[Federal Register Volume 67, Number 30 (Wednesday, February 13, 2002)]
[Notices]
[Pages 6781-6782]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3492]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45415; File No. SR-Phlx-2001-60]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, 
Inc. Adopting Sanctioning Guidelines for the Exchange's Order Handling 
Rules

February 7, 2002.
    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 May 31, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
December 18, 2001, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Linda S. Christie, Counsel, Phlx, to Deborah 
Lassman Flynn, Assistant Director, Division of Market Regulation 
(``Division''), Commission, dated December 17, 2001 (``Amendment No. 
1''). In Amendment No. 1, the Exchange amended Phlx Rule 960.10(a) 
to incorporate the Exchange's Enforcement Sanction Guide by 
reference into the Exchange's rules. The proposed new language 
requires the Exchange's BCC to refer to the Enforcement Sanction 
Guide for factors to be considered and appropriate sanctions when 
imposing disciplinary sanctions for violations of the Exchange's 
option order handling rules.
---------------------------------------------------------------------------

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

    The Exchange proposes to adopt sanctioning guidelines (``Guide'') 
to assist the various individuals involved in the Exchange's 
enforcement process, including the Exchange's Business Conduct 
Committee (``BCC''), by recommending ranges of monetary sanctions to be 
applied to violations of certain Exchange rules and Option Floor 
Procedure Advices (``OFPAs''). The Guide covers certain offenses 
related to the trading of options on the Exchange trading floor, with 
particular emphasis on options order handling rules.\4\ The text of the 
proposed rule change is available at the Phlx's Office of the Secretary 
and at the Commission.
---------------------------------------------------------------------------

    \4\ The Exchange filed this proposed rule change in accordance 
with the provisions of Section IV.B.i of the Commission's September 
11, 2000 Order Instituting Administrative Proceedings Pursuant to 
Section 19(h)(1) of the Act, which required the Exchange to adopt 
rules establishing, or modifying existing, sanctioning guidelines 
such that they are reasonably designed to effectively enforce 
compliance with options order handling rules. See Securities 
Exchange Act Release No. 43268 (September 11, 2000), Administrative 
Proceeding File No. 3-10282 (the ``Order''). In addition to filing 
this Guide, the Exchange has submitted another proposed rule change 
(SR-Phlx-2001-114) to adopt guidelines to be used in determining 
when it is appropriate to aggregate violations of the Exchange's 
options order handling rules.
---------------------------------------------------------------------------

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 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 IV below. The Exchange 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
    According to the Exchange, the Guide is proposed as an internal 
document to be used by the BCC, hearing panels, and the Board of 
Governors in determining appropriate sanctions to be imposed in formal 
disciplinary proceedings. The Exchange states that its enforcement 
staff may also refer to the Guide in negotiating settlements. The 
Exchange believes that the criteria outlined in the Guide are designed 
to promote consistency in sanctions, and to effectively enforce 
compliance with the Exchange's option order handling rules.\5\
---------------------------------------------------------------------------

    \5\ The Exchange submitted to the Commission a letter, for which 
it requested confidential treatment, proposing how its regulatory 
staff would aggregate violations of the order handling rules, where 
the violations are identified through the Exchange's automated 
surveillance system. See letter from Anne Exline Starr, First Vice 
President Regulatory Group, Phlx, to John McCarthy, Associate 
Director, Office of Compliance, Inspections and Examinations, 
Commission, and Deborah Lassman Flynn, Assistant Director, Division, 
Commission, dated January 30, 2002.
---------------------------------------------------------------------------

    The Exchange has drafted the Guide with an introduction and 
matrices. The introduction explains the purpose and intent of the Guide 
and presents an overview of the Exchange's enforcement program, 
including a description of factors to be considered when sanctioning 
misconduct in disciplinary proceedings. The matrices cover the 
Exchange's options order handling rules. Each matrix outlines 
recommended monetary sanction ranges and specific factors for 
consideration when a particular options order handling rule has been 
violated. The matrices are also arranged by subject matter and trading 
floor participant (floor broker, registered options trader, 
specialist).\6\
---------------------------------------------------------------------------

    \6\ Although the Guide is being filed as a proposed rule change 
pursuant to the Order, the Exchange does not intend to file 
amendments to the Guide with the Commission as proposed rule changes 
hereafter, because the Guide is a document for internal use only and 
proposes guidelines that are not binding.
---------------------------------------------------------------------------

    The Exchange states that the Guide would cover only matters brought 
before its BCC, which has jurisdiction over disciplinary actions 
pursuant to Exchange By-law Article X, Sec. 10-11 and Exchange Rule 
960.1. According to the Exchange, the Guide would not apply to 
violations charged under its minor rule violation enforcement and 
reporting plan, which consists of Exchange Rule 970 and the 
corresponding OFPA.\7\
---------------------------------------------------------------------------

    \7\ According to the Exchange, the OFPAs contain fine schedules 
to be applied when minor violations are detected. The Exchange 
states that the fine schedules associated with the OFPAs are 
administered pursuant to Exchange Rule 970, which codifies the 
Exchange's minor rule violation enforcement and reporting plan. 
Exchange Rule 19d-1(c)(1) requires the prompt reporting with the 
Commission of any final disciplinary action. However, the Exchange 
believes that minor rule violations not exceeding $2,500 are not 
deemed final and therefore not subject to the same reporting 
requirements.
---------------------------------------------------------------------------

(2) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act,\8\ in general, and furthers the 
objectives of section 6(b)(5) of the Act,\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 the investors and the 
public interest, because it should provide an appropriate form of 
deterrence for violation of Exchange rules, particularly the options 
order handling rules.
---------------------------------------------------------------------------

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

    In addition, the Exchange believes that the proposed rule change is

[[Page 6782]]

consistent with Section 6(b)(6) \10\ of the Act, which requires that 
the rules of an exchange provide that its members be appropriately 
disciplined for violations of the Act as well as the rules and 
regulations thereunder. In this regard, the Exchange states that it has 
developed an enforcement program by which members, member organizations 
and associated persons are appropriately disciplined for violations of 
the Exchange rules and the federal securities laws. According to the 
Exchange, the proposed Guide will serve as an additional tool to effect 
the equitable administration of disciplinary proceedings. Therefore, 
the Exchange believes that the proposal should facilitate prompt, 
appropriate and effective discipline for violations of Exchange rules, 
particularly the options order handling rules.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

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. 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, as amended, 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 Exchange. All submissions should refer to File 
No. SR-Phlx-2001-60 and should be submitted by March 6, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3492 Filed 2-12-02; 8:45 am]
BILLING CODE 8010-01-P