[Federal Register Volume 65, Number 198 (Thursday, October 12, 2000)]
[Notices]
[Pages 60710-60711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26111]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43406; File No. SR-Phlx-00-39]


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

October 3, 2000.

I. Introduction

    On April 14, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission, 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change 
relating to the disqualification of governors. On August 16, 2000, the 
Phlx filed Amendment No. 1 to the proposals.\3\ The proposed rule 
change was published for comment in the Federal Register on July 13, 
2000.\4\ No comments were received on the proposal. This order approves 
the proposed rule change.
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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 (August 16, 2000) (``Amendment No. 1''). 
Amendment No. 1 made a technical correction to the language of the 
proposed rule.
    \4\ Securities Exchange Act Release No. 43161 (August 16, 2000), 
65 FR 51396 (August 23, 2000).
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II. Description of the Proposal

    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 Members 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.\5\ 
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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    \5\ 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.\6\ 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.\7\
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    \6\ 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.
    \7\ 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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III. Discussion

    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 Section 6(b) of the Act.\8\ 
Specifically, the Commission believes that the proposal is consistent 
with the requirements of Section 6(b)(3) \9\ that the rules of an 
Exchange be designed to assure a fair representation of its members in 
the administration of the Exchange's affairs.\10\ The Commission 
believes that the proposal will 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. The proposal will also add to the Exchange's 
present framework of conflict of interest provisions.\11\
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(3).
    \10\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \11\ See e.g., 1999 Code of Conduct (requiring Covered Persons 
to make prompt disclosure of any interest that could reasonably 
appear to violate the 1999 Code of Conduct( and Phlx By-Law Article 
X, Section 10-9(b) (authorizing the Exchange's Audit Committee to 
conduct reviews of any alleged improper conduct and recommend 
appropriate action to the Board).

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[[Page 60711]]

IV. Conclusion

    For the reasons discussed above, the Commission finds that the 
proposal is consistent with the Act and the rules and regulations 
thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change, SR-Phlx-00-39, be and hereby is 
approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Depyty Secretary.
[FR Doc. 00-26111 Filed 10-11-00; 8:45 am]
BILLING CODE 8010-01-M