[Federal Register Volume 66, Number 52 (Friday, March 16, 2001)]
[Notices]
[Pages 15312-15314]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6542]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44057; 
File No. SR-Phlx-01-03]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of That Portion of Proposed Rule Change 
by the Philadelphia Stock Exchange, Inc. Relating to the prohibition 
Against Harassment and Certain Similar Improper Trading Practices in 
the Exchange Codes of Conduct

March 9, 2001.
    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 January 11, 2001, 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 and II below, which Items have been prepared by the Phlx. The 
Commission is publishing this notice to solicit comments on the 
proposed rule changes from interested persons and to approve on an 
accelerated basis the portion of the proposal prohibiting harassment 
and certain other improper conduct.
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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 file its Employee Code of Conduct and its Code 
of Conduct for Board Members and Committee Members (collectively 
``Codes of Conduct''). The Phlx proposes to incorporate in its Codes of 
Conduct language similar in import to that of proposed new Commentary 
.01 (``Prohibition Against Harassment'') to Exchange Rule 707 (``Just 
and Equitable Principles of Trade'').\3\
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    \3\ On November 13, 2000, the Exchange filed SR-Phlx-00-94, 
which added proposed new Commentary .01 to Exchange Rule 707 
regarding prohibition against harassment and other improper behavior 
because of listing or competitive practices. Simultaneously with 
this filing, the Exchange filed SR-Phlx-01-02, which adds proposed 
Commentary .02 to Exchange Rule 1009 regarding listing procedures 
and is currently pending with the Commission. These three filings 
are being done in order to, among other things, fulfill Securities 
and Exchange Commission requirements pursuant to In the Matter of 
Certain Activities of Options Exchanges, Securities Exchange Act 
Release No. 43268 (September 11, 2000). Although proposed by the 
Phlx as part of this filing, the Commission is not considering at 
this time proposed procedures for the listing of new options 
classes. Instead, the Phlx's proposed listing procedures will be 
considered pursuant to File No. SR-Phlx-01-02.
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    The text of the proposed rule change is available at the Phlx or 
the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
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. The 
text of these statements may be examined at the places specified in 
Item III 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange has long insisted that members of the Boards of 
Governors of the Exchange and its subsidiaries, committee members of 
the Exchange and its subsidiaries, and employees, officers, and agents 
of the Exchange and its subsidiaries (``Covered Persons'') observe the 
highest standards of business ethics and fair dealing. The Exchange has 
therefore had an Employee Code of Conduct and a Code of Conduct of 
Board Members and Committee Members. The Exchange is now proposing to 
file these Codes of Conduct, which contain new proposed anti-harassment 
language similar to Commentary .01 of Rule 707, with the Commission.\4\
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    \4\ The Commission has directed the options markets to implement 
rules and codes of conduct regarding the type of behavior described 
herein. See Securities Exchange Act Release No. 43268, supra note 3.
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    The Phlx proposes to amend the Codes of Conduct to state that 
Covered Persons may not directly or indirectly threaten, harass, 
intimidate, refuse to deal with, or retaliate against any member, 
member organization, person associated with or employed by a member or 
member organization, or other market participant because such person or 
entity has: (a) Made a proposal to any exchange or other market to list 
or trade any option class; (b) advocated or proposed to list or trade

[[Page 15313]]

an option class on any exchange or other market; (c) commenced making a 
market in or trading any option class on any exchange or other market; 
(d) sought to increase the capacity of any options exchange or the 
options industry to disseminate quote or trade data; (e) sought to 
introduce new option products; or (f) acted, or sought to act, 
competitively.
    The Codes of Conduct also would generally discuss certain practices 
that may improperly affect competition and the need to discuss certain 
issues with the Exchange's Antitrust Compliance Officer. The proposed 
language would specifically prohibit agreements with employees or 
members of any other exchange: that any option class shall be traded 
exclusively on any one exchange; to allocate trading of any option 
class or classes between or among exchanges; or to require, prevent or 
limit the listing, delisting, or trading of any option class.\5\
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    \5\ The Exchange recognizes that Covered Persons may engage in 
inter-exchange discussions properly authorized by the Commission 
(e.g., commission-authorized capacity mitigation discussions, which 
may include discussions about mitigation strategies such as 
delisting options).
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    The purpose of adding the new proposed language prohibiting 
harassment for listing and competitive conduct in the Codes of Conduct 
is to extend to Covered Persons the Exchange's codification, in File 
No. SR-Phlx-00-94, of existing Exchange policy prohibiting harassment 
and intimidation on its trading floors and certain other similar 
improper trading practices.
    While the Exchange has no rule that specifically prohibits conduct 
such as harassment or intimidation because of listing or competitive 
practices, the Phlx has long taken the position that harassing or 
intimidating behavior on its trading floors is inconsistent with just 
and equitable principles of trade in violation of Exchange Rule 707 and 
is detrimental to the interest and welfare of the Exchange in violation 
of Exchange Rule 708. The Exchange has therefore brought disciplinary 
actions, in furtherance of its obligations as a self-regulatory 
organization, involving violations of Exchange Rules 707 and 708. In 
order to emphasize the importance to Phlx members and reinforce the 
Exchange's prohibition of any such conduct, the Exchange has codified, 
in Commentary .01 to Rule 707, in File No. SR-Phlx-00-94, the 
prohibition against harassment, intimidation, or retaliation because of 
listing or competitive practices. The Exchange wants to similarly 
emphasize to Covered Persons the import of this prohibition by 
including it in the Codes of Conduct applicable to such persons.
    In addition, the Phlx believes that the conduct prohibited in the 
Codes of Conduct may be fundamentally inconsistent with the obligations 
of Covered Persons, and contrary to the best interests of the Exchange.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \6\ in general, and furthers the 
objectives of Section 6(b)(5) \7\ in particular, in that it is designed 
to prevent improper actions by members of the Boards of Governors of 
the Exchange and its subsidiaries, committee members of the Exchange 
and its subsidiaries, and employees, officers, and agents of the 
Exchange and its subsidiaries by prohibiting them from engaging in 
harassment and other improper behavior because of listing or 
competitive practices.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 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 inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments 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. 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-01-03 and should 
be submitted by April 16, 2001.

 IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission finds that the portion of the proposed rule change 
prohibiting harassment and other improper conduct is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange,\8\ and in particular, 
with the requirements of Section 6 of the Act.\9\ Specifically, the 
Commission finds that the portion of the proposal prohibiting 
harassment and other improper conduct is consistent with Sections 
6(b)(5) of the Act \10\ in that it is designed to codify the Exchange's 
prohibition against harassment and improper practices in a manner that 
promotes just and equitable principles of trade, prevents fraudulent 
and manipulative acts and practices, maintains fair and orderly 
markets, and protects investors and the public interest.
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    \8\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
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    The Phlx's new proposed language prohibiting harassment and other 
similar improper conduct for listing and competitive actions in the 
Codes of Conduct is intended to extend to Covered Persons the 
Exchange's codification of existing Exchange policy prohibiting 
harassment and intimidation on its trading floors and certain other 
similar improper trading practices contained in Commentary .01 to Phlx 
Rule 707. These sections provide genrally that it is conduct 
inconsistent with just and equitable principles of trade for Covered 
Persons to engage in harassing and certain improper retaliatory actions 
as a result of another market participant's listing or competitive 
behavior. The Commission believes that this codification of existing 
policy in Phlx's Codes of Conduct is a reasonable means to ensure that 
the existing prohibitions against harassment and other similar improper 
conduct are extended to members of the Boards of Governors of the 
Exchange and its subsidiaries, committee members of the Exchange and 
its subsidiaries, and employees, officers, and agents of the Exchange 
and its subsidiaries.
    The Commission finds good cause for approving the portion of the 
proposed rule change prohibiting harassment and

[[Page 15314]]

other similar improper conduct prior to the thirtieth day after the 
date of publication of notice thereof in the Federal Register. The 
Commission notes that the portion of the proposed rule change 
prohibiting harassment and other similar improper conduct is based on 
Commentary .01 to Phlx Rule 707, which the Commission approved 
previously.\11\ The Commission also observes that that portion of the 
proposed rule change concerns issues that previously have been the 
subject of a full comment period pursuant to Section 19(b) of the 
Act.\12\ The Commission does not believe that the portion of the 
proposed rule change prohibiting harassment and other similar improper 
conduct raises novel regulatory issues that were not addressed in the 
previous filing. Accordingly, the Commission finds that there is good 
cause, consistent with Section 19(b)(2) of the Act,\13\ to approve the 
portion of the proposal prohibiting harassment and other similar 
improper conduct on an accelerated basis.
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    \11\ See Securities Exchange Act Release No. 43989 (February 20, 
2001), 66 FR 12581 (February 27, 2001) (File No. SR-Phlx-00-94)
    \12\ 15 U.S.C. 78s(b).
    \13\ 15 U.S.C. 78s(b)(2).
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    It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the portion of the proposed rule change prohibiting harassment and 
other similar improper conduct (SR-Phlx-01-03), is approved on an 
accelerated basis.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Margaret H. McFarland,
Deputy Secretary.
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    \14\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 01-6542 Filed 3-15-01; 8:45 am]
BILLING CODE 8010-01-M