[Federal Register Volume 69, Number 155 (Thursday, August 12, 2004)]
[Notices]
[Pages 49933-49934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18422]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50159; File No. SR-Phlx-2004-47]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to Legal Fees Incurred by the Exchange

August 5, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on August 4, 2004, 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. Phlx 
filed this proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and 
Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal effective 
upon filing with the Commission.\5\ The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ Phlx asked the Commission to waive the 30-day operative 
delay. See Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to adopt new Phlx Rule 651 to require members, 
member organizations, foreign currency options participants, foreign 
currency options participant organizations, or persons associated with 
any of the foregoing (``member litigants'') who bring legal proceedings 
against the Exchange to reimburse the Exchange for all costs associated 
with defending such proceedings, only when such persons or entities do 
not prevail and the Exchange's costs exceed a specified amount. The 
text of the proposed rule change is below. Proposed new language is in 
italics.

Rule 651. Exchange's Costs of Defending Legal Proceedings

    Any member, member organization, foreign currency options 
participant, foreign currency options participant organization, or 
person associated with any of the foregoing who fails to prevail in a 
lawsuit or other legal proceeding instituted by such person or entity 
against the Exchange or any of its board members, officers, committee 
members, employees, or agents, and related to the business of the 
Exchange, shall pay to the Exchange all reasonable expenses, including 
attorneys' fees, incurred by the Exchange in the defense of such 
proceeding, but only in the event that such expenses exceed $50,000.00. 
This provision shall not apply to disciplinary actions by the Exchange, 
to administrative appeals of Exchange actions or in any specific 
instance where the Board \6\ has granted a waiver of this provision.
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    \6\ See e-mail from Jurij Trypupenko, Counsel and Director of 
Litigation and Operations, Phlx, dated August 4, 2004, which 
clarifies that ``the Board'' refers to the Board of Governors of the 
Philadelphia Stock Exchange.
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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 purpose of the proposed rule change is to enable the Exchange 
to obtain reimbursement of legal costs incurred to defend litigation 
brought against the Exchange by member litigants where such persons or 
entities do not prevail in the litigation.
    Legal proceedings can significantly divert staff resources away 
from the Exchange's regulatory and business purposes. In addition, 
these proceedings often require the Exchange to secure outside 
counsel--a costly undertaking. The Exchange believes that establishing 
a rule that may reduce non merit-based or vexatious legal proceedings 
against the Exchange by member litigants will help protect against 
Exchange resources being unnecessarily diverted from the Exchange's 
regulatory and business objectives, thus strengthening the overall 
organization. To this end, the Exchange is proposing to adopt a rule 
similar to one already in effect at the American Stock Exchange 
(``AMEX'') and other options exchanges \7\ requiring specified persons 
who bring legal proceedings against the Exchange and/or persons acting 
on the Exchange's behalf but who do not prevail to reimburse the 
Exchange for all costs associated with defending such proceedings when 
these costs exceed fifty thousand dollars ($50,000).
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    \7\ See Securities Exchange Act Release Nos. 47842 (May 13, 
2003), 68 FR 27114 (May 19, 2003)(SR-AMEX-2003-35); 37421 (July 11, 
1996), 61 FR 37513 (July 18, 1996)(SR-CBOE-96-02); and 37563 (August 
14, 1996), 61 FR 43285 (August 21, 1996)(SR-PSE-96-21).
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\8\ in general, and furthers the objectives of Section 
6(b)(5), specifically,\9\ in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, by requiring member litigants to 
reimburse the Exchange for costs of a legal defense under specified 
circumstances.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the public 
interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or

[[Page 49934]]

such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-
4(f)(6) thereunder.\11\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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    The Exchange requests that the Commission waive the 30-day 
operative delay. The Commission believes waiving the 30-day operative 
delay is consistent with the protection of investors and the public 
interest. The Commission also notes that the proposed rule change is 
consistent with existing precedent and that there are no novel issues. 
For these reasons, the Commission designates the proposal to be 
effective and operative upon filing with the Commission.\12\
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    \12\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Phlx-2004-47 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Phlx-2004-47. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/ 
rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Phlx. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Phlx-2004-47 and should be submitted on or before September 2, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-18422 Filed 8-11-04; 8:45 am]
BILLING CODE 8010-01-P