[Federal Register Volume 65, Number 164 (Wednesday, August 23, 2000)]
[Notices]
[Pages 51396-51397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21432]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-43161; File No. SR-Phlx-00-39)


Self Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to the 
Disqualification of Governors

August 16, 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 14, 2000, 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, II, 
and III below, which Items have been prepared by the Exchange. On 
August 15, 2000, the Phlx filed Amendment No. 1 to the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1)
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from John Dayton, Assistant Secretary and Counsel, 
Phlx, to Nancy Sanow, Assistant Director, Division of Market 
Regulation, Commission, dated August 15, 2000 and received by fax 
(``Amendment No. 1''). Amendment No. 1 made a technical correction 
to the language of the proposed rule.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Phlx By-Law Article IV, Section 4-8, 
Disqualification of Governors, to provide that members of the Board of 
Governors or of any standing or special committee or subcommittee 
(``Covered Persons'') shall not participate, directly or indirectly, in 
the discussion or determination of any matter affecting their 
interests, the interests of any member of their immediate family, or 
any matter in which their impartiality might reasonably be questioned. 
The proposed rule change provides an exception to allow participation 
in situations where the covered person's sole interest lies in their 
membership in the Exchange or in a sub class membership, unless their 
impartiality might reasonably be questioned. Proposed new language is 
italized, proposed deletions are in brackets.
* * * * *
ARTICLE IV
Board of Governors
Disqualification of Governors
    SEC. 4-8. (a) No Governor shall be disqualified from participating 
in any meeting, action or proceeding of the Board of Governors by 
reason of being or having been a member of a Standing or Special 
Committee which has made prior inquiry, examination or investigation of 
the subject under consideration. Nor shall any member of any such 
Committee be disqualified by reason of such membership from acting as a 
Governor upon an appeal from a decision of any such Committee. [But no 
person shall] Pursuant to the Exchange's Code of Conduct for Board 
Members and Committee Members, members of the Board of Governors or of 
any Standing or Special Committee or subcommittee shall not 
participate, directly or indirectly in the [determination of any matter 
in which he is personally interested.] discussion or determination of 
any matter affecting their interests, or the interests of any member of 
their immediate family, or any matter in which their impartiality might 
reasonably be questioned.
    (b) For purposes of this section, the term ``immediate family'' 
shall include a spouse, a parent, a mother-in-law, a father-in-law, a 
brother, a sister, a child, any other person living with the individual 
or any person for whom the individual provides at least 50 percent of 
that person's financial support per year.

[[Page 51397]]

    (c) The last sentence of sub-section (a) of this section shall not 
apply when the interest of the relevant person is derived solely from 
being part of the general membership or of a class of members, unless 
their impartiality might reasonably be questioned.

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 Exchange 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
    Phlx By-Law, Article IV, Section 4-8 describes the discussions and 
decisions in which members of the Phlx Board of Governors (``Board 
Members'') must refrain from participation. The provision further 
specifies discussions and decisions that do not require Board Members 
to refrain from participation. The Exchange proposes to amend Phlx By-
Law, Article IV, Section 4-8 to conform to the new Phlx 1999 Code of 
Conduct for Board Member and Committee Members (``1999 Code of 
Conduct''). The Phlx Code of Conduct, which was adopted in 1997 (``1997 
Code of Conduct''), describes, among other things the discussions and 
decisions in which Covered Persons must refrain from participation.\4\ 
The Phlx Board of Governors revised the 1997 Code of Conduct in July 
1999, modifying the language regarding the disqualification of Covered 
Persons.
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    \4\ Following the adoption of the 1997 Code of Conduct, the 
Exchange conformed the language in Phlx By-Law, Article IV, Section 
4-8 to the language in the 1997 Code of Conduct. See Securities 
Exchange Act Release No. 39722 (March 4, 1998), 63 FR 12569 (March 
13, 1998).
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    The Phlx's proposed rule change will amend its By-Law, Article IV, 
Section 4-8 to prohibit Covered Persons from participating in matters 
in which they or their immediate family have an interest.\5\ The 
Exchange proposes to allow participation in matters where the Covered 
Person's interest arises solely from membership in the Exchange or a 
sub-class of membership, unless their impartiality might reasonably be 
questioned.\6\ The Exchange believes that the proposed rule change will 
provide Phlx members fair representation in the administration of the 
Exchange's affairs.
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    \5\ The 1999 Code of Conduct and the proposed amendment to Phlx 
By-Law Article IV, Section 4-8 define ``immediate family'' as a 
spouse, a parent, a mother-in-law, a father-in-law, a brother, a 
sister, a child, any other person living with the individual or any 
person for whom the individual provides at least 50 percent of that 
person's financial support per year.
    \6\ The phrase ``a sub-class of membership'' refers to the 
various categories of Phlx membership. Examples of sub-classes 
include: equity members and options members; on-floor and off-floor 
members; and specialists and floor brokers on each floor. The 
Exchange represents that many decisions in Board and committee 
meetings, such as fees on equity floor transactions or requirements 
for arbitration in customer contracts, apply to only one or more of 
these sub-classes and not to others. The Exchange represents that it 
does not intend to disqualify persons from making decisions solely 
because they are part of a sub-class, such as market makers or off-
floor members, which will be affected by the outcome of the 
decision.
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    The Exchange also represents that the proposed rule change will 
strengthen its present framework of conflict of interest provisions.\7\ 
The 1999 Code of Conduct, for example, requires Covered persons to make 
prompt disclosure of any interest that could reasonably appear to 
violate the 1999 Code of Conduct. In addition, Phlx By-Law Article X, 
Section 10-9(b) and the 1999 Code of Conduct both authorize the 
Exchange's Audit Committee to conduct reviews of any alleged improper 
conduct and recommend appropriate action to the Board.
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    \7\ Telephone conversation between John Dayton, Assistant 
Secretary and Counsel, Phlx, and Susie Cho, Attorney, Division of 
Market Regulation (``Division'', Commission (May 19, 2000).
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2. Statutory Basis
    The Exchange represents that the proposed rule change would 
prohibit the discussion and determination of Exchange matters by 
Covered Persons or their immediate family who have an interest in the 
matter, unless that interest is impartial and arises solely from 
membership in the Exchange or a sub-class of membership. For this 
reason, the Exchange believes that the proposed rule change is 
consistent with Section 6 of the Act \8\ in general, and furthers the 
objectives of Section 6(b)(3) \9\ in particular, in that it ensures 
Phlx members fair representation in the administration of the 
Exchange's affairs.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange 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 Exchange did not solicit or receive 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 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 such 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, N.W., Washington, 
D.C. 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 at the Commission's Public Reference Room. 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-00-39 and should be submitted by September 13, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12)
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-21432 Filed 8-22-00; 8:45 am]
BILLING CODE 8010-01-M