[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Pages 57685-57687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27888]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42028; File No. SR-Phlx-99-31]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval to a Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. To Require Exchange Members and 
Member Organizations to Provide Reports and Other Information Relating 
to Year 2000

October 18, 1999.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 25, 1999, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Phlx. On October 1, 
1999, the Phlx filed Amendment No. 1 to the proposal with the 
Commission.\3\ The Commission is publishing this notice and order to 
solicit comments on the proposed rule change from interested persons 
and to grant accelerated approval to the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Richard S. Rudolph, Counsel, Phlx, to Heidi E. 
Pilpel, Special Counsel, Division of Market Regulation, Commission, 
dated October 1, 1999 (Amendment No. 1). The substance of Amendments 
No. 1 is incorporated into the notice and order.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to amend Exchange Rule 650, Mandatory 
Participation in Year 2000 Testing, to require members and member 
organizations to submit all reports, documents or other information 
relating to Year 2000 readiness or to the century date change as the 
Exchange may request. Currently, the rule mandates that members and 
member organizations are to participate in Year 2000 related testing 
and are to provide to the Exchange reports related to such testing.
    The new clause in Phlx Rule 650 would also require members and 
member organizations to provide all reports and other documents 
relating to the Year 2000 century date change as requested by the 
Exchange. It would thus permit the Exchange to sanction, where 
appropriate, members and member organizations who do not respond 
reasonably promptly to

[[Page 57686]]

requests for reports, such as, for example, Year 2000 Readiness 
Disclosures, updates on the member or member organization's efforts to 
become Year 2000 ready, and any other related information requested by 
the Exchange. Violations of Phlx Rule 650 would be referred to the 
Exchange's Business Conduct Committee. Below is the text of the 
proposed rule change. Proposed new language is in italics.
* * * * *
Mandatory Participation in Year 2000 Testing
    Rule 650. Each member and member organization shall participate in 
testing of computer and computer related systems designed to prepare 
for the Year 2000 century date change in a manner and frequency 
prescribed by the Exchange, and shall provide to the Exchange reports 
related to such testing, and any such reports, documents, or other 
information relating to Year 2000 readiness or to Year 2000 century 
date change as the Exchange may require, in a reasonably prompt fashion 
as requested by the Exchange. Any member or member organization which 
is subject to this rule and determined by the Exchange to be in 
violation of this rule may be subject to disciplinary action pursuant 
to the Exchange's rules.
Commentary
    01. The Exchange may exempt a member or member firm from this 
requirement if that member cannot be accommodated in the testing 
schedule by the organization conducting the test or if the member does 
not employ computers in its business or for other good reasons 
determined by the Exchange.
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Phlx included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Phlx has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add a clause to Exchange Rule 650 which 
would require Exchange members and member firms to submit reports, 
documents or other information relating to the Year 2000 readiness or 
to the Year 2000 century date change as the Exchange may request.
    Currently, Exchange Rule 650 mandates that members and member firms 
participate in testing related to Year 2000 issues, and to submit 
reports relating to such testing to the Exchange as requested.\4\ The 
new clause in Phlx Rule 650 would broaden the rule to require Exchange 
members and member organizations to submit all Year 2000 related 
reports, documents or other information relating to Year 2000 readiness 
or to the Year 2000 century date change requested by the Exchange, 
rather than those relating to testing only. The proposed rule is 
intended to require members and member organizations to provide to the 
Exchange, upon request, reports, documents, contingency plans, and 
other information and representations regarding Year 2000 readiness, 
including, but not limited to, information similar to that required by 
Commission temporary-rules 15b7-3T and 17a-9T under the Act, which were 
recently adopted by the Commission.\5\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 40870 (December 31, 
1998), 64 FR 1263 (January 8, 1999), File SR-Phlx-99-53 (Notice of 
Filing and Order Granting Accelerated Approval of Proposed Rule 
Change and Amendment No. 1).
    \5\ See Securities Exchange Act Release No. 41661 (July 27, 
1999), 64 FR 42012 (August 3, 1999), File S7-8-99.
---------------------------------------------------------------------------

    The proposal is not intended to require the Exchange to request 
certain reports and information relating to Year 2000 readiness from 
members and member organizations. Rather, it is intended as a measure 
through which the Exchange may require the submission of certain 
reports and information, and as an enforcement mechanism in the event 
that members and member organizations fail to comply with such a 
request.
    The proposed rule change would allow the Exchange to ascertain the 
readiness of its members and member organizations for the Year 2000 
century date change, and to determine what measures and contingency 
plans, policies and procedures have been put in place by those members 
and member organizations. Such members and member organizations who 
fail to respond to Exchange requests for Year 2000 reports and 
documents would be subject to disciplinary action by the Exchange.\6\
---------------------------------------------------------------------------

    \6\ Phlx Rule 650 specifically states that any member or member 
organization determined by the Exchange to be in violation of the 
rule may be subject to disciplinary action pursuant to the 
Exchange's rules. While disciplinary action is implied as a 
consequence of any Exchange rule violation, the rule includes this 
clause in order to remain consistent with similar rules promulgated 
by other exchanges, on which Exchange Rule 650 is based.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b)(5) \7\ of the Act in that it is designed to perfect the 
mechanisms of a free and open market and a national market system, and 
to protect investors and the public interest, and to reduce the risks 
of the Year 2000 century date change posed to investors and the 
securities markets, by requiring members and member firms to report to 
the Exchange their Year 2000 readiness, contingency plans, policies and 
procedures, and other related reports and documents requested by the 
Exchange.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change will impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Phlx has neither solicited nor received written comments on the 
proposed rule change.

III. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    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)(1) \8\ and 6(b)(5) 
\9\ of the Act. Section 6(b)(1) of the Act requires that an exchange be 
organized and have capacity to enforce compliance by its members with 
the provisions of Title 15 U.S.C., the rules and regulations 
thereunder, and the rules of the Exchange.\10\ Section 6(b)(5) of the 
Act requires, among other things,

[[Page 57687]]

that the rules of the exchange be designed to promote just and 
equitable principles of trade, 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, and, in general, to 
protect investors and the public interest.\11\
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b)(1).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(1).
    \11\ In approving the proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
---------------------------------------------------------------------------

    Securities market participants will soon face a critical test of 
their automated systems with the upcoming Year 2000; and the Commission 
believes that the support of the self-regulatory organizations is 
necessary to minimize the risks resulting from the century date change. 
Currently, the Phlx is entitled to receive, upon request, only the Year 
2000 testing reports of its members and member organizations. Under the 
Exchange's proposal, the Phlx has authority to require members and 
member organizations to submit additional information regarding their 
Year 2000 readiness. The Commission believes that this information will 
assist the Phlx in evaluating its members' Year 2000 readiness. With 
more complete information, the Commission believes that the Phlx will 
be better able to monitor its members and member organizations to 
ensure their compliance with federal securities laws and the Exchange's 
rules. Therefore, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(1) of the Act.
    The Commission also believes that the Phlx's proposed rule change 
should help reduce the risks posed to investors and the securities 
markets by broker-dealers that have not adequately prepared their 
computer systems for the century date change. The Commission finds that 
the Phlx's proposed rule change should facilitate transactions in 
securities and protect investors and the public interest and is 
therefore consistent with Section 6(b)(5) of the Act.
    The Commission finds good cause for approving the proposal prior to 
the thirtieth day after the date of publication of notice thereof in 
the Federal Register. Accelerated approval will permit the Exchange to 
obtain reports, documents, and other information related to the Year 
2000 immediately, allowing the maximum amount of time possible to 
identify, assess, and remediate Year 2000 problems. Accordingly, the 
Commission believes that good cause exists, consistent with Section 
6(b)(5) and Section 19(b)(2) of the Act, to grant accelerated approval 
to the proposal.\12\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-99-31 and should 
be submitted by [insert date 21 days from date of publication].

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Phlx-99-31) is approved on 
an accelerated basis.

    \13\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27888 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M