Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on July 31, 2000, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with 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. On October 11, 2000, the Exchange submitted Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
17 CFR 240.19b-4.
See Letter from Jurij Trypupenko, Director of Litigation and Operations, Phlx, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), Commission (October 11, 2000). Amendment No. 1 corrected structural errors that appeared in the proposed rule language.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to amend Rule 748, Supervision, in several respects. First, the proposed amendment to Rule 748 would expand the definition of who must be supervised to include employees and associated persons of members, member organizations, participants, or participant organizations. The proposed amendment to Rule 748 would also require that all officers, locations, departments, and business activities of members, member organizations, participants, and participant organizations (“members and related organizations”) be supervised.
Exchange Rule 748, which is generally based on NYSE Rule 342, was originally filed in 1993 and amended once in 1994. See Securities Exchange Act Release Nos. 33303 (Dec. 8, 1993), 58 FR 65609 (Dec. 15, 1993) and 34842 (Oct. 14, 1994), 59 FR 53002 (Oct. 20, 1994).
Second, the proposed amendment to Rule 748 would add an additional requirement for periodic compliance reviews and office inspections. Members and related organizations for which the Exchange is the Designated Examining Authority (“DEA”) would have to conduct compliance meetings with their personnel at least on an annual basis. In addition, members and related organizations for which the Exchange is the DEA would have to conduct office inspections according to an inspection cycle established in their written supervisory procedures.
Third, the proposed amendment to Rule 748 would require that members and related organizations have written supervisory procedures that set forth the specific supervisory system and other essential information regarding supervisory personnel.
Fourth, the proposed amendment to Rule 748 would contain standards for supervision and for written supervisory procedures. Written supervisory procedures and the system for applying such procedures would have to be reasonably designed to prevent and detect, insofar as practicable, violations of the applicable securities laws and regulations, including the by-laws and rules of the Exchange. A similar standard for supervision would be applicable to those entrusted with the duty to supervise others.
The standard for supervision and standard for written supervisory procedures found in the proposed rule change are based generally on Section 15(b)(4)(E)(i) of the Act. 15 U.S.C. 78 o (b)(4)(E)(i).
The text of the proposed rule change is available at the Phlx or the Commission.
II. Self-Regulatory Organization's Statements of the Purpose of, and the 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 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 purpose of the proposed rule change is to enhance Rule 748 and thereby provide the Exchange with better tools to monitor and enforce proper supervision. The Exchange believes that the proposed rule change should significantly strengthen the ability of the Exchange to carry out its oversight responsibilities as a self-regulatory organization, especially over branch offices of member firms conducting business away from the floor of the Exchange.
In addition, the Exchange believes that enhancements to Rule 748, such as the requirements to conduct periodic compliance meetings and office inspections and to keep records of the same, should help the Exchange carry out its compliance and surveillance functions. The proposed supervisory standards should also help both the Exchange and its members carry out their respective duties.
2. Statutory Basis
The Exchange believes the proposed rule change is consistent with Section 6(b) of the Act in general, and in particular, with 6(b)(5) of the Act, in that it is designed to promote just and equitable principles of trade, prevent fraudulent and manipulative acts and practices, and protect investors and the public interest by augmenting the supervisory procedures found in Exchange Rule 748.
15 U.S.C. 78f(b)(5).
The Exchange notes that, although options activity and personnel (including foreign currency options) are subject to Rule 748, additional supervisory requirements apply to the trading of options. See Phlx Rule 1024 (regarding Conduct of Accounts For Options Trading); see also Phlx Rule 1025 (regarding Supervision of Accounts).
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.
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 written comments on the proposed rule change.
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 will:
(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. 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 in the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Phlx. All submissions should refer to File No. SR-Phlx-00-32 and should be submitted by November 17, 2000.
For the Commission by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27648 Filed 10-26-00; 8:45 am]
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