[Federal Register Volume 64, Number 5 (Friday, January 8, 1999)]
[Notices]
[Pages 1263-1264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-413]
[[Page 1263]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40870; File No. SR-Phlx-98-53]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment No.
1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to
Mandatory Year 2000 Testing
December 31, 1998.
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 December 8, 1998, as amended on December 28, 1998,\3\ 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 Exchange. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons
and to approve the proposal and Amendment No. 1 thereto on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Richard Rudolph, Counsel, Phlx, to Michael
Walinskas, Deputy Associate Director, Division of Market Regulation
(``Division''), Commission, dated December 23, 1998. The original
filing was not noticed in the Federal Register.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposals make it mandatory for all Phlx members and
participants to participate in Year 2000 testing. Specifically,
proposed Rule 650 would provide mandatory participation and reporting
in a manner and frequency prescribed by the Exchange, and would exempt
certain members from participation as set forth in detail below.
The complete text of proposed Rule 650 is below. Proposed new
language is italicized.
* * * * *
Rule 650
Mandatory Participation in Year 2000 Testing
Rule 650. Each member and member organization shall participate
in testing of computer and computer related systems designed to
prepare for the Year 2000 century date change in a manner and
frequency prescribed by the Exchange, and shall provide to the
Exchange reports related to such testing in a reasonably prompt
fashion as requested by the Exchange. Any member or member
organization which is subject to this rule and determined by the
Exchange to be in violation of this rule may be subject to
disciplinary action pursuant to the Exchange's rules.
Commentary
01. The Exchange may exempt a member or member firm from this
requirement if that member cannot be accommodated in the testing
schedule by the organization conducting the test or if the member
does not employ computers in its business or for other good reasons
determined by the Exchange.
II. Self-Regulatory Organization's Statement of the Terms of
Substance of 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
For some time, the securities industry, including the Phlx, has
been considering proper systems preparation in order to avoid potential
computer problems associated with the approach of the Year 2000. The
primary concern worldwide is that computer systems may incorrectly
read, for example, the date ``01/01/00'' to be the year 1900, or some
other incorrect date, causing problems with interest payments, loan
delinquencies, failures in tracking date and time information regarding
trades, and other yet unknown problems.
The concern has been addressed by the Exchange in stages, including
both internal and external ``BETA'' testing. The next stage involves
industry-wide testing of computer systems. Test participants are to
include, among others, exchanges, registered clearing agencies and
depositories, data processors and broker-dealers. To facilitate testing
on an integrated, industry-wide basis, the Securities Industry
Association (``SIA'') has undertaken to coordinate these efforts.
Already, connectivity/format testing sessions, consisting of order
entry/front end data from member firms to exchanges, and extended
point-to-point testing sessions, consisting of exchanges executing mock
orders and passing matched trade files to the utilities for clearance
and settlement processing, is scheduled and being implemented. Phlx is
participating in all phases of this testing, and proposes to mandate
participation from members and member organizations.
The first industry-wide testing session involving processing of
test scripts for order processing/order execution and reporting (using
dummy security symbols and production clearing numbers) from member
firms to exchanges, exchanges to utilities, and utilities to member
firms, is scheduled to take place on Saturday, March 6, 1999. In order
for a member firm to qualify to participate in the March 6, 1999 test
session, they must participate in the scheduled connectivity and point-
to-point testing sessions leading up to the March 6 date.
The rule is proposed to authorize the Exchange to require that
members and member organizations participate in testing of computer
systems in a manner and frequency as may be prescribed by the Exchange.
The scope of the mandated test participation includes, but is not
limited to, point-to-point testing, connectivity testing, and industry-
wide testing conducted by the SIA (including prerequisite testing for
schedules industry-wide testing), and other testing which may be
required by the Exchange.
The rule contemplates that the Exchange may exempt a member from
this requirement if that member cannot be accommodated in the testing
schedule by the organization conducting the test or if the member does
not employ computers in its business, or for other good reasons
determined by the Exchange.
A member or member organization that is not exempt from
participation and nonetheless fails to participate in the tests or
fails to file any reports required by the Exchange may be subject to
disciplinary action pursuant to the Exchange's rules.\4\ Such reports
may include, inter alia, reports required of broker-dealers subject to
the Net Capital Rule relating to systems preparedness for the Year
2000, pursuant to amended Exchange Act Rule 17a-5.
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\4\ Proposed Rule 605 specifically states that any member or
member organization determined by the Exchange to be in violation of
the rule may be subject to disciplinary action pursuant to the
Exchange's rules. While disciplinary action is implied as a
consequence of any Exchange rule violation, proposed Rule 605
includes this clause in order to remain consistent with similar
rules proposed by other exchanges, on which this proposed rule is
based.
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2. Basis
The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act \5\ in general, and in particular, with
Section 6(b)(5),\6\ in that it is designed to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, as well as to
protect investors and the public interest by enhancing efficiency
through automation in the market and protecting the public through Year
2000 preparedness along with the securities industry.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(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 burden on competition that is 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
No written comments were either solicited or received with respect
to the proposed rule change.
III. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
After careful consideration, the Commission has concluded, for the
reasons set forth below, that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder. Mandating Year 2000 testing and reporting is consistent
with Section 6(b)(5) of the Act, among other aspects, requires that the
rules of an exchange promote just and equitable principles of trade,
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, and remove impediments to and
perfect the mechanism of a free and open market and a national market
system. The Commission believes that the proposed rule change will
facilitate the Phlx's and member firms' efforts to ensure the
securities markets' continued smooth operation during the period
leading up to and beyond January 1, 2000.
The Exchange has requested that the Commission approve the proposed
rule change prior to the 30th day after the date of publication of
notice of the filing in the Federal Register because the Exchange
believes that the proposed rule change is necessary for the protection
of investors and the safeguarding of the securities of investors, and
that current participation in testing for the prevention of Year 2000
failures is critical during the next year. The Commission finds good
cause for approving the proposed rule change prior to the 30th day
after the date of pubication of notice of the filing in the Federal
Register. It is vital that self-regulatory organizations (``SROs'')
such as the Phlx have the authority to mandate that their member firms
participate in Year 2000 testing and that they report test results (and
other Year 2000 informatin) to the SROs. The proposed rule change will
help Phlx participate in coordinating Year 2000 testing, including
industry-wide testing, and in remediating any potential Year 2000
problems. This, in turn, will help ensure that the industry-wide tests
and the Phlx's Year 2000 efforts are successful. The proposed rule
change will also help the Phlx work with its member firms, the SIA, and
other SROs to minimize any possible disruptions the Year 2000 may
cause.
IV. Solicitation of Comments
Interested persons are invited to submit written data, vies 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. 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 will also be available for
inspection and copying at the principal office of the Phlx. All
submissions should refer to File No. SR-Phlx-98-53 and should be
submitted by January 29, 1999.
V. Commission
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\7\ that the proposed rule change (SR-Phlx-98-53) and Amendment No. 1
thereto is thereby approved on an accelerated basis.\8\
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\7\ 15 U.S.C. 78s(b)(2).
\8\ In approving the proposal, the Commission has considered the
rule's impact on efficiency, competition and capital formation, 15
U.S.C. 78c(f).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-413 Filed 1-7-99; 8:45 am]
BILLING CODE 8010-01-M
