[Federal Register Volume 63, Number 77 (Wednesday, April 22, 1998)]
[Notices]
[Pages 19990-19991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10606]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39874; File No. SR-CHX-98-04]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Stock Exchange, Inc. Relating to Examination 
Requirements for Securities Traders

April 14, 1998.

I. Introduction

    On February 18, 1998, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposal to require certain off-floor CHX members to 
successfully complete the Series 7 examination.\3\ The proposed rule 
change and Amendment No. 1\4\ to the proposal were published for 
comment in the Federal Register on March 11, 1998.\5\ No comments were 
received regarding the proposal. This order approves the proposed rule 
change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Series 7 examination is a qualification examination for 
persons seeking registration as general securities representatives.
    \4\ See Letter from Joseph M. Klauke, Foley & Lardner, to Yvonne 
Fraticelli, Division of Market Regulation (``Division''), 
Commission, dated March 3, 1993 (``Amendment No. 1''). In Amendment 
No. 1, the CHX corrected a legal reference in the CHX's discussion 
of the statutory basis for the proposed rule change. Specifically, 
Amendment No. 1 replaces a reference to Section 6(c)(3)(8) of the 
Act with a reference to Section 6(c)(3)(B) of the Act.
    \5\ See Securities Exchange Act Release No. 39721 (March 4, 
1998).
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II. Description of the Proposal

    CHX Rule 3, ``Training and Examination of Registrants,'' of Article 
VI, ``Restrictions and Requirements,'' currently authorizes the CHX to 
establish examination requirements in connection with the registration 
of partners, officers, options principals, branch office managers, and 
registered representatives of members. Pursuant to CHX Article VI, Rule 
3, the CHX has adopted examination requirements for various persons on 
the CHX floor, including floor brokers, market makers, and co-
specialists.\6\ However, the CHX has no examination requirement for 
persons who conduct trading activities off the CHX floor. The CHX 
proposes to add examination requirements for off-floor securities 
traders and certain other associated persons of members who are not 
covered by the CHX's current examination requirements.
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    \6\ See CHX Article VI, Rule 3, Interpretation and Policy .01.
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    Specifically, the CHX proposes to adopt Interpretation and Policy 
.02 to CHX Article VI, Rule 3, which will require associated persons of 
members for which the CHX is the Designated Examining Authority 
(``DEA'') who execute, make trading decisions with respect to, or 
otherwise engage in proprietary or agency trading of equities, 
preferred securities or convertible debt securities to successfully 
complete the Series 7 Examination.\7\ Interpretation and Policy .02 
will not apply to any associated person who is subject to the 
examination requirements of Interpretation and Policy .01 because he or 
she is physically located on the CHX floor.
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    \7\ The proposal is limited to associated persons of members for 
which the CHX is the DEA because associated persons of members with 
a DEA other than the CHX already are subject to the examination 
requirements of the self-regulatory organization (``SRO'') which is 
the DEA for the member firm. Telephone conversation between Patricia 
Levy, General Counsel, CHX, and Yvonne Fraticelli, Attorney, Office 
of Market Supervision (``OMS''), Division, Commission, on February 
25, 1998.
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    The CHX's proposal also revises the text of CHX Article VI, Rule 3, 
to provide that the CHX may require that associated persons of members 
must successfully complete a training course or examination, or both, 
in connection with registration.
    According to the CHX, the proposal will bring the CHX's examination 
requirements in line with those of the major securities exchanges and 
enhance the consistency of examination requirements across the 
exchanges.
    The CHX will phase in the new examination requirement over a six-
month period. Specifically, the CHX will require associated persons who 
currently are covered by Interpretation and Policy .02 to register to 
take the Series 7 examination within 30 days of the Exchange's 
publication in a Notice to Members of the order approving the 
effectiveness of the new examination requirement.\8\ Persons covered by

[[Page 19991]]

Interpretation and Policy .02, who must promptly notify the Exchange 
that they have registered to take the Series 7 examination, will have 
six months from the date of the CHX's Notice to Members to pass the 
Series 7 examination. Persons covered by Interpretation and Policy .02 
who become associated with members after the CHX publishes notice of 
the examination requirement in a Notice to Members must successfully 
complete the Series 7 examination before conducting securities trading 
activities for which an examination is required under the 
Interpretation and Policy .02.
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    \8\ Associated persons covered by Interpretation and Policy .02 
who fail to register to take the Series 7 examination within 30 days 
of the CHX's Notice to Members must cease doing business. Telephone 
conversation between Patricia Levy, General Counsel, CHX, and Yvonne 
Fraticelli, Attorney, OMS, Division, Commission, on April 14, 1998.
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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. Specifically, 
the Commission finds that the proposal is consistent with the 
requirements of Sections 15(b)(7), 6(b)(5), and 6(c)(3)(B) of the 
Act.\9\ Section 15(b)(7) states that a registered broker or dealer may 
not effect any transaction in, or induce the purchase or sale of, any 
security unless the broker or dealer meets certain standards of 
operational capability and all those associated with the broker or 
dealer meet certain standards of training, experience, competence, and 
such other qualifications as the Commission finds necessary or 
appropriate in the public interest or for the protection of investors. 
Section 6(b)(5) requires, among other things, that the rules of an 
exchange be designed to promote just and equitable principles of trade, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.\10\ Section 6(c)(3)(B) 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.
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    \9\ 15 U.S.C. 78o(b)(7), 78f(b)(5), and 78f(c)(3)(B) (1988).
    \10\ 15 U.S.C. 78f(b)(5).
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    Interpretation and Policy .02 will require off-floor associated 
persons of members for which the CHX is the DEA who execute, make 
trading decisions with respect to, or otherwise engage in proprietary 
or agency trading of equities, preferred securities, or convertible 
debt securities to successfully complete the Series 7 examination. The 
CHX's rules currently contain no examination requirement for persons 
covered by Interpretation and Policy .02. Interpretation and Policy .02 
is designed to eliminate this gap in examination requirements and to 
make the CHX's examination requirements more consistent with the 
examination requirements of the other SROs.
    The Commission believes that it is appropriate for the CHX to 
establish an examination requirement for associated persons covered by 
Interpretation and Policy .02. Specifically, the Commission believes 
that the CHX's proposal will help to ensure that only those associated 
persons covered by Interpretation and Policy .02 who have an 
understanding of the Act, will be able to solicit, purchase or sell 
securities for the accounts of customers. The Commission recognizes the 
importance to investors of efforts by the SROs to ensure that 
associated persons have appropriate levels of knowledge and expertise 
regarding applicable laws and regulations. By helping to establish this 
level of knowledge, the Commission believes that the CHX's proposal 
will help associated persons covered by Interpretation and Policy .02 
carry out their responsibilities under the federal securities laws.
    In addition, the Commission believes that it is reasonable and 
consistent with Section 6(c)(3)(B) of the Act for the CHX to amend CHX 
Article VI, Rule 3 to state that the CHX may establish examination 
requirements for members and associated persons.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-CHX-98-04), as 
amended, is approved.
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    \11\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-10606 Filed 4-21-98; 8:45 am]
BILLING CODE 8010-01-M