[Federal Register Volume 67, Number 109 (Thursday, June 6, 2002)]
[Notices]
[Pages 39090-39093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14138]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46008; File No. SR-Phlx-2002-24]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to the 
Exchange's Emergency Committee

May 30, 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 April 24, 2002, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
On May 20, 2002, 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 and approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ This notice, representing Amendment No. 1, replaces the 
original Rule 19b-4 filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to amend Exchange Rule 98, Emergency Committee 
(``Committee''), to expand the composition of the Committee to include 
the Exchange's Off-Floor Vice Chairman, and to adopt previously amended 
text of the pilot program regarding Exchange Rule 98 on a permanent 
basis.
    Below is the text of the proposed rule change, as amended. Proposed 
new language is italicized.
* * * * *

Emergency Committee

    Rule 98. An Emergency Committee, consisting of the Chairman of the 
Board of Governors, the On-Floor Vice Chairman the Exchange, the Off-
Floor Vice Chairman of the Exchange, and the Chairmen of the Floor 
Procedure, Options and Foreign Currency Options Committees, shall be 
established and authorized to determine the existence of extraordinary 
market conditions or other emergencies. When the Committee determines 
that such an emergency condition exists, the Committee may take any 
action regarding the following: (1) Operation of PACE, AUTOM, or any 
other Exchange quotation, transaction, reporting, execution, order 
routing or other systems or facility; (2) operation of, and trading on, 
any Exchange floor; (3) trading in any securities traded on the 
Exchange; and (4) the operation of members' or member organizations' 
offices or systems. Any member of the Emergency Committee may request 
the Committee to determine whether an emergency condition exists. If 
the Committee determines that such an emergency exists and takes 
action, the Committee shall prepare a report of this matter and submit 
it promptly to the Securities and Exchange Commission and submit it to 
the Board of Governors at the Board's next regular meeting.
* * * * *

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 III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

[[Page 39091]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to expand the composition of the Committee to 
include the Exchange's Off-Floor Vice Chairman, and to affect such 
expansion, and the previous amendments to Exchange Rule 98, on a 
permanent basis.
    a. Background. On December 23, 1999, the Commission approved 
amendments to Exchange Rule 98, which updated the composition of the 
Committee to reflect the current governance structure of the Exchange, 
on a 120-day pilot basis.\4\ The pilot was then extended through August 
21, 2000 ;\5\ through November 17, 2000 ;\6\ through April 30, 2001 
;\7\ through July 31, 2001 ;\8\ through November 30, 2001 ;\9\ and 
again through May 30, 2002.\10\
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    \4\ See Securities Exchange Act Release No. 42272 (December 23, 
1999), 65 FR 153 (January 3, 2000) (SR-Phlx-99-42) (``Original 
Pilot'').
    \5\ See Securities Exchange Act Release No. 42898 (June 5, 
2000), 65 FR 36879 (June 12, 2000) (SR-Phlx-2000-41).
    \6\ See Securities Exchange Act Release No. 43169 (August 17, 
2000), 65 FR 51888 (August 25, 2000) (SR-Phlx-2000-76). On July 14, 
2000, the Exchange filed a proposed rule change (SR-Phlx-00-63) to 
effect the amendments on a permanent basis. In the proposal, the 
Exchange discussed its views as to whether the Committee structure 
ensured that all Exchange interests both on and off the floor were 
fairly represented. Because the Committee was considering further 
changes to the Committee, SR-Phlx-00-63 was withdrawn on June 15, 
2001.
    \7\ See Securities Exchange Act Release No. 43614 (November 22, 
2000), 65 FR 75332 (December 1, 2000) (SR-Phlx-00-101).
    \8\ See Securities Exchange Act Release No. 44245 (May 1, 2001), 
66 FR 23961 (May 10, 2001) (SR-Phlx-2001-44).
    \9\ See Securities Exchange Act Release No. 44653 (August 3, 
2001), 66 FR 43289 (August 17, 2001) (SR-Phlx-2001-70).
    \10\ See Securities Exchange Act Release No. 45192 (December 26, 
2001), 67 FR 1386 (January 10, 2002) (SR-Phlx-2001-106).
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    The Exchange originally proposed to amend Exchange Rule 98 by 
updating the composition of the Committee to correspond with previous 
revisions to the Exchange's governance structure,\11\ and by deleting a 
provision authorizing the Committee to take action regarding 
CENTRAMART, an equity order reporting system that is no longer used on 
the Exchange Equity Floor.
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    \11\ See Securities Exchange Act Release No. 38960 (August 22, 
1997), 62 FR 45904 (August 29, 1997) (SR-Phlx-97-31).
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    The Committee was formed in 1989 \12\ prior to the aforementioned 
changes to the Exchange's governance structure. In the Original Pilot, 
approved by the Commission, the Exchange deleted the word ``President'' 
from the rule, as the Exchange no longer has a ``President,'' and 
included the Exchange's On-Floor Vice Chairman \13\ as a member of the 
Committee.
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    \12\ See Securities Exchange Act Release No. 26858 (May 22, 
1989), 54 FR 23007 (May 30, 1989) (SR-Phlx-88-36).
    \13\ See Exchange By-Law, Article IV, Section 4-2.
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    b. The Instant Proposal. The current pilot program specifies the 
composition of the Committee to include the following individuals: the 
Chairman of the Board of Governors; the On-Floor Vice Chairman of the 
Board of Governors; and the Chairmen of the Options Committee, the 
Floor Procedure Committee, and the Foreign Currency Options Committee, 
respectively.
    The Exchange represents that the proposed addition of the Off-Floor 
Vice Chairman to the Committee is in response to Commission comments 
concerning the expansion of the Committee to include off-floor 
representation in the decision-making process in emergency situations. 
Since off-floor interests would certainly be affected by any decision 
made by the Committee regarding the operation of the Exchange, the 
Exchange believes that the addition of the Off-Floor Vice Chairman 
would provide representation of those interests sufficient to satisfy 
the Commission's concerns.
    The Exchange represents that meetings of the Committee shall be 
held at such times and places as the Committee may designate, meetings 
of the Committee shall be held on the call of any member of the 
Committee. The Exchange will use best efforts to attempt to give notice 
thereof by making such reasonable efforts as circumstances may permit 
to notify each Committee member of the meeting. Such notification may 
be oral, written or by publication, specifying the purposes thereof. 
Failure of any member of the Committee to receive actual notice of a 
meeting of the Committee shall not affect the power of the Committee 
members present at such meeting to exercise the powers of the 
Committee.
    The Exchange represents that four out of six members of the 
Committee (including the proposed addition of the Off-Floor Vice 
Chairman) shall be sufficient to constitute a quorum for any meeting of 
the Committee. In the event of a vacancy on the Committee, a quorum 
would be a majority of all Committee members then in office.\14\
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    \14\ Exchange By-law Article X, Section 10-3 provides, in 
relevant part, that each Standing Committee and Special Committee 
shall determine the manner and form in which its proceedings shall 
be conducted, and shall make such regulations for its government as 
it shall deem proper and may act at a meeting or without a meeting, 
and through a quorum composed of a majority of all its members then 
in office. Except as otherwise specifically provided in the by-laws 
or rules, the decision of a majority of those present at a meeting 
at which a quorum is present, or the decision of a majority of those 
participating when at least a quorum participates, shall be the 
decision of the Committee.
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    Finally, in accordance with current Exchange Rule 98, any action 
taken by the Committee shall be reported and submitted promptly to the 
Commission and to the Exchange's Board of Governors at its next regular 
meeting following such action.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act \15\ in general, and with Section 6(b)(5) in 
particular,\16\ in that designed to perfect the mechanisms of a free 
and open market and a national market system, and to protect investors 
and the public interest, by permanently updating the composition of the 
Committee to reflect the current governance structure of the Exchange, 
and by adding off-floor representation to the Committee by making the 
Exchange's Off-Floor Vice Chairman a permanent member of the Committee. 
The Exchange also believes that the proposed rule change, as amended, 
is consistent with the Act because it continues to provide a regular 
procedure for the Exchange to take necessary and appropriate action to 
respond to emergencies.\17\
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    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(5).
    \17\ Previously, the Exchange has described ``extraordinary 
market or emergency conditions'' as among other things, a 
declaration of war, a presidential assassination, an electrical 
blackout, or events such as the 1987 market break or other highly 
volatile trading conditions that require intervention for the 
market's continued efficient operation. See letter from William W. 
Uchimoto, General Counsel, Phlx, to Sharon L. Itkin, Esquire, 
Division of Market Regulation, Commission, dated March 15, 1989.
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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

    The Exchange did not receive or solicit any written comments on the 
proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 39092]]

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 at 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-2002-24 and should be submitted by June 27, 2002.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    The Exchange has requested that the Commission approve the proposed 
rule change, as amended, on an accelerated basis, and that the 
Commission permanently approve the pilot program related to Exchange 
Rule 98. The Commission finds that the proposed rule change, as 
amended, is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a national securities 
exchange.\18\ In particular, the Commission finds that the proposed 
rule change, as amended, is consistent with Section 6(b)(5) of the Act, 
which requires that the rules of an exchange be designed to promote 
just and equitable principles of trade, remove impediments to and 
perfect the mechanism of a free and open market and a national 
securities system, and protect investors and the public interest.\19\ 
Specifically, the Commission believes that the proposed rule change, as 
amended, is consistent with the requirements of the Act, by fostering 
investor and public interest and promoting just and equitable 
principles of trade, for several reasons. First, it conforms the 
composition of the Committee to structural amendments that were made to 
the Exchange's governance structure and eliminates outdated references 
that may be confusing. Secondly, it adds the Off-Floor Vice Chairman to 
the Committee, which should help to ensure that the Committee 
represents Exchange interests both on and off the floor. Finally, it 
addresses quorum requirements to ensure that the Committee will be able 
to meet and can operate in times of emergency.
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    \18\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Commission notes that the Exchange originally amended Exchange 
Rule 98 relating to its Committee, in December 1999, as part of a Year 
2000 contingency plan designed by the Exchange's Year 2000 Task Force. 
The Commission approved the Exchange's amendment to the rule on a pilot 
basis,\20\ and noted that the amended rule gave the Committee the power 
to act only in true emergency situations. The pilot program was 
extended several times, the current extension scheduled to expire on 
May 30, 2002, as the Exchange and the Commission considered changes to 
the composition of the Committee to ensure fair representation of all 
Exchange interests. In this instant proposal, the Exchange believes 
that, by adding the Off-Floor Vice President to the Committee to 
represent off-floor Exchange interests, it will address these concerns. 
The Commission notes that, under the amended proposal being approved in 
this order, the Committee will consist of the Chairman of the Board of 
Governors, the On-Floor Vice Chairman the Exchange, the Off-Floor Vice 
Chairman of the Exchange, and the Chairmen of the Floor Procedure, 
Options and Foreign Currency Options Committees.\21\
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    \20\ See Original Pilot, supra note 4. In the approval order, 
the Commission requested that the Exchange examine the operation of 
the Committee to ensure that the Committee is not dominated by any 
one Exchange interest (i.e., on-floor or off-floor interest). The 
Commission requested that the Exchange report back to the Commission 
on its views as to whether the Committee structure ensures that all 
Exchange interests are fairly represented by the Committee.
    \21\ Under the terms of the pilot program, the Exchange also 
amended Exchange Rule 98 in minor respects, including deleting of 
the term ``President,'' including the Exchange's On-Floor Vice 
Chairman to the Committee, and deleting reference to CENTRAMART.
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    In approving the original pilot and extending it several times, the 
Commission requested that the Phlx consider whether the overall 
Committee structure ensures that all Exchange interests are fairly 
represented. The Commission noted that it would be concerned about a 
Committee structure dominated by one Exchange interest (e.g., on-floor 
interest). In light of September 11, 2001, the establishment of a 
permanent emergency committee that can convene and meet quickly to make 
decisions has become critical. Consequently, while the Committee 
represents a variety of on-floor interests, the addition of the Off-
Floor Vice Chairman as a member of the Committee should help to create 
a more balanced Committee of both on and off-floor interests that 
should ensure that Exchange members are adequately represented in times 
of emergency.
    The Commission further believes that the Exchange has adequate 
procedures in place for calling meetings of the Committee, specifically 
quorum requirements for calling a Committee meeting and for 
implementing a Committee decision. The Commission notes, in this 
regard, that the quorum requirements of four out of six members should 
ensure the Committee can convene and take action in times of emergency. 
Further, consistent with the Exchange's Bylaws, in the event of a 
vacancy, a quorum would be a majority of all Committee members then in 
office. In addition, in recognition that it may be hard to convene the 
Committee in the event of an emergency, the Exchange has stated its 
commitment to use best efforts to give notice to each Committee member 
of the meeting. Finally, the Commission notes that, in accordance with 
Exchange Rule 98, any action taken by the Committee shall be 
immediately reported to the Commission and to the Exchange's Board of 
Governors.
    The Commission finds good cause, pursuant to section 19(b)(2) of 
the Act,\22\ for approving the proposed rule change, as amended, prior 
to the thirtieth day after the date of publication of notice thereof in 
the Federal Register. The Commission recognizes that no comments were 
received on the Original Pilot or during the duration of the pilot 
program. The Commission therefore believes that granting accelerated 
approval to the proposed rule change, as amended, as well as permanent 
approval to the amended pilot program is appropriate and will ensure 
that the Committee remains in place to take necessary and appropriate 
action to respond to extraordinary market conditions or other emergency 
situations.
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    \22\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Phlx-2002-24), as amended, 
is hereby approved on an accelerated basis.
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    \23\ Id.


[[Page 39093]]


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14138 Filed 6-5-02; 8:45 am]
BILLING CODE 8010-01-P