[Federal Register Volume 65, Number 157 (Monday, August 14, 2000)]
[Notices]
[Pages 49621-49622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-20513]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43126; File No. SR-Phlx-00-34]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. To 
Require Immediate Display of Customer Limit Orders by Specialists

Date: August 7, 2000.
    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 April 11, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
Exchange. On July 5, 2000, the Phlx filed Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing this notice to 
solicit comments on the proposed rule change and Amendment No. 1 from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Richard S. Rudolph, Counsel, Phlx, to Jennifer 
Colihan, Attorney, SEC, dated July 3, 2000 (``Amendment No. 1''). In 
Amendment No. 1, the Phlx clarified that immediate display of 
customer limit orders meant that customer limit orders would be 
displayed as soon as practicable, and under normal market 
conditions, no later than 30 seconds after receipt. Amendment No. 1 
also changed the proposed rule language for the implementation of 
the fine schedule from a ``three year running calendar basis'' to a 
``three year running basis.''
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx, pursuant to Rule 19b-4 of the Act, proposes to amend Phlx 
Rule 1020, and Options Floor Procedure Advice (``OFPA'') A-1, 
``Responsibility of Displaying Best Bids and Offers,'' to require the 
immediate display of customer limit orders by specialists. As amended, 
the Phlx proposal would require specialists to immediately display 
customer limit orders as soon as practicable, and under normal market 
conditions, no later than 30 seconds after receipt. Additionally, the 
proposed rule change would increase the amount of the fines imposed for 
violations of OFPA A-1. The Phlx proposes to aggregate an individual's 
total number of violations for a period of three years. The Exchange is 
proposing to amend its minor rule violation enforcement and reporting 
plan (``minor rule plan'') accordingly.\4\
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    \4\ The Phlx's minor rule plan, codified in Phlx Rule 970, 
contains floor procedure advices with accompanying fine schedules. 
Rule 19d-1(c)(2) under the Act authorizes national securities 
exchanges to adopt minor rule violation plans for summary discipline 
and abbreviated reporting; Rule 19d-1(c)(1) requires prompt filing 
with the Commission of any final disciplinary action. However, fines 
for minor rule violations not exceeding $2,500 are deemed not final, 
thereby permitting periodic, as opposed to immediate, reporting.
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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 purpose of the proposed rule change is to amend Exchange Rule 
1020 and OFPA A-1 to require immediate display of customer limit orders 
by specialists. Currently, OFPA A-1 (``Responsibility of Displaying 
Best Bids and Offers) and Phlx Rule 1020 (``Registration and Functions 
of Options Specialists'') require that specialists use due diligence to 
display the best bid and offer in an option series. The proposed rule 
change, as amended, would require specialists to immediately display 
customer orders that better the market. The proposal states that under 
normal market conditions, a specialist must immediately display 
customer limit orders (i.e., as soon as practicable and no later than 
30 seconds after receipt). The proposal replaces the current ``due 
diligence'' standard with an immediate display requirement.
    Currently, the fine schedule for violations of OFPA A-1 is as 
follows: first offense, $50; second offense, $100; third offense, $250; 
fourth offense and more, sanction discretionary with the Exchange's 
Business Conduct Committee. The Phlx implements this fine schedule on a 
one-year running basis.
    The proposed rule change would increase the amount of the fines as 
follows: First offense, $250; second offense, $500 third offense, 
$1,000; fourth offense and more, sanction discretionary with the 
Exchange's Business Conduct Committee. The proposed fine schedule would 
be implemented on a three-year running basis during which an 
individual's total violations will be counted.\5\
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    \5\ See Amendment No. 1, supra note 3.
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    The Exchange believes that the proposal to require specialists to 
immediately display customer limit orders and to increase the fine 
schedule for a specialist's failure to comply reflects the Exchange's 
attempt to make more current, accurate market information available to 
the public and to make a specialist's failure to comply a more severe 
violation of the Exchange's rules.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of Section 6 of the Act, \6\ in general, and 
furthers the objectives of Section 6(b)(5) of the Act, \7\ in 
particular, in that it is designed to prevent fraudulent and 
manipulative acts and practices, promote just and equitable principles 
of trade, foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, and remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5)
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will not 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 Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal

[[Page 49622]]

Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding, or (ii) as to 
which the Exchange consents, the Commission will:
    A.  By order approve the proposed rule change, or
    B.  institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 submissions, 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 persons, 
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 at the Commission's Public Reference Room, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Copies of such filing will also 
be available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-Phlx-00-34 and 
should be submitted by September 5, 2000.

For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-20513 Filed 8-11-00; 8:45 am]
BILLING CODE 8010-01-M