[Federal Register Volume 67, Number 56 (Friday, March 22, 2002)]
[Notices]
[Pages 13397-13398]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6900]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45569; File No. SR-Phlx-2001-60]


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

March 15, 2002.

I. Introduction

    On May 31, 2001, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt new sanctioning 
guidelines to assist the Exchange in enforcing compliance with its 
options order handling rules.\3\ On December 18, 2001, the Exchange 
filed Amendment No. 1 to the proposed rule change.\4\ The proposed rule 
change, as amended by Amendment No. 1, was published for comment in the 
Federal Register on February 13, 2002.\5\ No comments were received on 
the proposed rule change. This order approves the proposed rule change, 
as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange filed this proposed rule change pursuant to the 
provisions of Section IV.B.i of the Commission's September 11, 2000 
Order Instituting Public 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'').
    \4\ 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 Business Conduct Committee (``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.
    \5\ See Securities Exchange Act Release No. 45415 (February 7, 
2002), 67 FR 6781.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to adopt sanctioning guidelines (``Guide'') 
to assist the various individuals involved in the Exchange's 
enforcement process, including the Exchange's 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.\6\ The Guide is proposed as an internal document to be 
used by the BCC, hearing panels, and the Board of Governors 
(``Adjudicatory Bodies'') in determining appropriate sanctions to be 
imposed in formal disciplinary proceedings. The Exchange's enforcement 
staff may also refer to the Guide in negotiating settlements.
---------------------------------------------------------------------------

    \6\ In addition to filing this proposed Guide, the Exchange has 
submitted another proposed rule change to adopt guidelines to be 
used in determining when it is appropriate to aggregate violations 
of the Exchange's options order handling rules. See Securities 
Exchange Act Release No. 45421 (February 7, 2002), 67 FR 6961 
(February 13, 2002) (SR-Phlx-2001-114).
---------------------------------------------------------------------------

    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.\7\ The proposed Guide would also allow for non-monetary 
sanctions, such as suspension, expulsion, or other sanctions in 
egregious cases. The matrices are also arranged by subject matter and 
trading floor participant (floor broker, registered options trader, 
specialist).
---------------------------------------------------------------------------

    \7\ The Exchange informed Commission staff that the Adjudicatory 
Bodies would be permitted to consider the entire disciplinary 
history of the member and, in any event, would be required to 
consider all violations within the past three years. Telephone 
conversation between Linda Christie, Counsel, Phlx, and Sonia 
Patton, Special Counsel, Division, Commission, on March 8, 2002.
---------------------------------------------------------------------------

    The proposed Guide would cover only matters brought before the 
Exchange's BCC, which has jurisdiction over disciplinary actions 
pursuant to Exchange By-law Article X, Sec. 10-11

[[Page 13398]]

and Exchange Rule 960.1. The Guide would not apply to violations 
charged under the Exchange's minor rule violation enforcement and 
reporting plan, which consists of Exchange Rule 970 and the 
corresponding OFPA.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
In particular, the Commission believes that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market, and to protect investors and 
the public interest. The Commission also finds that the proposed rule 
change is consistent with Section 6(b)(6) of the Act,\10\ which 
requires that the rules of an exchange provide that its members be 
appropriately disciplined for violations of exchange rules, the Act, 
and rules and regulations thereunder, by expulsion, suspension, 
limitation of activities, functions, and operations, fine, censure, 
being suspended or barred from being associated with a member, or any 
other fitting sanction.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

    At this time, the Commission believes the proposed sanctioning 
guidelines are reasonably designed to effectively enforce compliance 
with the options order handling rules. Nevertheless, the Commission 
expects the Exchange to continue to evaluate the adequacy of the 
proposed sanctioning guidelines to determine whether they do, in fact, 
effectively enforce compliance with the options order handling 
rules.\11\
---------------------------------------------------------------------------

    \11\ The Commission's examination staff will also monitor the 
application of these guidelines to determine whether they do, in 
fact, improve member compliance with the options order handling 
rules.
---------------------------------------------------------------------------

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and rules and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2001-60), as amended, 
is approved.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6900 Filed 3-21-02; 8:45 am]
BILLING CODE 8010-01-P