[Federal Register Volume 65, Number 234 (Tuesday, December 5, 2000)]
[Notices]
[Pages 75993-75994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30881]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43625; File No. SR-Phlx-00-72]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to 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

November 27, 2000.
    On July 25, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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 to amend 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. The proposed rule change was 
noticed in the Federal Register.\3\ No comments were submitted on the 
proposed rule change. 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\ Securities Exchange Act Release No. 43407 (Oct. 3, 2000), 65 
FR 60711 (Oct. 12, 2000) (SR-PHLX-00-72).
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I. Description of the Proposal

    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 the AES 
Committee approve an individual before he may act 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 include 
any other special information 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 before that individual 
may move from one specialist unit to another specialist unit.
    The proposal would re-designate Rule 501(c) ad 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 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) and 
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 the 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 also 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 also would replace references to the Department of 
Securities in Rules 505 and 506 with references to the Exchange staff.

II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\4\ which require, 
among other things, that the rules of the exchange be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with respect to facilitating transactions in securities, 
to remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest.\5\ The proposed amendments will 
provide the AES Committee with additional information to make decisions 
regarding allocation, reallocation, and transfer of specialist books as 
well as the approval and retention of specialists on the trading floor.
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    \4\ 15 U.S.C. 78f(b)(5).
    \5\ In approving the proposal, the Commission has considered the 
rule's impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
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    The Commission believes that proposed amendment to Rule 501(b)(4) 
regarding back-up arrangements for staffing and capital will help to 
ensure that specialist books continue to trade on the floor in an 
efficient manner by requiring the specialist unit to have sufficient 
staff to handle the high volume in busy markets and requiring the back-
up to step in to act as a specialist, when the assigned specialist is 
unable to do so.
    The Commission believes that the proposed amendment to Rule 501(c) 
regarding the AES Committee's supervision of the individuals applying 
to be specialists on the floor will help to ensure that applicants have 
sufficient qualifications and experience to perform the duties of a 
specialist in active markets.

[[Page 75994]]

    Presently, the Phlx's Rules do not sufficiently address the issue 
of staffing levels; however, the Commission believes that proposed 
amendment to Rule 501(d) will help to ensure that there is adequate 
staffing coverage on the trading floors.
    The Commission believes that proposed amendment to Rule 506 
regarding the AES Committee's authority to require specialist units to 
state their system order acceptance and execution levels, and notify 
the AES Committee of any changes to the respective system acceptance 
and execution levels, will help the Exchange to accurately and 
effectively assess whether the specialist units have the ability to 
attract order flow to the Exchange.
    The Commission believes that proposed amendments to Rule 501, 
Commentary .02 and Rule 748, will help ensure adequate supervision of 
specialist staff by considering back-up staff used by a specialist to 
be employees of the specialist unit. This will help to hold a 
specialist unit accountable for the acts of staff under their 
direction, albeit such staff is not directly employed by that 
specialist unit.
    Lastly, the Commission believes that proposed amendments to Rule 
501, 505, and 506 regarding notification will help to supply the Phlx 
and the AES Committee with the appropriate information to make 
determinations regarding the ability of a specialist to perform in a 
particular security in accordance with the AES Committee's review 
procedures.

III. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\6\ that the proposed rule change (SR-PHLX-00-72) is approved.
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    \6\ 15 U.S.C. 78s(b)(2).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30881 Filed 12-4-00; 8:45 am]
BILLING CODE 8010-01-M