[Federal Register Volume 61, Number 232 (Monday, December 2, 1996)]
[Notices]
[Pages 63888-63889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-30526]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37974; File No. SR-PHLX-96-42]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to Limiting 
Time for Submission of Settlement Offers

November 22, 1996.
    On September 27, 1996, the Philadelphia Stock Exchange, Inc. 
(``PHLX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') a proposed rule change pursuant 
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') 
\1\ and Rule 19b-4 thereunder.\2\ The proposed rule change amends PHLX 
Rule 960.7, ``Offers of Settlement,'' to limit the time when a 
respondent may submit a written settlement offer to the PHLX's Business 
Conduct Committee (``BCC'') to within 120 calendar days immediately 
following the date of service of the statement of charges upon the 
respondent.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1995).
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    Notice of the proposed rule change was published for comment in the 
Federal Register on October 23, 1996.\3\ No comments were received on 
the proposal. This order approves the proposed rule change.
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    \3\ Securities Exchange Act Release No. 37838 (October 17, 
1996), 61 FR 55062.
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    Currently, PHLX Rule 960.7 allows a respondent in any proceeding 
under the PHLX's disciplinary rules to submit a written settlement 
offer to the Exchange's BCC at any time during the course of the 
proceeding. The Exchange proposes to amend PHLX Rule 960.7 to limit the 
time when a respondent may submit a written settlement offer to the BCC 
to within 120 calendar days immediately following the date of service 
of the statement of charges upon the respondent in accordance with PHLX 
Rule 960.11, ``Service of Notice and Extension of Time Limits.'' Under 
the proposal, the Exchange may schedule a hearing during the 120-day 
period immediately following the date of service of the statement of 
charges or as soon as practicable thereafter.
    The purpose of the proposal is to adopt a time limit during which 
respondents involved in a disciplinary matter before the PHLX's BCC may 
submit settlements offers. Because PHLX Rule 960.7 currently allows 
settlement offers to be submitted at any time, the BCC was concerned 
that respondents could intentionally submit inadequate offers of 
settlement for the sole purpose of delaying a scheduled hearing until 
the offer is reviewed by the full BCC. The proposal will allow the BCC 
to schedule hearings after the 120-day period knowing that there will 
not be last minute requests for continuances based upon late offers of 
settlement.
    Under proposed Interpretation and Policy .01, the BCC may schedule 
a hearing during the 120-day period immediately following the date of 
service of the statement of charges on the respondent.\4\ The BCC will 
continue to have the ability to entertain settlement offers after the 
120-day period if its review does not delay the scheduled hearing in 
the matter.
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    \4\ Under PHLX Rule 960.5, ``Hearing,'' a respondent must be 
given at least 15 business days notice of the time of a hearing.
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    The PHLX believes that the proposed rule change is consistent with 
Section 6 of the Act in general, and in particular, with Section 
6(b)(5), in that it is designed to promote just and equitable 
principles of trade, to prevent

[[Page 63889]]

fraudulent and manipulative acts and practices, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, as 
well as to protect investors and the public interest by allowing for 
more expeditious completion of disciplinary matters.
    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, the requirements of Section 6(b)(5) \5\ in that it is 
designed to prevent fraudulent and manipulative acts and practices and 
to protect investors and the public interest. The Commission also 
believes that the proposal is consistent with Section 6(b)(7) of the 
Act because it provides a fair procedure for disciplining members.\6\ 
Specifically, by limiting the time allowed for the submission of 
settlement offers, the Commission believes that the proposal should 
facilitate the PHLX's efforts to provide prompt, effective, and 
meaningful discipline for violations of Exchange rules and the federal 
securities laws. In addition, by minimizing opportunities for delay, 
the proposal should help to preserve evidence and the availability of 
witnesses, thereby enhancing the quality, consistency, and fairness of 
the Exchange's disciplinary proceedings and enabling the PHLX to better 
enforce compliance by its members with the Exchange's rules and the 
federal securities laws. By facilitating the prompt resolution of 
disciplinary proceedings, the proposal also will promote efficiency in 
the use of the Exchange's resources.
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    \5\ 15 U.S.C. Sec. 78f(b)(5) (1988).
    \6\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. Sec. 78c(f).
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    The PHLX states that because PHLX Rule 960.7 currently allows 
settlement offers to be submitted at any time, the Exchange's BCC was 
concerned that respondents could intentionally submit inadequate offers 
of settlement for the sole purpose of delaying a scheduled hearing 
until the offer is reviewed by the full BCC. The Commission believes 
that the proposed time limit for submitting settlement offers should 
allow the PHLX's disciplinary proceedings to progress promptly by 
preventing members from submitting inadequate settlement offers in 
order to delay a hearing.
    At the same time, the Commission believes that the proposal 
protects members' rights to fair procedures in Exchange disciplinary 
proceedings. Specifically, the proposal allows respondents to submit 
settlement offers \7\ up to 120 days following the date of service of a 
statement of charges upon the respondent.\8\ Although a hearing may be 
scheduled during the 120-day period, PHLX Rule 960.5 provides that a 
respondent must be given at least 15 business days notice of the time 
of a hearing. Accordingly, the Commission believes that the proposal 
preserves a respondent's right to submit settlement offers and provides 
a respondent with adequate time to submit settlement offers, thereby 
providing a fair procedure for the disciplining of members, consistent 
with Section 6(b)(7).
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    \7\ A respondent may submit more than one settlement offer 
during the 120-day period. Telephone conversation between Michele R. 
Weisbaum, Vice President and Associate General Counsel, PHLX, and 
Yvonne Fraticelli, Attorney, Office of Market Supervision, Division 
of Market Regulation, Commission, on October 2, 1996.
    \8\ The proposal allows the BCC to consider settlement offers 
submitted after the 120-day period as long as consideration of an 
offer does not delay the hearing in the matter.
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    Finally, the Commission notes that the rules of the Chicago Board 
Options Exchange, Inc. (``CBOE'') also provide a 120-day period for 
submitting settlement offers.\9\
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    \9\ See CBOE Rule 17.8(a), ``Offers of Settlement.''
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposed rule change (SR-PHLX-96-42) is approved.

    \10\ 15 U.S.C. Sec. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-30526 Filed 11-29-96; 8:45 am]
BILLING CODE 8010-01-M