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 November 13, 2000, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.
17 CFR 240.19b-4.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Phlx proposes to add new Commentary .01 (“Prohibition Against Harassment”) to the Exchange's Rule 707 (“Just and Equitable Principles of Trade”), to prohibit members, member organizations, or persons associated with or employed by members or member organization from engaging in harassment and other improper behavior because of listing or competitive practices.
Specifically, proposed new Commentary .01 to Rule 707 would state that it is conduct inconsistent with just and equitable principles of trade for any member, member organization, or person associated with or employed by a member or member organization to directly or indirectly threaten, harass, intimidate, refuse to deal with, or retaliate against any member, member organization, person associated with or employed by a member or member organization, or other market participant because such member, member organization, person associated with or employed by a member or member organization, or other market participant has: (i) Made a proposal to any exchange or other market to list or trade any option class; (ii) advocated or proposed to list or trade an option class on any exchange or other market; (iii) commenced making a market in or trading any option class on any exchange or other market; (iv) sought to increase the capacity of any options exchange or the options industry to disseminate quote or trade data; (v) sought to introduce new option products; or (vi) acted, or sought to act, competitively.
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 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 codify the Exchange's existing policy prohibiting harassment and intimidation on its trading floors and certain other similar improper trading practices. While the Exchange has no rule that specifically prohibits conduct such as harassment or intimidation because of listing or competitive practices, the Phlx has long taken the position that harassing or intimidating behavior on its trading floors is inconsistent with just and equitable principles of trade, in violation of Exchange Rule 707 and is detrimental to the interest and welfare of the Exchange, in violation of Exchange Rule 708. Accordingly, members, member organizations or persons associated with or employed by members or member organizations engaging in such activities are subject to disciplinary action by the Phlx. In fact, the Exchange has successfully brought several disciplinary actions, in furtherance of its obligations as a self-regulatory organization, involving violations of Exchange Rules 707 and 708.
While harassing or intimidating behavior on the trading floors is already prohibited, and the Phlx will continue to bring disciplinary actions, as appropriate, against members pursuant to Exchange Rules 707 and 708, the Exchange has determined to codify, in Commentary .01 to Phlx Rule 707, the prohibition against harassment, intimidation, or retaliation because of listing or competitive practices in order to emphasize the importance to Phlx members and reinforce the Exchange's prohibition of any such anti-competitive conduct.
The Exchange notes that the Commission has directed that the options markets adopt rules to specifically prohibit the type of conduct described herein. See Exchange Act Release No. 43268 (September 11, 2000).
New Commentary .01 to Phlx Rule 707 would thus prohibit a Registered Options Trader (“ROT”) from refusing to deal with another ROT as a retaliatory measure against such ROT who sought to list an option according to Phlx rules. The Phlx notes that the language of new Commentary .01, however, is not intended to require a ROT to trade with another ROT at a price at which the ROT is unwilling to trade, unless otherwise required by Phlx rule(s).
Listing procedures are in Exchange Rules 500 et seq. for options and Exchange Rules 800 et seq. for equities. The Exchange intends to amend or adopt rules regarding the listing of options. See Exchange Act Release No. 43268 (September 11, 2000).
The Phlx believes that the conduct prohibited in proposed new Commentary .01 to Rule 707 is fundamentally inconsistent with the obligations of members to their customers and each other, and is contrary to the public interest in fair and efficient options markets.
New Commentary .01 to Phlx Rule 707 will apply only to members, member organizations, their employees, and associated persons. The Exchange intends to incorporate into its codes of conduct applicable to employees, board members, and members of Exchange committees, rules that are similar in import to new Commentary .01. The Exchange expects to file with the Commission a proposed rule change covering these additional individuals in the near future. Telephone conversation between Jurij Trypupenko, Director of Litigation and Operations, Phlx, and Deborah Flynn, Senior Special Counsel, Division of Market Regulation, SEC (December 13, 2000).
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act in general, and furthers the objectives of Section 6(b)(5) in particular, in that it is designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade by prohibiting members, member organizations, or persons associated with or employed by members or member organizations from engaging in harassment and other improper behavior because of listing or competitive practices.
15 U.S.C. 78f(b)(5).
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
Written comments were neither solicited nor 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 it reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:
A. by order approve the 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-Phlx-00-94 and should be submitted by January 18, 2001.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-33128 Filed 12-27-00; 8:45 am]
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