[Federal Register Volume 66, Number 190 (Monday, October 1, 2001)]
[Notices]
[Pages 49994-49995]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24476]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44844; File No. SR-Phlx-2001-68]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. 
Regarding Notification of Changes in Business Operations and the Minor 
Rule Violation Enforcement and Reporting Plan

September 25, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on July 19, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On September 20, 2001, the Phlx amended the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See September 19, 2001 letter from Linda S. Christie, 
Counsel, Phlx, to Nancy Sanow, Assistant Director, Division of 
Market Regulation, SEC, and attachments (``Amendment No. 1''). 
Amendment No. 1 completely replaces and supersedes the original 
proposal.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to adopt an Equity Floor Procedure Advice 
(``EFPA'') and an Options Floor Procedure Advice (``OFPA''), with fine 
schedules under the minor rule violation enforcement and reporting plan 
(``Minor Rule Plan'') \4\ containing the requirements for notification 
established in Phlx Rule 610, ``Notification of Changes in Business 
Operations.'' Additionally, the Exchange proposes to amend Phlx Rule 
610 to require at least ten business days prior notification of a 
change in business operations. The same ten business day notification 
requirement is proposed for the OFPA and EFPA and, therefore, 
establishes consistency with the proposed OFPA, EFPA and Phlx Rule 610. 
The text of the proposed rule change is below. Additions are in 
italics.
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    \4\ SEC Rule 19d-1(c)(1) requires prompt reporting to the 
Commission of any final disciplinary action. 17 CFR 240.19d-1(c)(1). 
However, minor rule violations not exceeding $2,500.00 are not 
deemed final and therefore are not subject to the same reporting 
requirements. See also Phlx Rule 970.
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F-33 Failure to Provide Notification of Changes in Business Operations

    Any member or member organization for which the Exchange is the 
Designated Examining Authority (``DEA''), that operates as a 
specialist, floor broker and/or Registered Options Trader (``ROT''), 
shall provide prior written notification to the Examinations Department 
of any change in the business operations of such member or member 
organization which would cause the member or member organization to be 
subject to additional or modified net capital requirements, examination 
schedules or other registration, examination or regulatory 
requirements.
    For the purposes of this Advice, the appropriate time frame for 
notification is at least 10 business days prior to the change in 
business operations.

FINE SCHEDULE (Implemented on a three-year running calendar basis)

F-33
1st Occurrence  $250.00
2nd Occurrence  $500.00
3rd Occurrence  $1000.00
4th and Thereafter  Sanction is discretionary with Business Conduct 
Committee
* * * * *
Notification of Changes in Business Operations
    Rule 610. Any member or member organization for which the Exchange 
is the Designated Examining Authority (``DEA''), that operates as a 
specialist, floor broker and/or Registered Options Trader (``ROT''), 
shall provide prior written notification to the Examinations Department 
of any change in the business operations of such member or member 
organization which would cause the member or member organization to be 
subject to additional or modified net capital requirements, examination 
schedules or other registration, examination or regulatory 
requirements.
    For the purposes of this Rule, the appropriate time frame for 
notification is at least 10 business days prior to the change in 
business operations.
* * * * *

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 Phlx proposes to provide for the issuance of fines for failure 
to notify the Exchange of certain changes in business operations for 
minor infractions without the need for formal disciplinary action.

[[Page 49995]]

The Phlx believes this should streamline the sanctioning process and 
make it more efficient for all parties involved.
    Phlx Rule 610 requires members or member organizations for which 
the Exchange is the designated examining authority operating as a 
specialist, floor broker or Registered Options Trader (``ROT'') to 
provide prior written notification to the Phlx Department of 
Examinations (``Department'') of any change in certain of its business 
operations which would cause the member or member organization to be 
subject to certain additional or modified regulatory or financial 
requirements.\5\ The Exchange also proposes to amend Phlx Rule 610 to 
require at least ten business days prior notification to a change in 
business operations. The requirement for ten business days prior 
notification is consistent with the proposal for the OFPA and EFPA.
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    \5\ See Phlx Rule 610. Securities Exchange Act Release No. 43546 
(November 9, 2000), 65 FR 69983 (November 21, 2000)(SR-Phlx-00-47).
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    Currently, when a violation of Phlx Rule 610 is detected, the 
Department sends a letter of inquiry to the member or member 
organization and makes a formal request that begins an examination. If 
a violation is found, the Department sends a recommendation to the 
Exchange's Business Conduct Committee (``Committee''). The Committee 
considers the matter and may determine to issue a statement of 
charges.\6\ This action is reportable on a member's Form U-4 or member 
organization's Form BD (Uniform Application for Broker-Dealer 
Registration) because it is a disciplinary action. By adopting a fine 
schedule under the Minor Rule Plan, the Department can issue fines for 
minor infractions without the need for formal disciplinary action.
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    \6\ See Phlx Rule 960.3. The Committee could also determine that 
a less formal sanction, such as a letter of caution, is appropriate.
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    The Exchange believes that it is appropriate to add the 
requirements of Phlx Rule 610 to its Minor Rule Plan. The Exchange's 
Minor Rule Plan is intended to provide a response to a violation of 
Exchange rules when a meaningful sanction is needed, but initiation of 
a disciplinary proceeding pursuant to Phlx Rule 960.2 is not suitable 
because such a proceeding would be more costly and time consuming than 
would be warranted given the nature of the violation.\7\ Therefore, the 
inclusion of the requirements of Phlx Rule 610 in the Minor Rule Plan 
should make the Exchange's disciplinary system more efficient. If the 
Exchange determines that a violation of Phlx Rule 610 is not minor in 
nature, the Exchange may initiate full disciplinary proceedings in 
accordance with Phlx Rule 960.2.
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    \7\ Phlx Rule 960.2 governs the initiation of disciplinary 
proceedings by the Exchange for violations within the disciplinary 
jurisdiction of the Exchange.
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2. Statutory Basis
    The Phlx believes the proposed rule change is consistent with 
Section 6 of the Act \8\ in general, and furthers the objectives of 
Section 6(b)(5) \9\ in particular, in that it is designed to promote 
just and equitable principles of trade, and to remove impediments to 
and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest, and 
specifically with Section 6(b)(6) of the Act \10\ which requires that 
the rules of an exchange provide that its members be disciplined 
appropriately for violations of an exchange's rules and the Act, by 
providing the Exchange the ability to impose sanctions in a more 
efficient manner that are proportionate to the nature of the violation.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change would 
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. 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 Exchange 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 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 filings will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to File No. SR-Phlx-2001-68 and 
should be submitted by October 22, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-24476 Filed 9-28-01; 8:45 am]
BILLING CODE 8010-01-M