[Federal Register Volume 69, Number 179 (Thursday, September 16, 2004)]
[Notices]
[Pages 55862-55864]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2202]



[[Page 55862]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50336; File No. SR-Phlx-2004-54]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendments No. 1 and 2 Thereto Relating to Continuing Education 
Requirements for Registered Persons

September 9, 2004.
    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 August 18, 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 and 
II below, which items have been prepared by the Phlx. The Exchange has 
filed the proposal as a ``non-controversial'' rule change 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\ On August 26, 2004, the Exchange filed Amendment No. 1 
to the proposed rule change.\6\ On September 3, 2004, the Exchange 
filed Amendment No. 2 to the proposed rule change.\7\ 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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
    \5\ The 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).
    \6\ See letter from Mark I. Salvacion, Director and Counsel, 
Phlx to Katherine A. England, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated August 24, 2004 
(``Amendment No. 1''). In Amendment No. 1, the Phlx replaced the 
original proposed rule change in its entirety.
    \7\ See letter from Mark I. Salvacion, Director and Counsel, 
Phlx to Katherine A. England, Assistant Director, Division, 
Commission, dated September 2, 2004 (``Amendment No. 2''). In 
Amendment No. 2, the Phlx made minor changes to the proposed rule 
text. For purposes of calculating the 60-day abrogation period, the 
Commission considers the proposal to have been filed on September 3, 
2004, the date the Phlx filed Amendment No. 2. See Rule 19b-4(f)(2), 
17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx, pursuant to section 19(b)(1) of the Act and Rule 19b-4 
thereunder,\8\ proposes to amend Exchange Rule 640(a) to allow members 
and member organizations (``Member Firms'') to administer the 
Continuing Education Regulatory Element Program to its registered 
persons \9\ by instituting an in-firm program acceptable to the 
Exchange. The text of the proposed rule change is below. Proposed new 
language is in italics.
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    \8\ 17 CFR 240.19b-4.
    \9\ For purposes of Exchange Rule 640 the term ``registered 
person'' means any member, registered representative or other person 
registered or required to be registered under Exchange rules, but 
does not include a person whose activities are limited solely to the 
transaction of business on the floor with members or registered 
broker-dealers. See Exchange Rule 640, Commentary .01.
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Continuing Education For Registered Persons
    Rule 640(a)(1)-(3) No change.
    (4) In-Firm Delivery of the Regulatory Element--Members and member 
organizations will be permitted to administer the continuing education 
Regulatory Element program to their registered persons by instituting 
an in-firm program acceptable to the Exchange.
    The following procedures are required:
    (A) Principal/Officer In-Charge. The firm has designated a 
principal/officer-in-charge to be responsible for the in-firm delivery 
of the Regulatory Element.
    (B) Site Requirements:
    (i) The location of all delivery sites will be under the control of 
the firm.
    (ii) The delivery of Regulatory Element continuing education will 
take place in an environment conducive to training. (Examples: a 
training facility, conference room or other area dedicated to this 
purpose would be appropriate. Inappropriate locations would include a 
personal office or any location that is not or cannot be secured from 
traffic and interruptions.)
    (iii) Where multiple delivery terminals are placed in one room, 
adequate separation between terminals will be maintained.
    (C) Technology Requirements. The communication links and firm 
delivery computer hardware must comply with standards defined by the 
Exchange or its designated vendor.
    (D) Supervision
    (i) The firm's written supervisory procedures must contain the 
procedures implemented to comply with requirements of in-firm delivery 
of the Regulatory Element continuing education.
    (ii) The firm's supervisory procedures must identify the principal/
officer-in-charge designated pursuant to paragraph (A) above and 
contain a list of individuals authorized by the firm to serve as 
proctors.
    (iii) Firm locations for delivery of the Regulatory Element 
continuing education will be specifically listed in the firm's written 
supervisory procedures.
    (E) Proctors.
    (i) All sessions will be proctored by an authorized person during 
the entire Regulatory Element continuing education session. Proctors 
must be present in the session room or must be able to view the 
person(s) sitting for Regulatory Element continuing education through a 
window or by video monitor.
    (ii) The individual responsible for proctoring at each 
administration will sign a certification that required procedures have 
been followed, that no material from Regulatory Element continuing 
education had been reproduced, and that no candidate received any 
assistance to complete the session. Such certification may be part of 
the sign-in log required under paragraph (F) below.
    (iii) Individuals serving as proctors must be persons registered 
with an SRO and supervised by the designated principal/officer-in-
charge for purposes of in-firm delivery of the Regulatory Element 
continuing education.
    (iv) Proctors will check and verify the identification of all 
individuals taking Regulatory Element continuing education.
    (F) Administration
    (i) All appointments will be scheduled in advance using the 
procedures and software specified by the Exchange to communicate with 
the Exchange's system and designated vendor.
    (ii) The firm/proctor will conduct each session in accordance with 
administrative appointment scheduling procedures established by the 
Exchange or its vendor.
    (iii) A sign-in log will be maintained at the delivery facility. 
Logs will contain the date of each session, the name and social 
security number of the individual taking the session, that required 
identification was checked, the sign-in time, the sign-out time, and 
the name of the individual proctoring the session. Such logs are 
required to be maintained pursuant to SEC Rules 17a-3 and 17a-4.
    (iv) No material will be permitted to be utilized for the session 
nor may any session-related material be removed.
    (v) Delivery sites will be made available for inspection by the 
SROs.
    (vi) Before commencing in-firm delivery of the Regulatory Element 
continuing education, members are required to file with their 
Designated Examining Authority (``DEA''), a letter of attestation (*as 
specified below)

[[Page 55863]]

signed by a principal/officer-in-charge executive officer or executive 
representative, attesting to the establishment of required procedures 
addressing principal/officer-in-charge, supervision, site technology 
proctors and administrative requirements. Letters filed with Exchange 
should be sent to Examinations Department, Philadelphia Stock Exchange, 
1900 Market Street, Philadelphia, Pennsylvania, 19103.

*Letter of Attestation for In-Firm Delivery of Regulatory Element 
Continuing Education [Name of member or member organization] has 
established procedures for delivering Regulatory Element continuing 
education on its premises. I have determined that these procedures are 
reasonably designed to comply with SRO requirements pertaining to in-
firm delivery of Regulatory Element continuing education, including 
that such procedures have been implemented to comply with principal/
officer in-charge, supervision, site, technology, proctors, and 
administrative requirements.
Signature:
Printed Name:
Title: [Must be signed by a Principal Executive Officer (or Executive 
Representative) of the Member Organization.]

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 Exchange 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 Exchange proposes to amend Exchange Rule 640(a) to allow Member 
Firms to administer the Continuing Education Regulatory Element Program 
(``Regulatory Element'') to their registered persons by instituting an 
in-firm program acceptable to the Exchange. The Regulatory Element 
currently requires registered persons to complete a computer-based 
training program on the second anniversary of their registration, and 
every three years thereafter. The program includes topics related to 
sales practices, customer communications, compliance, ethics, and other 
subjects pertinent to conducting a securities business.\10\ Currently, 
Member Firms generally use third-party testing centers to administer 
the Regulatory Element.
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    \10\ See Securities Exchange Act Release No. 35341 (February 8, 
1995), 60 FR 8426 (February 14, 1995). See also Securities Exchange 
Act Release No. 39802 (March 25, 1998), 63 FR 15474 (March 31, 
1998).
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    At the recommendation of the Securities Industry/Regulatory Council 
on Continuing Education (``Council''),\11\ the Exchange proposes to 
adopt amendments to Exchange Rule 640(a) to permit member organizations 
to administer the Regulatory Element of the Continuing Education 
Program to their registered persons by instituting firm programs 
acceptable to the Exchange. The proposed rule requires that member 
organizations meet certain conditions for in-house delivery relating to 
the security of the training delivery environment. The proposed rule 
change sets forth the delivery requirements as specified by the 
Council. The Exchange believes that the proposed rule change is 
consistent with recent changes made to similar rules by other self-
regulatory organizations.\12\
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    \11\ The Council is comprised of representatives from broker-
dealers and self-regulatory organizations whose duties include 
recommending and helping develop specific content and questions for 
the Regulatory Element, as well as minimum core curricula for the 
Firm Element. The Council has developed a model under which member 
organizations may deliver the computer-based training in-house.
    \12\ The proposed change is identical in substance, and 
substantially similar in wording, to American Stock Exchange Rule 
341A, New York Stock Exchange Rule 345a, Interpretation /03, 
National Association of Securities Dealers Rule 1120, and Chicago 
Board Options Exchange Rule 9.3A.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with section 
6(b) of the Act \13\ in general, and furthers the objectives of section 
6(b)(5) of the Act \14\ in particular, in that it is designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade and, in general, to protect investors 
and the public interest by ensuring that Member Firms have adequate 
opportunities to provide training in the Regulatory Element to their 
registered persons. The Exchange also believes that the proposed rule 
change is consistent with section 6(c)(3) of the Act.\15\ Under that 
section, it is the Exchange's responsibility to prescribe standards of 
training, experience and competence for persons associated with 
Exchange members and member organizations. The Exchange has proposed 
this rule change to establish an additional mechanism for the 
administration of the Regulatory Element of the Program, which will 
help to enable registered persons to satisfy their continuing education 
obligations.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(c)(3).
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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 burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule change.

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

    Because the foregoing rule change: (1) Does not significantly 
affect the protection of investors or the public interest; (2) does not 
impose any significant burden on competition; and (3) does not become 
operative for 30 days from the date on which it was filed, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest, the proposed rule 
change has become effective pursuant to section 19(b)(3)(A) of the Act 
\16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange satisfied the five-day 
pre-filing requirement. The Exchange further requested that the 
Commission waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii), and designate the proposed rule change immediately 
operative. The Commission notes that the proposed rule change, as 
amended, is similar to proposed rule changes that previously have been 
approved by the Commission that were subject to the full notice and 
comment period,\19\ and thus does not raise new

[[Page 55864]]

issues of regulatory concern. For these reasons, the Commission, 
consistent with the protection of investors and the public interest, 
has waived the 30-day operative date requirement for this proposed rule 
change, and has determined to designate the proposed rule change as 
operative on August 18, 2004, the date it was submitted to the 
Commission.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ See supra, note 12.
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    At any time within 60 days of the filing of such 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.\20\
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    \20\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the proposal to have been filed on 
September 3, 2004, the date the Phlx filed Amendment No. 2.
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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, as amended, 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-2004-54 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-2004-54. 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 Room. Copies of the 
filing also will be available for inspection and copying at the 
principal offices 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-2004-54 and should be submitted on or before 
October 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2202 Filed 9-15-04; 8:45 am]
BILLING CODE 8010-01-P