[Federal Register Volume 65, Number 198 (Thursday, October 12, 2000)]
[Notices]
[Pages 60711-60712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26115]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43407; File No. SR-Phlx-00-072]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Amending Rules 501, 
505, and 506 Regarding Allocation and Specialist Appointment, as well 
as Rule 748, Supervision, To Reflect Current Circumstances on the 
Equity Foreign Currency Option and Option Trading Floors

October 3, 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 July 25, 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 Phlx proposes to amend Rules 501, 505, 506, and 748 to require 
certain information be provided to the Allocation, Evaluation and 
Securities Committee (``AES Committee'') for approval and to require 
certain minimum staffing levels for specialist units. Specifically, the 
Exchange proposes to amend Rule 501(b)(4) to require that option and 
foreign currency option specialist units provide detailed information 
on their application to become a specialist unit regarding their back-
up arrangements with regard to financial and staffing support.
    The proposal would add Rule 501(c) to require that individuals be 
approved by the AES Committee prior to acting as a specialist on behalf 
of a specialist unit. In addition, proposed Rule 501(c) would require 
that applications for individuals to act as specialist shall include 
any other special requirements that the AES Committee may require for 
approval. Proposed Rule 501(c) would also require that the AES 
Committee or its designee approve an individual prior to that 
individual moving from one specialist unit to another specialist unit.
    The proposal would re-designate Rule 501(c) as Rule 501(d), which 
requires that to be approved and retain their specialist privileges, 
option and foreign currency option specialists must maintain the 
clearing arrangements and capital structure stated on their 
application. In addition, Rule 501(d) would require that changes 
regarding their back-up arrangements must be submitted to and approved 
by the AES Committee. The proposal would also amend Rule 501(d) to 
require option and foreign currency option specialists to maintain a 
minimum staffing level for each quarter turret of space on the trading 
floor.
    The proposal would add Rule 501(e), which is similar to Rule 
501(d), and would contain the same staffing requirements for equity 
specialists as are currently contained in Rule 501(c)(2).
    The proposal would re-designate Rule 501(d) as Rule 501(f). The 
proposal would amend the language of 501(f) to state that once an 
applicant is approved by the AES Committee as a specialist unit, any 
material change in the capital or staff of the unit or any move by the 
head or assistant specialist must be reported in writing to the AES 
Committee within two days of the change.
    The proposal would add Rule 501, Commentary .02, which states that 
for purposes of rule 748 on Supervision, individuals employed or 
associated with the back-up specialist will be considered engaging in a 
business activity of the specialist unit that they are assisting. Rule 
748(b) would also be amended to refer to this situation.
    The proposal would amend Rule 505 to require registrant specialist 
units to report material changes on the respective equity, option and 
foreign currency option registration forms to the AES Committee.
    The proposal would amend Rule 506 to codify expressly that AES 
Committee may require applicant specialist units to provide other 
information, including system order acceptance and execution levels, 
and guarantees on the application for a particular equity or option. 
The proposal would require that, should a specialist be allocated that 
equity or option, the specialist would be immediately required to 
notify the Exchange staff and submit for approval to the AES Committee 
or its designee in writing any change to the respective system 
acceptance and execution levels or any other material changes on that 
application.
    The proposal would replace references to the Department of 
Securities in Rules 505 and 506 with references to the Exchange staff. 
The text of the proposed rule change is available at the Phlx and the 
Commission.

II. Self-Regulatory Organization's Statements of the Purpose of, 
and the 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 section A, 
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    The purpose of the proposed rule change is to provide the AES 
Committee with the appropriate information and a greater understanding 
of the specialist unit's operation when approving a prospective 
specialist unit for trading privileges, as well as approving the 
allocation, reallocation and transfer of equity, option, and foreign 
currency option books to specialist units. Specifically, proposed 
amendments to Rule 501(b)(4) regarding back-up arrangements for 
staffing and capital are intended to help ensure that specialist books 
will continue to trade on the floor in an efficient manner by requiring 
the specialist unit have sufficient staff to handle the high volume in 
busy markets and requiring the back-up specialist to

[[Page 60712]]

step in to act as a specialist, when the assigned specialist is unable 
to do so.
    Proposed Rule 501(c) should increase the AES Committee's 
supervision over the individuals applying to be a specialist on the 
floor, which should in turn help to ensure that applicants have 
sufficient qualifications and experience to perform the duties of a 
specialist in active markets. In addition, proposed Rule 501(c) should 
also help to ensure that the AES Committee is notified in the event 
that an individual moves from one firm to another firm.
    Proposed amendments to Rule 501(d) would require option and foreign 
currency option specialist units to have certain staffing levels per 
quarter turret of trading floor space, rather than for the entire 
specialist unit, to help to ensure adequate staffing coverage on the 
trading floors. The current rule does not sufficiently address these 
issues because it lacks detail on how the specialist staff is deployed, 
particularly when the specialist unit may have books located in 
different areas of the option or foreign currency option floor.
    With respect to proposed amendments to Rule 506, the AES Committee 
may require additional information on the allocation application, such 
as system acceptance and execution levels. The Phlx believes that 
system acceptance and execution levels are important in attracting 
order flow to the Exchange and providing customers with efficient order 
delivery and execution. The Phlx believes that codifying expressly in 
Exchange rules the AES Committee's authority to require specialist 
units to state their system order acceptance and execution levels, as 
well as notifying the AES Committee of such changes, should help the 
AES Committee to accurately assess whether the specialist units have 
the ability to attract order flow to the Exchange and can keep that 
order flow with the maintenance of the delivery and execution levels 
stated in their application.
    The proposal would require Rule 501, Commentary .02 and proposed 
amendments to Rule 748 to specifically delegate responsibility for 
supervision of back-up staff used by a specialist to the specialist 
utilizing the back-up staff. The Phlx believes that this is the most 
efficient method of holding a specialist unit accountable for the acts 
of staff under their direction, albeit such staff is not directly 
employed by that specialist unit.
    The proposal would also require that equity, option and foreign 
currency option specialists notify the AES Committee of material 
changes in their registration and application forms for specific 
securities as well as their applications to be a specialist unit.\3\ 
This should supply the Phlx and the AES Committee with the appropriate 
information to make determinations regarding the suitability of this 
specialist to perform in a particular security in accordance with the 
AES Committee's review procedures for specialist performance 
evaluations outlined in Rule 511.
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    \3\ See supra text discussing proposed Rule 501(d) and (e), 
proposed Rule 506(e) and the proposed amendments to Rule 505, pp 2-
3.
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2. Statutory Basis
    The Phlx believes the proposed rule change is consistent with 
Section 6(b) of the Act \4\ in general, and in particular, with Section 
6(b)(5) of the Act,\5\ in that it is designed to promote just and 
equitable principles of trade, prevent fraudulent and manipulative acts 
and practices, facilitate transactions in securities, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, as well as to protect investors and the 
public interest by better assessing that specialist units have the 
appropriate staffing. In addition, the proposed amendments and rules 
should help to ensure that the AES Committee has suitable information 
to make well-reasoned decisions regarding allocation, reallocation, and 
transfer of specialist books as well as the approval and retention of 
high quality specialists on the trading floor.
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    \4\ 15 U.S.C. 78f(b).
    \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

    The Phlx 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 publication of this notice in the Federal 
Register or within such other 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 Phlx 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 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-00-72 and should 
be submitted by November 2, 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. 00-26115 Filed 10-11-00; 8:45 am]
BILLING CODE 8010-01-M