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Self-Regulatory Organizations; Stock Clearing Corporation of Philadelphia; Order Approving a Proposed Rule Change to Increase the Margin Threshold for Margin Members in Certain Nasdaq National Market Securities

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Start Preamble January 10, 2002.

On April 30, 2001, the Stock Clearing Corporation of Philadelphia (“SCCP”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-SCCP-00-06) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”).[1] Notice of the proposal was published in the Federal Register on July 26, 2001.[2] On July 26, 2001, SCCP amended the proposed rule change.[3] No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change.

I. Description

SCCP Rule 9 provides in part that SCCP will provide margin accounts for margin members that clear and settle their transactions through SCCP's omnibus clearance and settlement account. SCCP provides margin for such accounts based on SCCP's Rule 9 and other relevant SCCP rules, by-laws, and procedures and Regulation T of the Board of Governors of the Federal Reserve System. Currently, margin members who are designated as specialists or alternate specialists in an exchange listed security have a margin financing threshold rate of 15 percent for positions in those securities held in their specialist accounts. Members holding positions for which they are not designated as specialist or alternative specialist have a non-specialist margin rate of 50 percent. Pursuant to Rule 9, SCCP may issue margin calls to any margin member when the margin requirement exceeds the account equity.

The rule change amends SCCP's providers to specify a margin financing threshold rate of 25 percent for members registered as specialists and alternate specialists in Nasdaq NM securities. It should be noted that the Philadelphia Stock Exchange, Inc. (“Phlx”) has recently reinstated its over the counter/Start Printed Page 2269unlisted trading privileges (“OTC/UTP”) pilot program for trading activity during regular trading hours.[4] SCCP expects that some of its margin members will be registered in certain of the eligible Nasdaq NM securities once the Phlx begins trading Nasdaq NM securities again.

It also should be noted that no other aspects of the SCCP procedures respecting Rule 9 are being modified. The rule change establishes a margin financing threshold rate of 25 percent for margin members registered as specialists or alternative specialists in certain Nasdaq NM securities.

II. Discussion

Section 17A(b)(3)(F) [5] of the Act requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which the clearing agency is responsible. Once the Phlx begins trading Nasdaq NM securities again, it will be prudent for SCCP to require a higher margin financing threshold rate (25 percent ) for Nasdaq NM securities than for exchange listed securities (15 percent).[6] Accordingly, the Commission finds that the higher margin financing threshold rate for Nasdaq NM securities should help SCCP meet its statutory safeguarding obligations.

III. Conclusion

On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of section 17A(b)(3)(F) of the Act and the rules and regulations thereunder.

It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-SCCP-2001-06) be and hereby is approved.

Start Signature

For the Commission by the Division of Market Regulation, pursuant to delegated authority.[7]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


2.  Securities Exchange Act Release No. 44582 (July 20, 2001), 66 FR 39071.

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3.  The amendment was technical in nature and did not require republication of the notice.

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4.  Securities Exchange Act Release No. 45182 (December 20, 2001), 66 FR 67609 (December 31, 2001) [File No. SR-Phlx-00-20]

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5.  15 U.S.C. 78q-1(b)(3)(F).

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6.  SCCP recently reviewed volatility levels for the Nasdaq 100 index and Nasdaq Composite index as compared to the Dow Jones Industrial average and the NYSE Composite index indicated significantly higher volatility levels over 10 day, 20 day, 50 day, and 90 day time periods.

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[FR Doc. 02-1106 Filed 1-15-02; 8:45 am]