Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Adopting a Limited Registration/Floor Member Registration Status and the Use of the Series 7A Examination

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35055; File No. SR-Phlx-94-15]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Philadelphia Stock Exchange, Inc. Adopting a Limited

Registration/Floor Member Registration Status and the Use of the Series

7A Examination

December 7, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October

3, 1994, the Philadelphia Stock Exchange, Inc. (``Phlx'' or

``Exchange'') filed with the Securities and Exchange Commission

(``Commission'' or ``SEC'') the proposed rule change as described in

Items I, II and III below, which Items have been prepared by the self-

regulatory organization. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

The Phlx, pursuant to Rule 19b-4 of the Act, proposes to amend Rule

604, Registration and Termination of Registered Representatives, to

adopt a limited registration provision applicable to persons conducting

a professional customer business from the Phlx trading floor. The

Exchange also proposes to adopt a requirement that persons conducting

functions customarily performed by a registered representative must

register and be qualified pursuant to Phlx Rule 604.

The limited registration provision would require registration with

the Exchange as a Limited Registration/Floor Member and completion of

an examination, in lieu of registration as a Registered Representative

and completion of the General Securities Registered Representative

Examination (``Series 7''). The Exchange also proposes to adopt the

Content Outline for the Examination Module for Floor Members Engaged in

Public Business with Professional Customers.\1\

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\1\The Exchange will use the Series 7A Examination that was

approved in SR-NYSE-93-10 (Securities Exchange Act Release No. 32698

(July 29, 1993), 58 FR 41539). The Series 7A Examination for Phlx

members will be administered by the New York Stock Exchange, Inc.

(``NYSE''). Telephone conversation between Edith Hallahan, Special

Counsel, Regulatory Services, Phlx and Elisa Metzger, Senior

Counsel, Office of Market Supervision, Division of Market

Regulation, SEC, on December 5, 1994.

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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 self-regulatory organization

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 self-regulatory organization

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

Access to the trading floor of the Exchange is available in

different forms, including direct floor presence through Exchange

membership, direct access through participation in automatic order

routing systems, and indirect access through floor members via

telephone. Direct access also refers to a telephone line that rings

automatically to one location once the headset is lifted, as

distinguished from speed-dialing capabilities. Direct access to the

Exchange's trading floor is governed by Phlx Rule 606, which requires

approval by the appropriate floor standing committee. For instance,

such access has been approved by the Exchange's Floor Procedure

Committee, permitting qualified equity floor members to apply for

approval as limited registration/floor members on the Phlx.

Accepting orders from non-member, non-broker-dealers constitutes a

public business, such that any person accepting such orders must be

Series 7 registered, pursuant to the proposed language in Rule 604(a).

In addition, Phlx Rule 701, Permission to Deal With Public, requires a

member or member organization to obtain prior approval from the

Exchange's Business Conduct Committee to deal in securities with non-

members of the Exchange or persons not registered as over-the-counter

brokers or dealers. In 1986, the Commission approved the use of the

Series 7 examination by the Phlx to qualify persons seeking

registration as general securities representatives.\2\

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\2\Securities Exchange Act Release No. 23685 (October 6, 1986),

51 FR 36621 (SR-Phlx-86-31).

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At this time, the Exchange seeks to adopt a specific provision in

Rule 604(a) bolstering the requirement for registered representatives

to register as such. A registration requirement for qualified

registered representatives was recently codified into Rule 604(a).\3\

The Phlx now proposes to expressly state that conducting a public

business requires Series 7 registration, adding this missing

requirement to Exchange rules.\4\

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\3\Securities Exchange Act Release No. 32883 (September 14,

1993) (File No. SR-Phlx-93-24).

\4\The Exchange notes that its members who are also NYSE

members, for example, are currently subject to the NYSE's definition

and registration provisions; ``Phlx-only'' members would now be

subject to a corresponding provision.

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In addition to amending Rule 604(a), the Exchange seeks to adopt a

new paragraph (c) of Rule 604 to permit a limited registration for

persons conducting a professional customer business from the Phlx

trading floor. In lieu of full registration as a registered

representative, the proposed limited registration would apply to

accepting orders from professional customers\5\ only, as defined in

proposed Rule 604(c)(i). Limited registration/floor members would be

required to register as such with the Exchange and pass an examination.

This examination, a subset of the Series 7, would be tailored toward

the professional customer business being conducted, testing knowledge

required to conduct such a business. The advantage of such an

examination is that it would cover important topics relevant to

conducting a professional customer business, but not knowledge

particular to conducting a retail business. For example, municipal

securities, although covered on the Series 7, would not be tested on

the proposed new examination, because such securities are not listed on

the Exchange and would not be governed by the proposed rule. The

outline of the information to be covered includes the following topics:

federal and state securities laws; general characteristics of equity

securities and corporate bonds; conduct respecting customer accounts;

primary and secondary securities markets; and order execution,

confirmation, settlement and recordkeeping.

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\5\The proposal would define a professional customer to include

a bank, trust company, insurance company, investment trust, state or

political subdivision thereof, charitable or nonprofit educational

institution regulated under the laws of the United States, or any

state, or pension or profit sharing plan subject to ERISA or of an

agency of the United States or of a state or political subdivision

thereof or any person who has, or has under management, net tangible

assets of at least sixteen million dollars. For purposes of this

definition of professional customer, the term ``person'' shall mean

the same as that term is defined in Rule 20, except that it shall

not include natural persons.

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The proposed rule change is intended to simplify the procedure for

Phlx members to conduct business with non-member, non-broker-dealer

professional customers. The Exchange believes that the new examination

is appropriate, in lieu of the Series 7, because it nevertheless tests

knowledge relevant to conducting a public business. For example, the

rules governing customer accounts, as listed in the examination

outline, would be covered, such that Limited Registration/Floor Members

would be tested for competence regarding excessive trading, approval of

accounts and discretionary transactions.

The Phlx notes that conducting a public business with other than

professional customers as defined in Rule 604(d) would require full

Series 7 registration. In addition, conducting a professional customer

business from off the Phlx trading floor, or in non-Phlx listed issues,

would also require full Series 7 registration. Of course, persons who

are Series 7 registered need not register as Limited Registration/Floor

Members in order to conduct a professional customer business.

2. Statutory Basis

The proposed rule change is consistent with Section 6 of the Act in

general, and in particular, with Section 6(b)(5), in that it is

designed to promote just and equitable principles of trade, remove

impediments to and perfect the mechanism of a free and open market and

a national market system, as well as to protect investors and the

public interest. The examination requirement is intended to protect

investors and the public interest, namely the professional customers

whose orders would be handled by Limited Registration/Floor Members, by

requiring a minimum competence level. The Exchange also believes that

the proposed limited registration requirements should facilitate direct

access to professional customers, which should enhance liquidity in

Exchange-listed securities. This, in turn, should promote just and

equitable principles of trade.

Accordingly, the proposed rule change is also consistent with

Section 6(c)(3)(B) of the Act, which provides that a national

securities exchange may examine and verify the qualifications of an

applicant to become a person associated with a member in accordance

with procedures established by the rules of the exchange, and require

any person associated with a member, or any class of such persons, to

be registered with the exchange in accordance with procedures so

established. Lastly, the Exchange believes that the proposed rule

change is consistent with Section 15(b)(7) in that it is designed to

ensure that a registered broker or dealer, prior to effecting any

transaction in, or inducing the purchase or sale of, any security, meet

certain standards of operational capability, training, experience, or

competence.

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

The Exchange has neither solicited nor received written comments on

the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such other 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 the self-regulatory organization consents, the Commission will:

(A) by order approve the 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

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. Sec. 552, will be available for inspection and copying at

the Commission's Public Reference Section, 450 Fifth Street, NW.,

Washington, DC 20549. 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-94-15 and should be

submitted by January 4, 1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-30619 Filed 12-13-94; 8:45 am]

BILLING CODE 8010-01-M