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Notice

Self-Regulatory Organizations; Order Granting Approval to Proposed Rule Change by the Chicago Stock Exchange, Inc. Relating to Minimum Net Capital and Excess Net Capital Requirements for Members

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Information about this document as published in the Federal Register.

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Start Preamble April 7, 2000.

I. Introduction

On September 24, 1999, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 [2] thereunder, a proposed rule change. In its proposal, CHX seeks to modify its minimum net capital and excess net capital requirements for members who are specialists or who carry the accounts of specialist. The proposed rule change was published for comment in the Federal Register on December 22, 1999. [3] The Commission received no comments on the filing. This order approves the proposal.

II. Description of the Proposal

The Exchange proposes to amend Article XI, Rule 3 of the Exchange's rules to modify the minimum net capital and excess net capital requirements applicable to members who are specialists or who carry accounts of specialists. CHX is amending its rules because it and the Midwest Clearing Corporation (“MCC”) have determined to discontinue the sponsored account program on June 30, 2000, after which time the MCC will be dissolved and the Exchange will no longer guarantee the MCC's obligations to qualified clearing agencies. [4]

Currently, the rules of the Exchange and the MCC permit floor members for Start Printed Page 20237the Exchange to establish “sponsored accounts” pursuant to which the MCC provides sponsored participants with access to clearance, settlement and delivery via a qualified clearing agency such as the National Securities Clearing Corporation (“NSCC”). The Exchange in turn provides a guaranty to the NSCC (and through the NSCC to The Depository Trust Company (“DTC”)) from time to time to guarantee the obligations of the MCC with respect to liabilities that could be generated in sponsored accounts. [5] As stated above, the Exchange and the MCC have decided to discontinue the sponsored account program on June 30, 2000.

Because of this change, all current sponsored participants will have to become direct participants in qualified clearing agencies such as NSCC and DTC. The Exchange therefore proposes to amend Article XI, Rule 3 to incorporate the minimum net capital and excess net capital requirements currently required for direct participation in NSCC, subject to the amended phase-in periods set forth in Interpretation and Policy .01 to the amended rule. The Exchange anticipates that the proposed phase-in periods will ameliorate any financial burden that might otherwise be placed on members who are specialists or who carry accounts of specialists.

III. Discussion

The Commission finds that the proposed rule change is consistent with the requirements of the Act.[6] In particular, the Commission finds the proposal is consistent with Section 6(b)(5) [7] of the Act. Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade and to protect investors and the public interest.

The Commission believes that the proposal is consistent with the Act and rules thereunder because the CHX is amending its rules to require net capital and excess net capital levels that are consistent with its current business plan, in light of CHX and MCC's decision to discontinue the sponsored account program. Because of this change in business plans, sponsored participants now need to become direct participants in clearing agencies such as NSCC and DTC. The proposed rule change allows for this change by making certain the CHX's net capital requirements for specialists and members who carry the accounts of specialists are consistent with those of NSCC. Further, CHX has given these members advance notice of the change and has provided for a reasonable phase-in period to prepare these members for the change.

IV. Conclusion

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,[8] that the proposed rule change (SR-CHX-99-20) is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Securities Exchange Act Release No. 42239 (December 15, 1999), 64 FR 71835.

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4.  “Qualified clearing agencies” is a defined term in the Midwest Clearing Corporation (“MCC”) Rules. See MCC Rules, Art. XI, Rule 1.

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5.  See CHX Rules, Art. XXI, Rule 14.

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6.  In reviewing the proposal, pursuant to Section 3(f) of the Act, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

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[FR Doc. 00-9327 Filed 4-13-00; 8:45 am]

BILLING CODE 8010-01-M