Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Proposing To Adopt New Rule 949 Respecting Purchase, Sale, Transfer, and Posting of Membership Transactions

[Federal Register Volume 64, Number 23 (Thursday, February 4, 1999)]
[Notices]
[Pages 5697-5698]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-2604]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40991; File No. SR-Phlx-98-45]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 1 Thereto 
Proposing To Adopt New Rule 949 Respecting Purchase, Sale, Transfer, 
and Posting of Membership Transactions

January 28, 1999.

I. Introduction

    On November 5, 1998, 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 new Rule 949 respecting 
the purchase, sale, transfer, and posting of membership transactions. 
On December 14, 1998, the Phlx submitted an amendment to the proposed 
rule change.\3\ The proposed rule change was published for comment in 
the Federal Register on December 23, 1998.\4\ The Commission did not 
receive any comments on the proposal. This order approves the proposal, 
as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Murray L. Ross, Vice President and Secretary, 
Phlx, to Michael Walinskas, Deputy Associate Director, Division of 
Market Regulation, SEC, dated December 14, 1998 (``Amendment No. 
1''). Amendment No. 1 corrected grammatical errors in the proposed 
rule language.
    \4\ Securities Exchange Act Release No. 40798 (December 16, 
1998), 63 FR 71181.
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II. Description of the Proposal

    The Exchange proposed to adopt a new rule which codifies Exchange 
procedures concerning the purchase, sale, transfer and posting of 
membership transactions. The proposal also provides for privately 
negotiated sales and requests for transfer under certain specified 
circumstances.
    If the transaction is between unrelated parties, the proposed rule 
provides that transactions must be posted, published, and be for 
monetary consideration between the posted bid and offer. The proposed 
rule also permits sales between related entities, but requires 
publication in the Secretary's bulletin. Thus, both members and non-
members will have access to information regarding transfers of 
membership. Additionally, the proposal ensures that the Exchange will 
be protected by requiring that the proceeds of all sales be deposited 
with the Exchange to satisfy any outstanding charges owed by the 
member.
    The proposed rule provides that bids and offers must be in writing 
and submitted to the Office of the Secretary of the Exchange by an 
approved applicant, member organization, or lessor. Bids and offers may 
only be made in $500 increments. Additionally, the proposed rule 
codifies an existing Exchange practice of requiring payment for a 
membership by certified or cashier's check payable to the Exchange. 
Furthermore, the rule specifies that the sale of a membership shall be 
deemed negotiated and contracted when the filed bid and offer are 
matched in price and confirmed by the Office of the Secretary. The sale 
is consummated upon receipt of payment from the purchaser for the 
purchase price and other associated membership initiation, transfer, 
and prorated dues and other fees.
    The procedures for privately negotiated sales and requests for 
transfer are found in Section D of the proposed rule. This section 
provides for the posting of a deposit with the Exchange to cover 
potential claims that could be asserted pursuant to By-Law Article 
XV.\5\ Only those transfers that conform with Section D will be 
processed for transfer and all other private sales will be void.
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    \5\ By-Law Article XV sets forth procedures for transferring 
memberships. Section 15-3 provides that proceeds are to be 
distributed according to a provided seniority list.
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III. Discussion

    The Commission believes that the proposed rule is consistent with 
the requirements of the Act and the rules and regulations thereunder 
\6\ applicable to a national securities exchange. In particular, the 
Commission finds that the proposed rule is consistent with Section 
6(b)(5) \7\ of the Act. Section 6(b)(5) of the Act requires, among 
other things, that the rules of the Exchange be designed to promote 
just and equitable principles of trade and protect investors and the 
public interest.
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    \6\ In reviewing this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. The proposed rule change should improve efficiency 
because it provides an orderly process by which memberships can be 
transferred. In addition, the proposed rule change should improve 
competition because the procedures provide notice to all interested 
parties about the current market for memberships which should 
improve bids and offers. 15 U.S.C. 78f(b)(7).
    \7\ 15 U.S.C. 78f(b)(5).
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    The proposed rule codifies procedures for the transfer of 
membership interests. By codifying these procedures, the Exchange 
should ensure the prompt and orderly transfer of membership interests. 
All bids and offers must be filed in writing with the Office of the 
Secretary which shall then match the bids and offers according to price 
and confirm the sale. In addition, all money exchanged must be filed 
with the Office of the Secretary to ensure that all outstanding debts 
and fees are paid. By implementing these procedures, the Exchange 
should protect the financial interests of both buyers and sellers of 
memberships and provide equity and openness to all who seek to purchase 
or sell a membership. Buyers should be confident that all outstanding 
liens are paid and sellers should be confident that the potential 
buyers have the means to pay their offering price.
    Moreover, the new procedures should ensure fairness by providing a 
public market in which to transfer memberships. All persons interested 
in purchasing membership interests will have to follow the same 
procedures. These procedures, in general, protect investors and the 
public interest by providing a fair and open market for membership 
transactions. Therefore, the

[[Page 5698]]

Commission believes the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) \8\ of the 
Act, that the proposed rule change, as amended, (SR-Phlx-98-45) is 
approved.
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    \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. 99-2604 Filed 2-3-99; 8:45 am]
BILLING CODE 8010-01-M