[Federal Register Volume 68, Number 39 (Thursday, February 27, 2003)]
[Notices]
[Page 9107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4616]



[[Page 9107]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-47389; File No. SR-PHLX-2002-34]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. To Adopt a Seat 
Transaction Policy and Add Supplementary Material to PHLX Rule 708

February 21, 2003.
    On June 21, 2002, the Philadelphia Stock Exchange, Inc. (``Phlx or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 a Seat Transaction Policy for Governors, 
Committee Members and Associated Members Organizations (``Seat 
Transaction Policy'' or the ``Policy'') and in addition, the Exchange 
proposes to amend Phlx Rule 708: Acts Detrimental to the Interest and 
Welfare of the Exchange. On December 16, 2002, the Exchange filed 
Amendment No. 1 to the proposed rule change.\3\ On December 27, 2002, 
the Exchange filed Amendment No. 2 to the proposed rule change.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from John Dayton, Assistant Secretary and 
Counsel, Phlx, to Florence Harmon, Senior Special Counsel, Division 
of Market Regulation (``Division''), Commission, dated December 13, 
2002 (``Amendment No. 1'').
    \4\ See letter from John Dayton, Assistant Secretary and 
Counsel, Phlx, to Florence Harmon, Senior Special Counsel, Division, 
Commission, dated December 27, 2002 (``Amendment No. 2'').
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    The proposed rule change was published for comment in the Federal 
Register on January 10, 2003.\5\ The Commission received no comments on 
the proposed rule change.
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    \5\ See Securities Exchange Act Release No. 47118 (January 2, 
2003), 68 FR 1500 (January 10, 2003).
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    The Commission has carefully reviewed the Phlx's proposed rule 
change and finds that the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange,\6\ and with the provisions of Section 
6(b) of the Act.\7\ In particular, the Commission finds the proposal is 
consistent with Sections 6(b)(5),\8\ in that it is designed to prevent 
fraudulent and manipulative acts and practices and with Section 
6(b)(6),\9\ in that it is designed to appropriately discipline members 
for violation of the rules of the Exchange.
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    \6\ In approving this rule proposal, the Commission notes that 
it has also considered the proposed rule's impact on efficiency, 
competition and capital formation, 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(6).
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    The Commission notes that the Exchange adopted the Policy to 
establish procedures to govern the purchase or sale of a Phlx 
membership, foreign currency option (``FCO'') participation, or 
Philadelphia Board of Trade (``PBOT) membership, (each an ``Exchange 
Seat'' or a Seat'') by a Governance Member or Member Organization 
(``Covered Person'').\10\ The Policy generally restricts a Covered 
Person who is in possession of Material Confidential Information \11\ 
of the Exchange to engage in purchases or sales of Exchange Seats, 
except in accordance with the procedures set forth in the Policy.\12\ 
At the time the Policy was adopted, the Phlx recognized that Covered 
Persons may be subject to conflicting duties whenever they engage in a 
transactions to purchase or sell an Exchange Seat. The Phlx was 
concerned that, as a result of a Covered Person's position on the Board 
or on an Exchange Committee, that Person may learn Material 
Confidential Information regarding the Exchange that may affect the 
value of all Exchange Seats, or the value of particular Exchange Seats. 
The Commission believes that adopting the Exchange's Policy will enable 
the Exchange to resolve the tension between a Covered Person's 
legitimate business needs to purchase or sell Exchange Seats from time 
to time and the Exchange's legitimate business interest in preventing 
disclosure of Material Confidential Information to anyone involved in a 
Seat Transaction.
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    \10\ A Covered Person includes: Exchange Governors, Committee 
Members and Member Firms for which such Governor is an officer or 
director, who own or lease an Exchange Seat to conduct business on 
the Exchange.
    \11\ Material Confidential Information is confidential and 
proprietary to the Exchange and may not, under the Governance 
Members Code of Conduct, Exchange policy, and applicable law, be 
disclosed or used for person gain when purchasing or selling a seat.
    \12\ Neither the Policy nor the proposed amendment to Phlx Rule 
708 would apply to Exchange members other than Governors, Committee 
Members and their associated Member Organizations.
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    In addition, the Phlx has adopted an amendment to Phlx Rule 708, 
Acts Detrimental to the Interest and Welfare of the Exchange, which 
provides notice and makes clear to Covered Persons that any violation 
of the Policy constitutes an act detrimental to the Exchange, and 
therefore is a violation of Phlx Rule 708.
    The Commission believes that adopting the proposed amendments would 
accommodate both of these interests by allowing a Special Committee to 
review the facts surrounding a seat transaction and, if necessary, to 
impose conditions on the seat transaction in order to prevent or limit 
disclosure of Material Confidential Information of the Exchange to 
third parties.
    The Commission believes that the Policy as specified in the 
Governance Members Code of Conduct, and Phlx Rule 708, as amended, 
should discourage fraudulent and manipulative acts and practices in 
connection with the purchase and sale of Exchange Seats by Covered 
Persons, who owe a fiduciary duty to the Exchange and its Members.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\13\ that the proposed rule change (SR-Phlx-2002-34), as amended, is 
approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    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 McFarland,
Deputy Secretary.
[FR Doc. 03-4616 Filed 2-26-03; 8:45 am]
BILLING CODE 8010-01-P