Federal Register / Vol. 62, No. 205 / Thursday, October 23, 1997 / Notices 55293

19 15 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3 17 CFR 240.15c3–1.

4 Id.

5 Id.

6 15 U.S.C. § 78f(b); 15 U.S.C. § 78k(b).

7 In approving this proposed rule change, the

Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. § 78c(f).

8 15 U.S.C. § 78k(b).

9 17 CFR 240.11b–1.

10 17 CFR 240.11b–1(a)(2)(i).

11Securities Exchange Act Rel. No. 31512 (Nov.

24, 1992), 57 FR 57027 (Dec. 2, 1992).

12 Id.

13 Id.

14 Id.

15 15 U.S.C. § 78s(b)(2).

16 17 CFR 200.30–3(a)(12).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,19 that the

proposed rule change (File No. SR–

CBOE–97–25) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28027 Filed 10–22–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39245; File No. SR–CSE–

97–09]

Self-Regulatory Organizations;

Cincinnati Stock Exchange, Inc.; Order

Granting Approval to Proposed Rule

Change Increasing Net Capital

Requirements

October 16, 1997.

On July 30, 1997, the Cincinnati Stock

Exchange, Inc. (‘‘CSE’’ or ‘‘Exchange’’)

submitted to 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

increase net capital requirements for

members and Designated Dealers.

I. Introduction

The proposed rule change was

published for comment in Securities

Exchange Act Release No. 38956

(August 21, 1997), 62 FR 45893 (August

29, 1997). No comments were received

on the proposal.

II. Description of the proposals

Exchange Article II, Section 5.1

presently requires a minimum net

capital level on non-specialist Exchange

members equal to the greater of the net

capital level required by Commission

Rule 15c3–1 3 or $25,000. The Exchange

proposes to amend this rule to increase

that requirement from $25,000 to

$250,000. As previously required,

members would still be subject to any

higher net capital requirements imposed

by Commission Rule 15c3–1.4

The Exchange also proposes to amend

Exchange Rule 11.9(a). That rule

currently requires Designated Dealers to

maintain net capital of at least the

greater of $100,000 or the amount

required under Commission Rule 15c3–

1. The Exchange proposes to amend this

rule to increase the Exchange

requirement from $100,000 to $500,000.

Again, members would still be subject

to any higher net capital requirement

imposed by Commission Rule 15c3–1.5

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, with the

requirements of Sections 6(b) and 11(b)

of the Act.6 In particular, the

Commission believes the proposal is

consistent with the Section 6(b)(5)

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and, in general, to protect investors

and the public.7 The Commission also

believes that the proposal is consistent

with Section 11(b) of the Act,8 and Rule

11b–1 9 thereunder, which allows

securities exchanges to promulgate rules

relating to specialists in order to

maintain fair and orderly markets. The

proposal is consistent with Rule 11b–

(a)(2)(i) 10 which requires that the rules

of a national securities exchange which

permit a member to register as a

specialist and to act as a dealer include,

among other things, adequate minimum

capital requirements in view of the

markets for securities on such exchange.

The Commission finds that the rule

change will help ensure greater

financial stability of the Exchange’s

members by requiring those members to

maintain higher capital levels. The

Commission examined this issue when

it revised Rule 15c3–1 in 1992.11 In

proposing to raise the minimum net

capital requirements under Commission

rules, the Commission noted that under

Rule 15c3–1 customers are placed at

risk by brokers that do not receive or

hold customer securities because such

brokers have indirect access to customer

funds and securities, and can direct the

movement of such assets by placing

orders with clearing firms. Customers

are often unaware of or unable to

distinguish between introducing brokers

and clearing firms, and tend to rely

heavily upon the representations of

brokers of introducing firms. Higher net

capital requirements will help ensure

the financial integrity of such

introducing firms and thereby help to

protect investors.12 The Commission

concurs with the Exchange that better

capitalized introducing firms are less

likely to become insolvent and in the

event that an introducing firm does

become insolvent, higher net capital

levels would help increase the changes

that the firm can quickly find a

purchaser of its assets and minimize the

impact of such a failure on the investing

public.13 Finally, the Commission has

previously stated its belief that raising

minimum net capital levels will further

the antifraud provisions of the federal

securities laws.14 The Exchange noted

that member firms have access to

customer securities and funds either

directly, as a clearing firm, or indirectly,

as an introducing firm that places orders

with a clearing firm on behalf of its

customers. In either case, firms can

convert those assets to their own

benefit. A firm with sufficient net

capital may be less likely to attempt to

convert funds in this manner.

The Commission also believes that it

is important that Designated Dealers are

adequately prepared to provide depth

and liquidity to the Exchange’s markets

in times of market stress or volatility.

The Commission agrees with the

Exchange that the growth in the U.S.

capital markets generally, and in the

CSE’s market in particular, has created

market conditions which have created a

need for greater capital levels on the

CSE. The Commission finds that the

increased net capital requirement for

Designated Dealers will better protect

the integrity and quality of the

Exchange’s market.

IV. Conclusion

It is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,15 that the

proposed rule change (SR–CSE–09) is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.16

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–28030 Filed 10–22–97; 8:45 am]

BILLING CODE 8010–01–M