[Federal Register Volume 65, Number 250 (Thursday, December 28, 2000)]
[Notices]
[Pages 82437-82440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 43740; File No. SR-Phlx-00-48]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Telephone 
Use on the Options Floor

December 19, 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 June 16, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change described in Items I, II, and 
III below, which Items have been prepared by the Exchange. The Exchange 
filed Amendment No. 1 to the proposed rule change on December 1, 
2000.\3\ 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.
    \3\ The Exchange submitted a new Form 19b-4, which replaces and 
supersedes the original filing (``Amendment No. 1''). Amendment No. 
1 amends the purpose section of the proposed rule change to provide 
a description of provisions governing floor brokers, registered 
options traders, general access phones, and exchange liability. 
Amendment No. 1 also clarifies that registration and maintenance of 
registration records is handled through the Exchange's Membership 
Services Department. Finally Amendment No. 1 amends proposed Phlx 
Rule 606(e)(3) to include specialists.
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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 Exchange Rule 606 and to create new 
Options Floor Procedure Advice (``OFPA'') F-31 to establish rules and 
procedures for telephone use on the Phlx's options floor. The text of 
the proposed rule change is set forth below. All text is being added.

Wire and Other Connections

Communications and Equipment

Rule 606

    (e)(1) Registration. Members and member organizations must 
register, prior to use, any new telephone to be used on the Options 
Floor. Each phone registered with the Exchange must be registered by 
category of user. If there is a change in the category of any user, 
the phone must be re-registered with the Exchange. At the time of 
registration, members and member firm representatives must sign a 
statement that they are aware of and understand the rules and 
procedures governing the use of telephones on the Options Floor.
    (2) Capacity and Functionality. No wireless telephone used on 
the Options Floor may have an output greater than one watt. No 
person on the Options Floor may use any device for the purpose of 
maintaining an open line of continuous communication whereby a 
person not located in the trading crowd may continuously monitor the 
activities in the trading crowd. This prohibition covers intercoms, 
walkie-talkies and any similar devices. Speed-dialing features are 
permitted on any member telephone.
    (3) Specialist and Registered Options Traders.
    (a) Specialists and Registered Options Traders (``ROTs'') may 
use their own cellular and cordless phones to place calls to any 
person at any location (whether on or off the Options Floor).
    (b) ROTs located off the Options Floor may not place an order by 
calling a Floor Broker who is present in a trading crowd. ROTs 
located off the Options Floor may not otherwise place an order by 
calling the specialist phone in the trading crowd. Any telephonic 
order entered from off the Options Floor must be placed with a 
person located in a member firm booth.
    (4) Floor Brokers.
    (a) Floor Brokers may use cellular and cordless telephones, but 
only to communicate with persons located on the Options Floor. These 
telephones may not included a call forwarding feature. Headsets are 
permitted for Floor Brokers, but if the Exchange determines that a 
Floor Broker is maintaining a continuous open line through the use 
of a headset, the Floor Broker will be prohibited form future use of 
any headset for a length of time to be determined by the Exchange.
    (b) All orders phoned to the Floor Brokers must be received 
initially at the Floor Broker's booth. Floor Brokers may not receive 
telephonic orders while in the trading crowd except from their 
booth. Any telephonic order entered from off the Options Floor must 
be placed with a person located in a member firm booth.
    (5) Clerks.
    (a) Floor Broker clerks are subject to the same terms and 
conditions on telephone use as Floor Brokers.
    (b) Stock Execution clerks are subject to the same terms and 
conditions on telephone use as Floor Brokers.
    (c) The Options Committee reserves the right to prohibit clerks 
from using cellular or cordless phones on the floor at any time that 
it is necessary due to electronic interference problems or capacity 
problems resulting from the number of such phones then in use on the 
Options Floor. In such circumstances, the Committee will first 
consider restricting the use of such phones by Stock Execution 
Clerks, and then by Floor Broker Clerks.
    (6) General Access In-House Phones. The general access in-house 
telephones located outside of the trading post areas may be used by 
any member, clerk or floor broker to communicate with persons 
located on the Options Floor or within the Exchange complex.

[[Page 82438]]

    (7) Telephone Records. Members must maintain their cellular or 
cordless telephone records, including logs of calls placed, for a 
period of not less than one year. The Exchange reserves the right to 
inspect and/or examine such telephone records.
    (8) Exchange Liability. The Exchange assumes no liability to 
members or member organizations due to conflicts between telephones 
in use on the Options Floor or due to electronic interference 
problems resulting from the use of telephones on the trading floor.

Options Floor Procedure Advice F-31 Communications and Equipment

    (1) Registration. Members and member organizations must 
register, prior to use, any new telephone to be used on the Options 
Floor. Each phone registered with the Exchange must be registered by 
category of user. If there is a change in the category of any user, 
the phone must be re-registered with the Exchange. At the time of 
registration, members and member firm representatives must sign a 
statement that they are aware of and understand the rules and 
procedures governing the use of telephones on the Options Floor.
    (2) Capacity and Functionality. No wireless telephone used on 
the Options Floor may have an output greater than one watt. No 
person on the Options Floor may use any device for the purpose of 
maintaining an open line of continuous communication whereby a 
person not located in the trading crowd may continuously monitor the 
activities in the trading crowd. This prohibition covers intercoms, 
walkie-talkies and any similar devices. Speed-dialing features are 
permitted on any member telephone.
    (3) Specialists and Registered Options Traders.
    (a) Specialists and Registered Options Traders (``ROTs'') may 
use their own cellular and cordless phones to place calls to any 
person at any location (whether on or off the Options Floor).
    (b) ROTs located off the Options Floor may not place an order by 
calling a Floor Broker who is present in a trading crowd. ROTs 
located off the Options Floor may not otherwise place an order by 
calling the specialist phone in the trading crowd. Any telephonic 
order entered from off the Options Floor must be placed with a 
person located in a member firm booth.
    (4) Floor Brokers.
    (a) Floor Brokers may use cellular and cordless telephones, but 
only to communicate with persons located on the Options Floor. These 
telephones may not include a call forwarding feature. Headsets are 
permitted for Floor Brokers, but if the Exchange determines that a 
Floor Broker is maintaining a continuous open line through the use 
of a headset, the Floor Broker will be prohibited from future use of 
any headset for a length of time to be determined by the Exchange.
    (b) All orders phoned to Floor Brokers must be received 
initially at the Floor Broker's booth. Floor Brokers may not receive 
telephonic orders while in the trading crowd except from their 
booths. Any telephonic order entered from off the Options Floor must 
be placed with a person located in a member firm booth.
    (5) Clerks.
    (a) Floor Broker clerks are subject to the same terms and 
conditions on telephone use as Floor Brokers.
    (b) Stock Execution clerks are subject to the same terms and 
conditions on telephone use as Floor Brokers.
    (c) The Options Committee reserves the right to prohibit clerks 
from using cellular or cordless phones on the floor at any time that 
it is necessary due to electronic interference problems or capacity 
problems resulting from the number of such phones then in use on the 
Options Floor. In such circumstances, the Committee will first 
consider restricting the use of such phones by Stock Execution 
Clerks, and then by Floor Broker Clerks.
    (6) General Access In-House Phones. The general access in-house 
telephones located outside of the trading post areas may be used by 
any member, clerk or floor broker to communicate with persons 
located on the Options Floor or within the Exchange complex.
    (7) Telephone Records. Members must maintain their cellular or 
cordless telephone records, including logs of calls placed, for a 
period of not less than one year. The Exchange reserves the right to 
inspect and/or examine such telephone records.
    (8) Exchange Liability. The Exchange assumes no liability to 
members or member organizations due to conflicts between telephones 
in use on the Options Floor or due to electronic interference 
problems resulting from the use of telephones on the trading floor.
    FINE SCHEDULE (implemented on a three year running calendar 
basis)

                                  F-31
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1st Occurrence............................  $250.00.
2nd Occurrence............................  $500.00.
3rd Occurrence............................  $1,000.00.
4th and thereafter........................  Sanction is discretionary
                                             with Business Conduct
                                             Committee.
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* * * * *

II. Self-Regulatory Organization's Statements Regarding 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to establish rules and 
procedures for telephone use on the options floor. Proposed Phlx Rule 
606(e) and OFPA F-31 would set forth procedures and restrictions 
regarding telephone use on the options floor. The proposed rule 
contemplates that certain types of telephones (i.e.,  cellular phones) 
may be used for personal purposes.\4\ The proposed rule would limit the 
use of telephones on the options floor for business purposes, depending 
on the category of user (specialist, registered options trader 
(``ROT''), floor broker, or clerk).
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    \4\ All categories of users are permitted to make and receive 
personal phone calls, subject to existing prohibitions when 
necessary because of electronic interference. Telephone call between 
Rick Rudolf, Counsel, Phlx, Deborah Flynn, Senior Special Counsel, 
Commission, and Sonia Patton, Staff Attorney, Commission (December 
18, 2000).
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    The proposed rule change would require members and member 
organizations to register by category of user, any new telephone to be 
used on the options floor, prior to use. Registration and maintenance 
of registration records would be handled through the Exchange's 
Membership Services Department. If there is a change in the category of 
user, the telephone must be re-registered with the Exchange. At the 
time of registration, the user must sign a statement that the user is 
aware of and understands the rules governing the use of telephones on 
the options floor. The Exchange believes that this should facilitate 
record keeping and should also enhance the ability of the Exchange's 
Market Surveillance Department to investigate potential violations of 
the rule.
    The proposed rule would also provide that no person on the options 
floor may use any device, including, but not limited to, intercoms, 
walkie-talkies, and similar devices, for the pupose of maintaining an 
open line of communication whereby a person located in a trading crowd 
may continuously monitor the activities of that crowd.
    Capacity and Functionality. The proposed rule specifies the 
capacity and functionality permitted for use of telephones on the 
options floor. Specifically, proposed Phlx Rule 606(e)(2) provides that 
no wireless telephone on the options floor may have an output of more 
than one watt. The purpose of this provision is to minimize

[[Page 82439]]

the possibility of radio frequency or other interference with the 
systems of the Exchange or those of other members.\5\ The proposed rule 
would also state that no person on the options floor may use any device 
for the purpose of maintaining an open line of continuous communication 
whereby a person not located in the trading crowd may continuously 
monitor the activities in the trading crowd. This prohibition covers 
intercoms, walkie-talkies, and any similar devices.
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    \5\ Currently, Exchange Rule 606(b)(2) prohibits members, member 
organizations and any person associated with a member organization 
from establishing or maintaining any telephonic, electronic or 
wireless transmitting system or device, and from operating any other 
equipment on the Options Floor, that creates radio frequency or 
other interference with the systems of the Exchange or other 
members.
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    Members and Member Firm Employees. The propposed rule sets forth 
specific guidelines for each category of user on the options floor, as 
follows:
    Specialists and ROTs. Proposed Phlx Rule 606(e)(3) would provide 
that specialists and ROTs may use their own cellular and cordless 
phones to place calls to any person at any location (whether on or off 
the options floor).\6\ The proposal would also provide that specialists 
and ROTs located off the options floor may not place an order by 
calling a floor broker located in a trading crowd or directly to the 
specialist phone. Any telephonic order entered from off the options 
floor must be placed with a person located in a floor broker booth. The 
Exchange believes that this should facilitate adequate surveillance of 
telephonic orders and ensure that there is a record of the order in the 
event that a problem arises in connection with the order.
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    \6\ Specialists are also permitted to receive incoming calls, 
but cannot receive orders from the trading crowd. The Phlx has also 
noted that there is nothing in their rules that would prohibit 
specialists from using their phones to solicit orders, as long as 
the solicitations are consistent with Phlx Rule 1064(c). Telephone 
call between Rick Rudolf, Counsel, Phlx, Deborah Flynn, Senior 
Special Counsel, Commission, and Sonia Patton, Staff Attorney, 
Commission (December 18, 2000).
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    Floor Brokers. Proposed Phlx Rule 606(e)(4) would allow floor 
brokers to use cellular and cordless phones, but only to communicate 
with persons located on the options floor. The proposed rule would 
prohibit floor brokers from receiving telephonic orders while in the 
trading crowd. Orders phoned to floor brokers must be received at the 
floor broker's booth.\7\ This should facilitate the adequate 
surveillance of telephonic orders and should ensure that there is a 
record of each telephonic order in the event of a trading problem or 
dispute relating to an order. Moreover, the Phlx believes the 
prohibition against floor brokers receiving telephonic orders in the 
trading crowd is consistent with Exchange procedures that require floor 
brokers to time stamp tickets for each order at the time of receipt of 
the order, prior to representing the order in the crowd for 
execution.\8\
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    \7\ Someone from the floor broker's booth would be permitted to 
call a floor broker to request the broker come and pick up an order 
from the booth. Telephone call between Rick Rudolf, Counsel, Phlx, 
Deborah Flynn, Senior Special Counsel, Commission, and Sonia Patton, 
Staff Attorney, Commission (December 18, 2000).
    \8\ See OFPA C-2.
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    Clerks. Proposed Phlx Rule 606(e)(5) would provide that floor 
broker clerks and stock execution clerks are subject to the same terms 
and conditions on telephone use as floor brokers. The proposal also 
states that the Options Committee reserves the right to prohibit clerks 
from using cellular or cordless phones on the floor at any time that it 
is necessary due to electronic interference problems.\9\ In such 
circumstances, the Options Committee would first consider restricting 
the use of phones by ROT clerks, then by stock execution clerks, and 
then finally, by floor broker clerks.
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    \9\ The term ``electronic interference'' refers to radio 
frequency interference or to a situation where a user cannot get a 
good signal because of interference with monitors, static, or a bay 
station not working properly. See Securities Exchange Act Release 
No. 41450 (May 25, 1999), 64 FR 29727 (June 2, 1999) (SR-Phlx-99-
14).
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    General Access In-House Phones, Telephone Records, and Exchange 
Liability. Proposed Phlx Rule 606(e)(6) states that the general access 
in-house telephones located outside of the trading post areas may be 
used by any member, clerk or floor broker to communicate with persons 
located on the options floor or within the Exchange complex.
    Proposed Phlx Rule 606(e)(7) would require members to maintain all 
cellular or cordless telephone records for at least one year, and 
provides the Exchange the right to inspect and/or examine these 
records. The Exchange believes that this requirement should facilitate 
the review by the Exchange's Examinations Department of the records of 
members for whom the Exchange is the Designated Examining Authority, 
and should allow for investigations and possible enforcement action by 
the Exchange's Market Surveillance Department in the event of 
allegations of violations of the proposed rules.
    Finally, Proposed Phlx Rule 606(e)(8) states that the Exchange 
assumes no liability to members or member organizations due to 
conflicts between telephones in use on the options floor or due to 
electronic interference problems resulting from the use of telephones 
on the trading floor.
    Proposed OFPA F-31 contains the same provisions as proposed Rule 
Phlx 606(e) in order to facilitate on-floor reference to the Exchange's 
regulations regarding on-floor communications devices. If a violation 
of OFPA F-31 is deemed to be minor pursuant to the Exchange's Minor 
Rule Plan,\10\ a fine schedule, implemented on a three year running 
calendar basis, would be implemented as follows:
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    \10\ See Exchange Rule 970.

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1st Occurrence............................  $250.00.
2nd Occurrence............................  $500.00.
3rd Occurrence............................  $1,000.00.
4th and thereafter........................  Sanction is discretionary
                                             with Business Conduct
                                             Committee.
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    The three year running calendar would begin on the date of the 
first infraction.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act\11\ in general, and furthers 
the objectives of section 6(b)(5)\12\ in particular, in that it is 
designed 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, by regulating communications 
to and from the Exchange's options floor.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 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, as 
amended, will impose any inappropriate burden on competition.

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

    The Exchange did not solicit or receive 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 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 or such date if it finds such

[[Page 82440]]

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 such 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, as amended, is consistent with the Act. Persons making written 
submission 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 the File 
No. SR-Phlx-00-48 and should be submitted by January 18, 2001.

    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,
Deputy Secretary.
[FR Doc. 00-33126 Filed 12-27-00; 8:45 am]
BILLING CODE 8010-01-M