U.S.C. 78f and 78s, if it deferred to, and relied upon, the SIPCdesignated examining authority to determine compliance by the examined member with all applicable financial responsibility rules. In this context, as you know, the term "financial responsibility rules," a term contained in Section 9(c) of SIPA, is defined in Section 12(2) of that Act, 15 U.S.C. 78111(2), to mean the "rules and regulations pertaining to financial responsibility and related practices which are applicable to a broker or dealer, as prescribed by the Commission under subsection (c)(3) of section 15 of the [Securities Exchange] Act or prescribed by a national securities exchange."

As you are aware, Section 6(b) of the Securities Exchange Act, 15 U.S.C. 78f(b), requires that an exchange's rules provide for the enforcement of "just and equitable principles of trade" as well as the provisions of, and the rules promulgated under, the Securities Exchange Act. These would include appropriate standards for determining the financial responsibility of members. Similarly, Section 19(a)(1) of that Act, 15 U.S.C. 780(a) (1), authorizes the Commission to suspend or withdraw the registration of an exchange that fails to enforce the provisions of the Act and the rules promulgated thereunder.

Section 2 of SIPA, 15 U.S.C. 78bbb, provides generally that "the provisions of the Securities Exchange Act... apply as if [SIPA] constituted an amendment to, and was included as a section of, such Act." In our view, the effect of Sections 2 and 9 of SIPA is to modify, to the extent herein discussed, the provisions of Sections 6 and 19(a) (1) of the Securities Exchange Act.

Thus, in adopting SIPA, Congress sought to provide a procedure for assuring that, for each member of SIPC, only one self-regulatory body would be responsible for collecting SIPC assessments and inspecting the SIPC member for compliance with applicable financial responsibility rules. In this manner, Congress intended to eliminate, to the maximum extent possible, any duplication of effort among the selfregulatory bodies. Accordingly, the Midwest Stock Exchange would not be in derogation of its responsibilities under Sections 6 and 15(a) (1) of the Securities Exchange Act if it should defer to the SIPC-designated examining authority for the examination of certain members for compliance with financial responsibility rules.

You should be aware, however, that the fact that certain Midwest Stock Exchange members might be examined by another self-regulatory body designated by SIPC does not relieve that exchange of its duty to take appropriate action-including the notification of the SIPC-designated examining authority, SIPC, and the Commissionwith respect to any facts within its knowledge, or with respect to any facts of which it reasonably should be aware, because of its other responsibilities, which indicate a failure of a member firm to comply with applicable financial responsibility rules.

Sincerely,

Rule 17a-19

RAY GARRETT, Jr., Chairman.

Because the Commission believes that in regard to financial responsibility and related recordkeeping a broker-dealer should be examined by and report to only one self-regulatory organization, it is essential that any change in membership status which may affect a firm's relationship with its SIPC designated examining authority or

any other self-regulatory organization of which it is a member be brought promptly to the attention of the Commission and SIPC, in order that SIPC may promptly assess whether alteration of its designation of a principal examining authority under Section 9(c) of the SIPC Act may be appropriate.

8

Accordingly, as previously noted, the Commission has under consideration proposed Rule 17a-19 and related Form X-17A-19 under the Securities Exchange Act of 1934. The proposed rule would require each national securities exchange and each registered national securities association promptly upon the happening of certain changes in the membership status of any of its members or upon learning that such changes will occur, to file with the Commission and SIPC a Form X-17A-19 which is divided into two parts. The changes in status are initiation, suspension or termination 10 of membership, or any other similar change in status which affects the firm's relationship with the self-regulatory organization. The form requires the selfregulatory organization to identify the firm, the nature of the membership change and its effective date, and to give a brief description of the change. If each change is a suspension or termination of membership (which will frequently entail a redesignation of the principal examining authority), the form requires information regarding the identity of the current designated examining authority for the firm, whether the filing self-regulatory organization had the firm under closer than normal surveillance, the date of the last examination undergone by the firm, and whether the firm is being dissolved or liquidated. If the action is a new membership, the form requires information regarding the examination cycle code to be assigned to the firm by the self-regulatory organization. If membership will continue, the form inquires whether the examination cycle code will be changed by the self-regulatory organization.

Nothing in this rule would be deemed to exempt any national securities exchange from the requirements of Paragraph (4) of Rule 17a-5(j) under the Securities Exchange Act of 1934, which requires exchanges to file reports concerning members which cease to be in good standing. If an exchange files with the Commission a Form X-17A-19 promptly, however, and such form includes, inter alia, sufficient information to satisfy the requirements of Paragraph (4) of Rule 17a-5(j), the exchange would not be required to file separately under Paragraph (4). It is anticipated that the need for Paragraph (4) of Rule 17a-5(j) would be reconsidered after Rule 17a-19 becomes effective. Because of the sensitive nature of the information reported on Part II of Form X-17A-19 the Commission is of the opinion that the information submitted on Part II would be regarded as information exempt from public disclosure under the Freedom of Information Act (5 U.S.C. 552(b)).

Statutory Basis

Proposed Rule 17a-19 and related Form X-17A-19 would be adopted pursuant to Sections 17(a) and 23(a) of the Securities Exchange Act of 1934.

The use of the term members includes member organizations.

Part II of the Form, which is non-public, contains the information with respect to firms which were under closer than normal surveillance and which will be terminated or suspended, and the information regarding the filing self-regulatory organizations examination frequency cycle for certain firms. Termination includes, among other things, resignation, withdrawal and expulsion.

Text of Proposed Rule 17a-19 and Related Form X-17A-19

Rule 17a-19

Every national securities exchange and every registered national securities association shall file with the Commission and the Securities Investor Protection Corporation such information as is required by Form X-17A-19 promptly upon the occurrence of the initiation of the membership of any person, or the suspension or termination of the membership of any of its members (unless a notice of such event previously has been filed) or promptly upon learning that one or more of such events will occur. Nothing in this rule shall be deemed to relieve a national securities exchange of its responsibilities under Paragraph (4) of Rule 17a-5(j) except that to the extent a national securities exchange promptly files a Form X-17A-19 including therewith, inter alia, information sufficient to satisfy the requirements of Paragraph (4) of Rule 17a-5(j), it shall not be required to file under Rule 17a-5(j).

Form X-17A-19

INFORMATION REQUIRED OF NATIONAL SECURITIES EXCHANGES AND REGISTERED NATIONAL SECURITIES ASSOCIATIONS PURSUANT TO SECTION 19 OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 178-19 THEREUNDER

REPORT OF CHANGE IN MEMBERSHIP STATUS

General Instructions

1. This form shall be completed and filed upon learning that one or more of the changes in membership status listed in Item 3 of Part I of this Form will occur. If the information first becomes available after the change in membership status has occurred the form shall be completed and filed promptly.

2. Original: Mail to: Securities and Exchange Commission, Division of Market Regulation, 500 North Capitol Street, N.W., Washington, D.Č. 20549.

Copy No. 1: Mail to: Securities Investor Protection Corporation, Farragut Building, Suite 800, 900 17th Street, N.W., Washington, D.C. 20006.

Copy No. 2: Retain for your files.

3. The original filed with the Securities and Exchange Commission and the copy filed with the Securities Investor Protection Corporation shall be executed with a manual signature by a duly authorized official of the national securities exchange or registered national securities association (self-regulatory organization).

4. If the space provided in the Form for an answer to any Item is insufficient, the answer may be printed or typed on a separate insert page or pages which shall be incorporated into the statement by reference thereto in the space provided for the Item. 5. If any Item of the Form is inapplicable, a statement to that effect shall be made following the Item.

6. Copies of this Form may be obtained from the main office of the Securities and Exchange Commission in Washington, D.C.

7. Part II of this Form is non-public and shall be completed by the filing self-regulatory organization, if applicable.

Part I

1. Identify the Self-Regulatory Organization filing this report. ( )ASĚ ( )BSE CBOE ( )MSE ( )ÑASD (*)NYSE ( )PSE ( )PBW (Other

2. Provide the following information concerning the subject firm prior to the change in membership status indicated in Item 3 below.

(d) The SIPC-designated examining authority and collection agent prior to the change in membership status is:

(e) Memberships of the subject firm prior to the change in membership status:

)ASE()BSE ( )CBOE ()MSE (NASD (NYSE ( )PSE ( )PBW ()Other

(f) Indicate whether the firm is a parent [ ] or subsidiary [ ] of another broker-dealer and with respect to such other broker-dealer provide the following information:

3. The contemplated change in membership with the reporting self

regulatory organization is:

a. () Termination of membership.

b. () Suspension of membership.

c. New membership.

d. () Other change in membership status.

Give a brief description of said change:

e. Describe any changes of which you are aware in this firm's membership or membership status with other selfregulatory organizations:

f. The effective date of the change is

SEC Form No. X-17A-19

4. If the change in membership status is termination or suspension of membership, provide the following information:

a. What was the date of last examination by the self-regulatory organization filing this report?

(Date)

b. If the last examination was performed by any other regulatory or self-regulatory organization, provide the date of the examination and name of the examining organization, where available.

() No

c. Is the firm being dissolved or liquidated?
( ) Yes

5. Signature of Person Completing Report:

Title and Date:

Person to Contact for Additional Information:
Telephone Number:

If a new examining authority is designated by SIPC, that examining authority and all other self-regulatory organizations of which the firm is a member will be notified by SIPC promptly.

Part II

1. If the change in membership status is termination or suspension of membership, provide the following information.

Was the firm on closer than normal surveillance prior to termination or suspension?

( ) Yes

() No

b. If answer to Item a is yes, provide complete details.