[Federal Register Volume 65, Number 247 (Friday, December 22, 2000)]
[Notices]
[Page 80974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32650]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43721; File No. SR-Phlx-00-32]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Rule 748, 
Supervision

December 13, 2000.
    On July 31, 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 Rule 748, 
Supervision.\3\ On October 11, 2000, the Exchange submitted Amendment 
No. 1 to the proposed rule change.\4\ Notice of the proposed rule 
change, as amended, was published for comment in the Federal 
Register.\5\ No comments were submitted on the proposed rule change. 
This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Exchange Rule 748, which is generally based on NYSE Rule 
342, was originally filed in 1993 and amended once in 1994. See 
Securities Exchange Act Release Nos. 33303 (Dec. 8. 1993), 58 FR 
65609 (Dec. 15, 1993) and 34842 (Oct. 14, 1994), 59 FR 53002 (Oct. 
20, 1994).
    \4\ See Letter from Jurij Trypupenko, Director of Litigation and 
Operations, Phlx, to Nancy Sanow, Assistant Director, Division of 
Market Regulation, Commission (October 11, 2000). Amendment No. 1 
corrected structural errors that appeared in the proposed rule 
language.
    \5\ Securities Exchange Act Release No. 43407 (Oct. 20, 2000), 
65 FR 64469 (Oct. 27, 2000) (SR-Phlx-00-32).
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I. Description of the Proposal

    The Exchange proposes to amend Rule 748, Supervision, in several 
respects. First, the proposed amendment to Rule 748 would expand the 
definition of who must be supervised to include employees and 
associated persons of members, member organizations, participants, or 
participant organizations. The proposed amendment to Rule 748 would 
also require that all offices, locations, departments, and business 
activities of members, member organizations, participants, and 
participant organizations (``members and related organizations'') be 
supervised.
    Second, the proposed amendment to Rule 748 would add a requirement 
for periodic compliance reviews and office inspections. Members and 
related organizations for which the Exchange is the Designated 
Examining Authority (``DEA'') would have to conduct compliance meetings 
with their personnel at least on an annual basis. In addition, members 
and related organizations for which the Exchange is the DEA would have 
to conduct office inspections according to an inspection cycle 
established in their written supervisory procedures.
    Third, the proposed amendment to Rule 748 would require that 
members and related organizations have written supervisory procedures 
that set forth the specific supervisory system and other essential 
information regarding supervisory personnel.
    Fourth, the proposed amendment to Rule 748 would contain standards 
for supervision and for written supervisory procedures. Written 
supervisory procedures and the system for applying such procedures 
would have to be reasonably designed to prevent and detect, insofar as 
practicable, violations of the applicable securities laws and 
regulations, including the by-laws and rules of Exchange. A similar 
standard for supervision would be applicable to those entrusted with 
the duty to supervise others.\6\
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    \6\ The standard for supervision and standard for written 
supervisory procedures found in the proposed rule change are based 
generally on Section 15(b)(4)(E)(i) of the Act. 15 U.S.C. 
78o(b)(4)(E)(i).
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II. Discussion

    The Commission finds that the proposed rule change is consistent 
with the provisions of Section 6(b)(5) of the Act,\7\ 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.\8\
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 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 the Exchange's proposal to expand the 
definition of who must be supervised is reasonable and will help to 
enhance the ability of the members and related organizations to 
adequately monitor and enforce supervision within their organizations.
    The Commission also believes that the Exchange's proposal to add 
requirements for periodic compliance reviews and office inspections 
will strengthen the ability of the members and related organizations to 
carry out their compliance and surveillance functions.
    Lastly, the Commission believes that the Exchange's proposal to 
require that members and related organizations have written supervisory 
procedures, setting forth the specific supervisory system and other 
pertinent information, as well as requiring that standards are 
implemented for supervision and written supervisory procedures, will 
help to ensure that members and related organizations carry out their 
supervisory responsibilities efficiently, particularly over branch 
offices of member firms conducting business away from the floor of the 
Exchange.

III. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-Phlx-00-32), as amended, be 
and hereby is approved.
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    \9\ 15 U.S.C. 78s(b)(2).

    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. 00-32650 Filed 12-21-00; 8:45 am]
BILLING CODE 8010-01-M