[Federal Register Volume 70, Number 42 (Friday, March 4, 2005)]
[Notices]
[Pages 10738-10740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-899]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51272; File No. SR-Phlx-2004-75]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Floor 
Official Conflicts of Interest

February 28, 2005.
    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 November 9, 2004, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the Phlx. 
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.
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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 124, Disputes, and Option 
Floor Procedure Advices-27, Floor Official Rulings--Options (``OFPA F-
27''), to authorize Exchange staff to determine that a Floor Official 
is ineligible to participate in a particular ruling where it appears 
that such Floor Official has a conflict of interest.
    Below is the amended text of the proposed rule change. Proposed new 
language is in italics.
* * * * *

Disputes

    Rule 124. (a)-(d) * * * No change.
    Commentary:
    .01. Exchange staff may determine that a Floor Official is 
ineligible to participate in a particular ruling where it appears that 
such Floor Official has a conflict of interest. For purposes of this 
Rule, and without limitation, a conflict of interest exists where a 
Floor Official: (a) is directly or indirectly affiliated with a party 
seeking a Floor Official ruling; (b) is a participant or is directly or 
indirectly affiliated with a participant in a transaction that is the 
subject of a Floor Official ruling; (c) is a debtor or creditor of a 
party seeking a Floor Official ruling; or (d) is an immediate family 
member of a party seeking a Floor Official ruling. Exchange staff may 
consider other circumstances, on a case-by-case basis, in determining 
the eligibility or ineligibility of a particular Floor Official to 
participate in a particular ruling due to a conflict of interest.
* * * * *

F-27 Floor Official Rulings--Options

    Floor Officials are empowered to render rulings on the trading 
floor to resolve trading disputes occurring on and respecting 
activities on the trading floor. All rulings rendered by Floor 
Officials are effective immediately and must be complied with promptly. 
Failure to promptly comply with a ruling concerning a trading dispute 
may result in referral to the Business Conduct Committee. Failure to 
promptly comply with other rulings issued pursuant to Order and Decorum 
Regulations or Floor Procedure Advices and not concerning a trading 
dispute may result in an additional violation. Floor Officials need not 
render decisions in any instance where the request for a ruling was not 
made within a reasonable period of time. A Floor Official should not 
render a decision or authorize a citation where such Floor Official was 
involved in or affected by the dispute, as well as in any situation 
where the Floor Official is not able to objectively and fairly render a 
decision.
    Floor Officials shall endeavor to be prompt in rendering decisions. 
However, in any instance where a Floor Official has determined that the 
benefits of further discovery as to the facts and circumstances of any 
matter under review outweigh the monetary risks of a delayed rulings, 
the Floor Official may determine to delay rendering the ruling until 
such time as that further discovery is completed. In issuing decisions 
for the resolution of trading disputes, Floor Officials shall institute 
the course of action deemed by the ruling Floor Official to be more 
fair to all parties under the circumstances at the time. A Floor 
Official may direct the execution of an order on the floor, to adjust 
the transaction terms or participants to an executed order on the 
floor. However, two Floor Officials may nullify a transaction if they 
determine the transaction to have been in violation of Rules 1014 
(Obligations and Restrictions Applicable to specialist and ROTs), 1015 
(Quotation Guarantees), 1017 (Priority and Parity at Openings in 
Options), 1033 (Bids and Offers) or 1080 (AUTOM).
    A minimum of three members of the Sub-Committee on Rules and 
Rulings, a sub-committee of the standing committee, or the Chairperson 
of the standing committee (or his designee) if three Sub-Committee 
members cannot

[[Page 10739]]

be promptly convened, shall be empowered by the standing committee to 
review Floor Official rulings (``Review Panel''). Requests for a review 
must be submitted to the Director of the Market Surveillance Department 
of the Exchange (or his designee) within 15 minutes from the time the 
contested ruling was rendered. Any person who appeals a Floor Official 
ruling concerning a trading dispute and loses will be subject to a 
$250.00 fee upon a finding by the Review Panel that such appeal is 
frivolous. The Review Panel shall endeavor to meet on the matter as 
soon as practicable after notice of a request for a review of a Floor 
Official ruling. Floor Official rulings may be sustained, overturned or 
modified by a majority vote of the Review Panel members present. In 
making a determination, the Review Panel may consider facts and 
circumstances not available to the ruling Floor Official as well as 
action taken by the parties in reliance on the Floor Official's ruling 
(e.g., cover, hedge, and related trading activity). Decisions of the 
Review Panel will be considered final decisions of the standing 
committee and may be appealed to the Exchange's Board of Governors 
pursuant to Exchange By-Law Article XI. Neither Floor Official rulings 
nor Review Panel decisions reviewing Floor Official rulings preclude a 
person from also availing upon the Exchange's Arbitration facilities.
    Exchange staff may determine that a Floor Official is ineligible to 
participate in a particular ruling where it appears that such Floor 
Official has a conflict of interest. For purposes of this Rule, and 
without limitation, a conflict of interest exists where a Floor 
Official: (a) Is directly or indirectly affiliated with a party seeking 
a Floor Official ruling; (b) is a participant or is directly or 
indirectly affiliated with a participant in a transaction that is the 
subject of a Floor Official ruling; (c) is a debtor or creditor of a 
party seeking a Floor Official ruling; or (d) is an immediate family 
member of a party seeking a Floor Official ruling. Exchange staff may 
consider other circumstances, on a case-by-case basis, in determining 
the eligibility or ineligibility of a particular Floor Official to 
participate in a particular ruling due to a conflict of interest.
    FINE SCHEDULE * * * No change.
* * * * * *

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 preclude Floor 
Officials from participating in rulings where they have conflicts of 
interest that may interfere with their ability to make fair and 
objective decisions. Accordingly, the proposed rule change would 
provide expressly that Exchange staff would be authorized to disqualify 
a Floor Official from participation in a particular ruling where it 
appears that such Floor Official has a conflict of interest.
    Currently, Exchange Rule 124 and OFPA F-27 authorize Phlx Floor 
Officials to render rulings on the trading floor to resolve trading 
disputes occurring on and respecting activities on the trading floor. 
Floor Officials are also authorized to rule on Phlx member requests for 
relief from the requirements of certain rules in certain circumstances. 
The Exchange believes that a Floor Official should not, however, render 
a decision or authorize a citation where such Floor Official is 
involved in or affected by the dispute, as well as in any situation 
where the Floor Official is not able to objectively and fairly render a 
decision.
    The proposed rule change would authorize Exchange staff \3\ to 
disqualify a Floor Official from participation in a particular ruling 
where it appears that such Floor Official has a conflict of interest. 
Generally, Exchange staff would assign a Floor Official to hear and 
rule on a trading dispute or member request for relief from the 
requirements of an Exchange rule. The proposed rule change would 
require Exchange staff, prior to making any such assignment, to 
determine whether the Floor Official has a conflict of interest with 
respect to that particular dispute or request. If a conflict exists, 
then such Floor Official would be ineligible to participate in that 
ruling.\4\ The proposed rule would define a ``conflict of interest'' to 
exist where a Floor Official is directly or indirectly affiliated with 
a party seeking a Floor Official ruling; is a participant or is 
directly or indirectly affiliated with a participant in a transaction 
that is the subject of a Floor Official ruling; is a debtor or creditor 
of a party seeking a Floor Official ruling; or is an immediate family 
member of a party seeking a Floor Official ruling. The proposed rule 
would not limit the term ``conflict of interest'' to these four 
circumstances and Exchange staff would be authorized to consider other 
circumstances, on a case-by-case basis, in determining the eligibility 
of a particular Floor Official to participate in a particular ruling.
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    \3\ ``Exchange staff'' generally refers to staff of the 
Exchange's Office of Market Surveillance present on the trading 
floor. Telephone conversation among Richard Rudolph, Director and 
Counsel, Phlx, Gordon Fuller, Counsel to the Assistant Director, 
Division of Market Regulation, Commission and Geraldine Idrizi, 
Attorney, Division, Commission on December 15, 2004.
    \4\ Telephone conversation among Richard Rudolph, Director and 
Counsel, Phlx, Gordon Fuller, Counsel to the Assistant Director, 
Division of Market Regulation, Commission and Geraldine Idrizi, 
Attorney, Division, Commission on December 15, 2004.
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 2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \5\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \6\ in particular, in that it is 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 market 
system, and to protect investors and the public interest, by providing 
expressly in the Exchange's rules that Exchange staff would be 
authorized to disqualify a Floor Official from participation in a 
particular ruling where it appears that such Floor Official has a 
conflict of interest, thus ensuring that the Exchange is able to take 
all necessary steps to prevent Floor Officials from making rulings 
where they have conflicts of interest that may interfere with their 
ability to make fair and objective decisions.
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    \5\ 15 U.S.C. 78s(b).
    \6\ 15 U.S.C. 78s(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

[[Page 10740]]

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

    No written comments were solicited or received.

 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 shall:
    (a) By order approve such proposed rule change; or
    (b) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2004-75 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-2004-75. 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 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-2004-75 and should be submitted on or before March 
25, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-899 Filed 3-3-05; 8:45 am]
BILLING CODE 8010-01-P