[Federal Register Volume 65, Number 185 (Friday, September 22, 2000)]
[Notices]
[Pages 57419-57420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-24352]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43292; File No. SR-Phlx-00-74]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to the 
Exchange's Liability in Connection With the Administration of Its 
Proprietary Indices

September 14, 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 August 4, 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 Phlx. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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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 Rule 1102A, Limitation of 
Exchange Liability, to add to the limitation of the Exchange's 
liability, in connection with its administration of Phlx proprietary 
indexes, negligent acts or omissions. Below is the text of the proposed 
rule change. Additions are italicized; deletions are in brackets.

Rule 1102A  Limitation of Exchange Liability

    Neither the Exchange, the Reporting Authority nor any agent of 
the Exchange shall have any liability for damages, claims, losses or 
expenses caused by any errors, omissions, or delays in calculating 
or disseminating the current index value or the closing index value 
resulting from any negligent act or omission by the Exchange or any 
[an] act, condition or cause beyond the reasonable control of the 
Exchange, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; any error, omission or delay in 
the reports of transactions in one or more underlying securities; or 
any error, omission or delay in the reports of the current index 
value or the closing index value by the Exchange or the Reporting 
Authority.

[[Page 57420]]

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 expand the limitation 
of the Exchange's liability in connection with its administration of 
Phlx proprietary indices. The Exchange currently lists and trades 
options on a number of proprietary indices, and new indices continue to 
be developed from time to time.\3\ There is a great deal of work 
involved in the daily calculation and dissemination of these indices. 
While much of such work is automated, manual input is still required. 
Thus, the potential for human error exists which exposes the Exchange 
to a risk of liability. Potential human errors include inputting a 
symbol or index value incorrectly or missing a corporate action that 
has an effect on the index.
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    \3\ The Exchange's proprietary indices currently include: 
Computer Box Maker Index (BMX), Phlx Oil Service Index (OSX), Gold-
Silver Index (XAU), National Over-the-Counter Index (XOC), Phlx 
Forest and Paper Products Sector Index (FPP), Over-the-Counter Prime 
Index (OTC), Utility Index (UTY), Semiconductor Index (SOX), 
TheStreet.com Internet Sector Index (DOT) and Wireless Telecom 
Sector Index (YLS).
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    Currently Phlx Rule 1102A disclaims Exchange liability for damages 
caused by errors, omissions or delays in the calculation or 
dissemination of any index value resulting from any conduct beyond the 
reasonable control of the Exchange. This includes an act of God, a 
power failure, or any error, omission or delay in the reported price of 
the underlying security. However, these disclaimer provisions are 
arguably ambiguous with respect to whether the Exchange remains 
potentially liable for damages caused by any human error or omission by 
an Exchange employee in connection with the performance of the 
Exchange's index responsibilities. The proposed amendment to Phlx Rule 
1102A would make clear that the Exchange disclaims liability for 
negligent conduct, in addition to conduct beyond the Exchange's 
reasonable control, currently covered by Phlx Rule 1102A. Other 
exchanges, including the American Stock Exchange (``Amex''),\4\ 
disclaim liability for negligent conduct in connection with their index 
operations. Further, the Exchange acknowledges that Phlx Rule 1102A 
cannot be relied upon by the Exchange to limit its liability to non-
members or for any intentional or negligent violation of federal 
securities laws.
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    \4\ See Amex Rule 902C.
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2. Statutory Basis
    For these reasons, the proposed rule change is consistent with 
Section 8 of the Act in general, and with section 6(b)(5) \5\ of the 
Act specifically, in that it is designed to perfect the mechanisms of a 
free and open market and a national market system, to promote just and 
equitable principles of trade, and to protect investors and the public 
interest, by defining the scope of the Exchange's liability, thereby, 
putting investors on notice that the Exchange is not liable for 
negligent conduct in connection with its administration of Phlx 
proprietary indices, in addition to conduct beyond the Exchange's 
reasonable control, currently covered by Rule 1102A.
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    \5\ 15 U.S.C. 78f(b)(5).
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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.

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

    No written comments were solicited or received with respect to 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 self-regulatory organization consists, 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

    The Commission invites interested persons 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-00-74 and should be submitted by October 13, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-24352 Filed 9-21-00; 8:45 am]
BILLING CODE 8010-01-M