securities would be 
$150,000, $200,000, and $250,000 for the first, second, and third 
phase-in dates respectively. The applicable net capital requirements 
for self-clearing specialists registered in 200 or more securities 
would be $200,000, $275,000, and $350,000 for the first, second, and 
third phase-in dates respectively. The net capital requirements for 
members and member organizations that clear for other specialists would 
be $350,000, $450,000, and $500,000 for the first, second, and third 
phase-in dates respectively.

III. Discussion

    The Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\5\ The Commission 
believes that the proposal is consistent with the Section 6(b)(5) 
requirement that the rules of an exchange be designed, in general, to 
protect investors and the public interest.\6\ Specifically, the 
Commission believes that raising the minimum level of liquidity that 
specialists and members that clear for specialists are required to 
maintain should serve to protect customers and other market 
participants from potential loses due to the financial failure of 
specialists, or members or member organizations that clear for 
specialists. Additionally, the Commission believes that by reducing the 
risk associated with the financial failure of specialists the proposal 
should help to ensure the integrity of the securities markets. The 
Commission also believes that the allocation of different net capital 
requirements, as set forth in the proposal, is appropriate due to the 
different levels of risk associated with the categories of net capital 
requirements.
---------------------------------------------------------------------------

    \5\ The Commission has considered the proposed rule's impact on 
efficiency, competition and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    For the above reasons, the Commission believes that the proposed 
rule change is consistent with the provisions of the Act, and in 
particular with Section 6(b)(5).\7\
---------------------------------------------------------------------------

    \7\ Id.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2)\8\ of the 
Act, that the proposed rule change (SR-CHX-99-01), is hereby approved.
---------------------------------------------------------------------------

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

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-11142 Filed 5-3-99; 8:45 am]
BILLING CODE 8010-01-M