[Federal Register Volume 66, Number 133 (Wednesday, July 11, 2001)]
[Notices]
[Pages 36357-36358]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-17306]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44513; File No. SR-Phlx-2001-22]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc. Regarding Members' and Member 
Organizations' Duty To File Form U-5 With the Exchange

July 3, 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 April 17, 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 self-
regulatory organization (``SRO''). On June 5, 2001, the Exchange filed 
Amendment No. 1 to the proposal.\3\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons and to grant accelerated approval to the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Diana Tenenbaum, Counsel, Phlx, to Nancy 
Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated May 31, 2001 (``Amendment No. 1''). In Amendment 
No. 1, the Exchange deleted a representation regarding the ability 
of Phlx members to access Web CRD, and added a sentence explaining 
the Exchange's current efforts to secure a connection to Web CRD.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx, pursuant to Rule 19b-4 of the Act, proposes to amend 
Exchange Rule 604 (``Registration and Termination of Registered 
Persons''), paragraphs (b) and (d), to provide that members and member 
organizations whose Designated Examining Authority (``DEA'') is the 
Phlx must file Form U-5 (``Uniform Termination Notice for Securities 
Industry Registration'') with the Phlx. The following is the text of 
the proposal:

(Italics represents additions; brackets represent deletions.)
* * * * *

Rule 604. Registration and Termination of Registered Persons

    (a) Unchanged.
    (b) Members and member organizations whose Designated Examining 
Authority (``DEA'') is the Exchange shall immediately file a Form U-
5, Uniform Termination Notice for Securities Industry 
Representatives and/or Agents [to the CRD] with the Exchange upon 
termination of any associated person. Members and member 
organizations whose DEA is not the Exchange shall file Form U-5 with 
the CRD.
    (c) Unchanged.
    (d) Every person who is compensated directly or indirectly by a 
member or participant organization for which the Exchange is the 
[Designated Examining Authority (``] DEA ['')] for the solicitation 
or handling of business in securities, including trading securities 
for the account of the member or participant organization, whether 
such securities are those dealt in on the Exchange or those dealt in 
over-the-counter, who is not otherwise required to register with the 
Exchange by paragraph (a) of this rule or another rule shall file 
Form U-4, Uniform Application for Securities Industry Registration 
or Transfer, with the Exchange.
    (e) Unchanged.

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

    In its filing with the Commission, the Exchange 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 III below. The Exchange has prepared summaries, set forth in 
sections A, B, 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 purpose of the proposed rule change is to provide that members 
and member organizations whose DEA is the Exchange must file Form U-5, 
regarding termination of securities industry representatives and/or 
agents, with the Exchange.\4\
---------------------------------------------------------------------------

    \4\ The proposed amendment pertains only to members and member 
organizations whose DEA is the Exchange. The general requirement 
that termination documentation be filed with the Central 
Registration Depository (``DRD''), in accordance with the provisions 
of Rule 604(b), remains in effect for all other members and member 
organizations.
---------------------------------------------------------------------------

    Pursuant to section 17(d) of the Act,\5\ the Commission may 
``allocate among self-regulatory organizations the authority to adopt 
rules with respect to matters as to which, in the absence of such 
allocations, such self-regulatory organizations share authority under 
this title.'' \6\ A DEA is the SRO that is responsible for examining 
compliance with certain federal securities laws, as well as the SRO's 
rules.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78q(d).
    \6\ 15 U.S.C. 78q(d).
---------------------------------------------------------------------------

    Currently, Phlx acts as the DEA for approximately 150 of its 
members and member organizations. As the DEA, Phlx regularly reviews 
books and records regarding the financial condition of members and 
member organizations, as well as trading reports and trader 
registration information. Rule 604(a) requires that all qualified 
Registered Representatives of Phlx members or participant organizations 
(and persons conducting functions customarily performed by a Registered 
Representative) register with the Exchange. Paragraph (d) requires that 
Form U-4 (``Uniform Application for Securities Industry Registration or 
Transfer'') be filed with the Exchange by every person who is 
compensated for certain securities-related business by a member or 
participant organization whose DEA is Phlx. Currently, the rule 
requires that Form U-5 be filed with the CRD, with most members and 
member organizations filing with the Exchange as well. Because the rule 
is silent on the filing with the Exchange, it is especially important 
to state expressly in Phlx rules that Form U-5 must be filed with the 
Exchange. The proposed amendment will state in the rules the 
requirement that Form U-5 be filed with the Exchange upon termination 
of the above business relationships. Although the Exchange is presently 
exploring the possibility to secure a Web CRD connection for its 
members, it is the Exchange's belief that the proposed rule change is 
still necessary until such connection becomes available, in order to 
reflect current practice and to aid in the enforcement of the Form U-5 
filing requirements.\7\
---------------------------------------------------------------------------

    \7\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \8\ in general, and furthers the objectives of section 
6(b)(5) \9\ in particular in that it should promote just and equitable 
principles of trade, by requiring direct Exchange notification of

[[Page 36358]]

termination from all members and member organizations for whom the Phlx 
is the DEA. In addition, the proposed amendment should protect 
investors and the public interest by providing an efficient and 
promptly updated source of information--the DEA--regarding 
representatives or agents of members and member organizations who are 
no longer empowered to act on the member's behalf. Furthermore, the 
proposed rule amendment is consistent with the provisions of section 
6(b)(7) of the Act,\10\ in that it helps provide a fair procedure for 
terminated persons.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change 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

    No written comments were either solicited or received.

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-2001-22 and 
should be submitted by August 1, 2001.

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

    The Commission has reviewed carefully the Phlx's proposed rule 
change and finds, for the reasons set forth below, the proposal is 
consistent with the requirements of section 6 of the Act \11\ and the 
rules and regulations thereunder applicable to a national securities 
exchange. Specifically, the Commission finds that the proposal is 
consistent with section 6(b)(5) \12\ because it should ensure that 
information regarding representatives or agents of members and member 
organizations for whom the Phlx is the DEA and who are no longer 
empowered to act on the member's behalf is provided to the Exchange. In 
this regard, the Commission believes that the proposed rule change will 
facilitate the Exchange's oversight of its members and member 
organizations in accordance with its self-regulatory obligations 
prescribed in the Act.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f. In approving this rule change, the 
Commission noted that it has considered the proposal's impact on 
efficiency, competition, and capital formation, consistent with 
Section 4 of the Act. Id. at 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice thereof in the Federal Register. The Commission believes that it 
is important to revise the current Exchange rule to require members to 
file Form U-5 with the Exchange to ensure that, until a link is 
established with the NASD to allow members for whom the Phlx is the DEA 
to access Web CRD, these forms continue to be routinely and promptly 
filed by members. The Commission believes that it is important for the 
protection of investors that until members can access Web CRD, this 
information is collected and maintained by the Exchange.
    It Is Therefore Ordered, pursuant to section 19(b)(2) of the 
Act,\13\ that the proposed rule change, as amended, is hereby approved 
on an accelerated basis.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78sf(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-17306 Filed 7-10-01; 8:45 am]
BILLING CODE 8010-01-M