[Federal Register Volume 66, Number 187 (Wednesday, September 26, 2001)]
[Notices]
[Pages 49242-49244]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24003]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44819; File No. SR-PHLX-2001-74]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Amend Phlx By-Law 
Article XII, Section 12-4 and Article XV, Sections 15-1 and 15-2

September 19, 2001.
    Pursuant to Section 19(b)(1) of the Securities and Exchange Act of 
1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 7, 2001, 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 
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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to: (i) amend Phlx By-Law Article XII, Section 
12-4 and Article XV Sections 15-1 and 15-2 to reduce the current 14-day 
posting period for membership and foreign currency options 
participation transfers to seven days;\3\ (ii) change the notice of 
posting from the Exchange bulletin board to the Phlx website while 
retaining publication in the Secretary's Weekly Bulletin; and (iii) 
allow the Chairman or his designate to reduce the posting period as 
deemed appropriate upon determination that such action is in the best 
interests of the Exchange. The following is the text of the proposed 
rule change. Additions are in italics and deletions are in brackets.
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    \3\ As required by Exchange By-Law Article XXII, Section 22-2, 
the Exchange issued notice of the proposed By-Law amendments to 
Articles XII and XV to its membership on April 11, 2001 and July 10, 
2001, respectively. The Exchange represents that it did not receive 
a request from 17 or more members for a special meeting of the 
Exchange to consider the proposed amendment. As a result, the Board 
approved the proposed amendment to By-Law Article XII on May 16, 
2001, and approved the proposed amendment to By-Law Article XV on 
August 1, 2001. Telephone conversation between Murray L. Ross, Vice 
President and Secretary, Phlx, Florence Harmon, Senior Special 
Counsel, Division of Market Regulation (``Division'') Commission, 
and Sonia Patton, Special Counsel, Division, Commission (September 
13, 2001).
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ARTICLE XII

Application

    Sec. 12-4 Application
    (a) No change.
    (b) No change.
    (c) No change.
    (d) If the admissions Committee votes favorably upon the Candidate, 
his name shall be posted upon the [bulletin board] website of the 
Exchange for a period of [fourteen] seven days and shall also appear in 
the Secretary's Weekly Bulletin [mailed] to the membership. An 
objection by a member of the Exchange to the election of a candidate 
for membership or to the admission of a non-member as a foreign 
currency options participant shall be in writing addressed to the 
Admissions Committee[.] and filed at any time with the Office of the 
Secretary.
    (e) If during the [fourteen] seven-day posting period no objection 
to the election of the applicant to membership or to the admission of 
the non-member as a foreign currency options participant has been 
received, his election to membership or his admission as a foreign 
currency options participant shall become effective upon the expiration 
of the posting period and upon his acquisition by transfer of an 
Exchange membership or of a foreign currency options participation, as 
the case may be.
    (f) No change.
    (g) If during the [fourteen] seven-day posting period an objection 
or objections to the election of the applicant to membership or to the 
applicant's admission as a foreign currency options participant have 
been received, the Committee shall reconsider its favorable vote on the 
candidate upon the expiration of such period. If the Committee 
reaffirms its favorable vote the applicant shall thereupon be elected 
to membership or be admitted as a foreign currency options participant 
upon his acquisition by transfer of an Exchange membership or of a 
foreign currency options participation, as the case may be. If the 
committee rescinds its favorable vote, changing it to unfavorable, the 
applicant shall have the rights of notice, hearing and review as 
provided in subsection (f) of this section. If, after hearing and 
review, unfavorable action on his application is reversed, his election 
to membership or his admission as a foreign currency options 
participant shall become effective in accordance with this subsection 
(g) and without the requirement of an additional posting period.
    (h) No change.
    (i) The Chairman or his designate may in his discretion, reduce any 
membership and/or participation related notice and/or posting period 
requirements including, without limitation, any such requirements 
involving new members or participants and concerning transfers of 
memberships or foreign currency options participations, as the chairman 
may deem appropriate if the Chairman or his designate shall determine 
that such action is in the best interests of the Exchange.
    The Chairman or his designate may condition any reduction of the 
posting period upon receipt of an indemnification or other form of 
security which he or his designate deems adequate to protect the 
interests of the Exchange, members, member organizations, participants, 
participant organizations, investors and the public interest.

ARTICLE XV

Transfer of Membership

Transfer of Membership--Notice
    SEC. 15-1. A transfer of membership shall be made upon submission 
of the name of the candidate to and the approval of the transfer by the 
Admissions Committee. Notice of the proposed transfer shall be sent to 
each member of the Exchange at least [fourteen] seven days prior to 
transfer, which notice shall specify the date on which the proposed 
transfer will become provisionally effective. The lease of legal title 
to a membership or reversion thereof shall be deemed to be a transfer 
of membership under this Article. The transfer of equitable title only 
shall not be deemed to be a transfer of membership under this Article.
Exceptions to Notice--No change
Transfer of Equitable Title
    A transfer of equitable title only to a membership shall be made 
upon submission of the name of the candidate to the Admissions 
Committee. A transfer may not be effected pursuant to a lease 
agreement. Notice of this transfer shall be posted upon the [bulletin 
board] website of the Exchange and shall also appear in the Secretary's 
Weekly Bulletin mailed to the membership at least [fourteen] seven days 
in advance of

[[Page 49243]]

the transfer's effective date. Notice of the proposed transfer shall 
specify the date on which the proposed transfer will become effective.
Lease of Membership--No change

Contracts of Transferor

    SEC. 15-2. A member proposing to transfer his membership shall not, 
after the [fourteenth] seventh day of notice of the proposed transfer, 
make any contracts on the floor of the exchange facility pending the 
effective date of the proposed transfer unless the contract is 
expressly made on behalf of another member of the exchange or on behalf 
of a member firm which will continue to be a member firm 
notwithstanding the completion of such transfer or unless the member is 
also a foreign currency options participant and is proposing to 
transfer only his foreign currency options participation (in which case 
the member shall be prevented only from making any foreign currency 
option contracts on the floor of the exchange facility after the 
[fourteenth] seventh day of notice of the proposed transfer unless 
either of the exceptions set forth above applies).
    No contract made by a member proposing to transfer his membership 
or by his firm after the said [fourteenth] seventh day shall if the 
transfer becomes effective, be the basis of a claim against the 
proceeds of the transfer thereof under subdivision Third of Section 15-
3 of this Article, but may, if the transfer is to another partner in 
the member firm in which the transferring member is a partner, 
constitute the basis of a claim under said subdivision Third of Section 
15-3, against the proceeds of the subsequent transfer of such 
membership by the partner to whom it is transferred.
    On the [fourteenth] seventh day after notice of a proposed transfer 
of membership has been mailed to the membership, all exchange contracts 
of the member proposing to make the transfer and of his firm unless 
such firm will continue to be a member firm notwithstanding the 
completion of such transfer, shall mature and if not settled shall be 
closed out as in the case of an insolvency, unless the same are assumed 
or taken over by another member of this Exchange or member firm; 
provided, however, that, in the case of a member proposing to transfer 
only his foreign currency options participation, the provisions of this 
sentence shall apply only to the foreign currency option contracts of 
such member and of his firm (and shall not apply even to the latter 
contracts if such member's firm will continue to be a foreign currency 
options participant firm notwithstanding the completion of such 
transfer).
Effect of Involuntary Transfers--No Change
* * * * *

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 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The proposed rule change would reduce the notice and posting period 
of a pending transfer of a membership or foreign currency options 
participation from 14 days to seven days.\4\ The purpose of the posting 
period is to provide members with notice of the proposed transfer of 
the membership or participation. The posting sets forth the name of the 
applicant, or member, the affiliation with a particular member 
organization or participant organization, the character of the 
membership (regular membership or regular membership with options 
privileges), and the owner of the membership. The purpose of the 
posting period is to allow for submission of information concerning an 
applicant's qualification and fitness for membership. It should be 
noted that the Exchange's Office of the Secretary and Department of 
Membership Services has not received any submissions from members or 
others affiliated with member or participant organizations in response 
to postings over the past several years.
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    \4\ This would also encompass inactive nominee notices. 
Telephone conversation between Murray L. Ross, Vice President and 
Secretary, Phlx, and Sonia Patton, Special Counsel, Division of 
Market Regulation, Commission, on September 4, 2001.
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    The Exchange is able to process transfers and applications for 
membership by utilizing modern communications facilities to have its 
agents conduct background investigation of potential new members, 
screen the records available from the Central Registration Depository 
and inquire of other self-regulatory organizations on the status of a 
candidate for admission while allowing reasonable notice to the 
membership. The Exchange, once it has received all appropriate 
application materials, is able to process the applications well before 
the expiration of the current 14-day posting period. It should also be 
noted that the vast majority of postings are changes in membership 
status due to transfer and termination of membership under lease. The 
present 14-day posting and notice of transfer requires applicants to 
wait for a period of time following the completion of the processing of 
their application for their new membership capacity to become 
effective. With respect to intra firm transfers or transfers due to a 
new lease arrangement, this delay results in inefficiencies in the 
conduct of business and inconveniences applicants and their affiliated 
broker-dealer entities.
    The proposed amendment to By-Law Article XII Section 12-4 also 
provides that the Chairperson or his designate may, in his discretion, 
reduce any membership and/or participation related notice and/or 
posting period requirements as deemed appropriate if the Chairman or 
his designate determines that the reduction is in the best interests of 
the Exchange. This proposed change is designed to afford the Exchange 
some flexibility in circumstances where it may be necessary to speed 
the approval process for an applicant to assume responsibilities as an 
options specialist for an Exchange member organization when that firm 
does not have an inactive nominee available to assume such 
responsibilities and the firm's only qualified person is a member in 
good standing of another self-regulating organization that has never 
been a member of the Phlx. In such circumstances a further reduction in 
the posting period could be called for and implemented without 
compromising the Exchange's duty to give notice and to protect the 
interest of the Exchange, members, member organizations, participants, 
participant organizations, investors, and the public interest.
    The notice period also allows for submissions of claims against the 
transfer under Phlx By-Law Article XV by providing the membership and 
others with notice of changes in membership status. The Exchange 
believes that a seven-day notice period is sufficient to provide 
information to the membership of a pending change in membership or 
participation status or affiliation with a particular member or 
participant organization. It should be noted that potential claims 
against a

[[Page 49244]]

particular member or member organization may be asserted even after the 
posting period has run under By-Law Article XV, Section 15-4. However, 
it is extraordinarily rare that claims against a membership transfer 
are submitted to the Exchange, as such matters are usually settled by 
the parties prior to the effectiveness of a transfer.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \5\ in general, and furthers the 
objectives of Section 6(b)(5) \6\ in particular, because it is designed 
to perfect the mechanism of a free and open market and a national 
market system, to promote just and equitable principles of trade, and 
to protect investors and the public interest by providing a reduction 
of the posting period from 14 to seven days while retaining appropriate 
notice of applicants for membership and participation and transfers of 
memberships and preserving members' ability to submit information 
concerning the qualifications and fitness for membership of applicants.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 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 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 of such date if it finds such 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 is consistent with the Act. Persons making written submissions 
should fix 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-2001-74 and 
should be submitted by October 17, 2001.
    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).

Margaret H. McFarland,
Deputy Secretary,
[FR Doc. 01-24003 Filed 9-25-01; 8:45 am]
BILLING CODE 8010-01-M