[Federal Register Volume 67, Number 95 (Thursday, May 16, 2002)]
[Notices]
[Pages 34978-34980]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12203]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45905; File No. SR-Phlx-2002-09]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc. To 
Amend Rules Relating to the Administration of Order, Decorum, Health, 
Safety and Welfare on the Exchange

May 10, 2002.
    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 February 1, 2002, 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 May 7, 2002, the Phlx amended the proposal.\3\ 
Amendment No. 1 completely replaces and supersedes the original filing. 
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 May 6, 2002 letter from Linda S. Christie, Counsel, 
Phlx, to Katherine England, Assistant Director, Division of Market 
Regulation, SEC and attachments (``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the following:

--Phlx Rule 60, Assessments for Breach of Regulations (``Rule 60'');
--Regulation 4, Order (``Regulation 4'');
--Phlx Article VIII, section 8-1 of the By-laws, Presiding Floor 
Officials of the Exchange (``Article VIII section 8-1''); and
--Phlx Article X, section 10-11 (``Article X, section 10-11''), 
Business Conduct Committee (``BCC'').

    The text of the proposed rule change is available at the Phlx and 
at the Commission.

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 add procedures to govern actions by Floor 
Officials and Exchange staff to summarily remove a member from the 
floor for breaches of regulations that relate to the administration of 
order, decorum, health, safety and welfare on the Exchange (``order and 
decorum'' regulations), increase fine amounts for order and decorum 
violations as specified in proposed Regulation 4, reorganize current 
Regulation 4 for clarity, and amend Article VIII, section 8-1 and 
Article X, section 10-11 of the Exchange's By-Laws to eliminate 
inconsistencies with Exchange rules.
    Rule 60. Rule 60 addresses order and decorum on the Exchange floor. 
Currently, Rule 60 provides that a Floor Official or Exchange Official 
may impose assessments not to exceed $1,000.00 per occurrence for 
breaches by members or their employees of regulations that relate to 
order and decorum. Two Floor Officials or an Exchange Official may 
refer a matter to the Exchange's BCC where higher fines or other 
sanctions may be imposed pursuant to Phlx Rules 960.1 through 
960.12.\4\ The Commentary to Rule 60 establishes the procedures to be 
followed when a pre-set fine of up to $1,000.00 is summarily assessed. 
The Commentary specifically addresses the notice of assessment, time 
and place of the hearing, records to be kept, procedures, findings, no 
right of appeal, and reports to be filed with the SEC.\5\ 
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    \4\ These rules provide the jurisdiction, procedures and process 
by which an Exchange member, member organization, or any partner, 
officer, director or person employed by or associated with any 
member or member organization may be charged with a violation within 
the disciplinary jurisdiction of the Exchange.
    \5\ Reports to the SEC are made pursuant to Rule 19d-1(c) under 
the Act. 17 CFR 240.19d-1(c).
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    The proposed amendments to Rule 60 add language that explicitly 
states that Exchange staff, in addition to Floor Officials, may 
directly refer a matter to the BCC. The proposed language is added to 
clarify that Exchange staff has such authority. Additionally, the 
Exchange proposes to amend Commentary (a) to Rule 60 to increase the 
maximum amount of a pre-set fine for order and decorum violations. The 
Exchange believes that the proposed increase from a maximum of 
$1,000.00 to a maximum of $5,000.00 is appropriate and warranted 
considering the types of violations that may arise from violations of 
order and decorum.
    The proposed amendments to Commentary (a) also make several 
clarifying changes to the procedures to be followed in cases where pre-
set fines are assessed. For example, since Commentary (a) .02 currently 
fails to state that a hearing is held only when a written citation is 
contested, such clarifying language is added. Moreover, Commentary (a) 
.03 is expanded to propose that certain record keeping costs be borne 
equally by the cited party and the Exchange when a fine has been 
contested.
    In addition to providing authority for the issuance of fines for 
order and decorum violations, Article VIII, section 8-1 of the By-Laws 
currently provides that Floor Officials may exclude members from the 
trading floor for breaches of order and decorum. However, because there 
are no specific procedures in the Exchange By-Laws or rules to govern 
such removal, the proposed amendments to Rule 60 add procedures to 
govern the summary removal of a member from the trading floor and/or 
premises immediately adjacent to the trading floor for a breach of Rule 
60.\6\ The Phlx believes this should improve the Exchange's 
disciplinary controls by adding specificity.\7\
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    \6\ For purposes of this proposed Rule, the premises immediately 
adjacent to the trading floor shall include the following: (1) All 
premises other than the trading floor that are under Exchange 
control; and (2) premises in the building where the Exchange 
maintains its principal office and place of business, namely 1900 
Market Street, Philadelphia, Pennsylvania.
    \7\ The Exchange proposes to remove members pursuant to Rule 
60(b) when the misconduct occurs on the trading floor or on the 
premises other than the trading floor immediately adjacent to the 
trading floor, as defined in footnote 6 above. The proposed rule 
change does not impose on the Exchange, nor does the Exchange 
assume, any new obligation to increase or expand its current 
surveillance activity to include the premises immediately adjacent 
to the trading floor.

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[[Page 34979]]

    Under the proposal, two Floor Officials and an officer of the 
Exchange \8\ may remove a member for a breach of Rule 60, specifically, 
if the member poses an immediate threat to the safety of persons or 
property, is seriously disrupting Exchange operations, or possesses a 
firearm. When a member is removed under any of these circumstances, the 
member is removed for the remainder of the trading day. Because removal 
for the remainder of the trading day could result in significant loss 
of business for the member, the proposal requires the concurrence of 
two Floor Officials, as well as an officer of the Exchange, before a 
member is removed. Removal will be ordered only for the serious types 
of breaches specified in the proposed rule change.
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    \8\ For purposes of this proposed Rule, an officer of the 
Exchange is an officer who is a vice president or higher.
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    Further, removal from the floor would not be the exclusive sanction 
for breaches of this proposed rule and the regulations thereunder. In 
addition to removal, a member could also be subject to a fine or the 
matter could also be referred to the BCC where it would proceed in 
accordance with Rules 960.1 through 960.12.
    Proposed new Commentary (b) to Rule 60 establishes the following 
procedures to be used when a member is removed from the trading floor. 
First, once two Floor Officials and an officer of the Exchange 
determine a member shall be removed, a member of the Phlx security 
staff will escort the member off the trading floor. Second, Exchange 
staff shall memorialize the removal in the form of a written citation. 
This provision will permit the staff to keep records of the violations 
and have the requisite documentation available to address repeat 
violators. Third, the removed member shall have no right of appeal. The 
ruling of the Floor Officials and Exchange officer shall be final. 
Removal for the remainder of the day will not be ordered except under 
the most serious circumstances and an appeal process under such 
circumstances is impracticable. Finally, the proposed procedures 
specify that a report shall be filed with the Commission; however, no 
report shall be issued if a clerical employee is removed for a breach 
of order and decorum regulations.\9\
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    \9\ The exception for clerical employees conforms to Rule 19d-
1(c) under the Act. 17 CFR 240.19d-1(c).
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    Regulation 4. The proposed amendments to Regulation 4 increase the 
applicable fine schedules for order and decorum violations. Certain 
fines, including those for repeat incidents involving threatening, 
abusive, harassing or intimidating speech or conduct or involving the 
possession of a firearm, are over $1,000.00 and therefore are 
reportable to the SEC pursuant to Rule 19d-1(c) under the Act.\10\ This 
requirement is explicitly noted in proposed section (d) of Regulation 4 
so that members understand that the Exchange is required to report such 
citations to the Commission.
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    \10\ 17 CFR 240.19d-1(c).
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    The proposed amendments also clarify and reorganize the Regulation. 
Since abuses of the paging system are uncommon, the separate fine for 
this type of misconduct is eliminated. Further, separate fines for 
inciting incidents of physical abuse, minor acts of physical abuse, and 
major acts of physical abuse are deleted, as the misconduct is 
adequately covered by the revised Regulation. Finally, the proposed 
revisions to Regulation 4 state in section (c) that firearms are 
prohibited on the trading floor and premises immediately adjacent to 
the trading floor, and members, participants and their associated 
persons who violate the regulation may not only be fined under the 
regulation, but they may also be removed from the trading floor, 
pursuant to Rule 60.
    Article X, section 10-11 and Article VIII, Section 8-1. Currently, 
Article X, section 10-11 of the By-Laws states that the BCC shall not 
have jurisdiction over matters relating to order and decorum. However, 
Rule 60 currently states that two Floor Officials may refer an order 
and decorum violation to the BCC. To clarify this inconsistency, the 
proposed amendment adds language to Article X, section 10-11 stating 
that the BCC shall not have jurisdiction over matters related to order 
and decorum, except as consistent with Rule 60 and the regulations 
promulgated thereunder.
    Currently, Article VIII, section 8-1 of the By-Laws outlines the 
authority of Floor Officials, but is silent as to Exchange staff's 
authority to impose fines for order and decorum violations. Under the 
proposal, language is added to the By-Law that expressly addresses the 
issue and states that Exchange staff shall have the authority to issue 
fines for order and decorum violations, and that Exchange officers as 
well as Floor Officials shall participate in the removal of members and 
associated persons.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6 of the Act \11\ in general, and in particular, with section 
6(b)(5),\12\ in that it is designed to promote just and equitable 
principles of trade, facilitate transactions in securities, remove 
impediments to and perfect the mechanism of a free and open market and 
protect investors and the public interest because the proposal should 
facilitate prompt, appropriate, and effective discipline for violations 
of Rule 60 and the regulations thereunder designed to maintain order on 
the Exchange. In addition, the Exchange believes that the proposed rule 
is consistent with section 6(b)(6) of the Act \13\ which requires 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, by imposing increased fine amounts for breaches 
of order and decorum to better reflect the severity of the violation 
and provide an appropriate form of deterrence for violation of Rule 60 
and the regulations thereunder.
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    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ 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 with respect 
to 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 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.

[[Page 34980]]

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 
Exhange 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-2002-09 and 
should be submitted by June 6, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-12203 Filed 5-15-02; 8:45 am]
BILLING CODE 8010-01-P