[Federal Register Volume 62, Number 250 (Wednesday, December 31, 1997)]
[Notices]
[Pages 68338-68339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33991]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39468; File No. SR-PHLX-97-39]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Changes in
Insider Trading and Securities Fraud Enforcement Act Rules
December 18, 1997.
I. Introduction
On August 18, 1997, the Philadelphia Stock Exchange, Inc. (``PHLX''
or ``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to include PHLX member
organizations within the scope of Insider Trading and Securities Fraud
Act (``ITSFEA'') coverage and clarify the definition of ``employee'' to
include indirectly compensated persons such as independent contractors.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on October 9, 1997.\3\ No comments were received on the
proposal. This order approves the proposal.
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\3\ Securities Exchange Act Release No. 39178 (October 1, 1997),
62 FR 52804.
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II. Description of the Proposal
Presently, PHLX is the designated examining authority (``DEA'') for
approximately eighteen firms that do not have a floor presence. Because
PHLX Rule 761 and Floor Procedure Advice F-13 (collectively, ``PHLX
ITSFEA rules'') which implement ITSEFA-related written supervisory
procedures currently only cover PHLX floor units, members without a
floor unit are exempt from the application of these rules. The Exchange
is removing this exception. Accordingly, all PHLX members will be
covered by the PHLX ITSFEA rules.
Additionally, the PHLX ITSFEA rules currently impose certain
regulatory requirements upon ``employees'' of members. The rule,
however, does not contain a definition of such term. PHLX proposes to
add a commentary to these rules in order to interpret the term
``employee'' to include ``every person who is compensated directly or
indirectly by the member organization for the solicitation or handling
of business in securities, including those trading securities from the
account of the member organization, whether such securities are those
dealt in on the Exchange or those dealt over-the-counter.'' This change
will now include persons as ``employees'' who might have previously
been excluded based on the nature of their compensation
arrangements.\4\
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\4\ The PHLX has represented that it currently interprets the
term ``employees'' in Rule 761 to include persons such as partners,
directors, officers and branch managers. The PHLX has also
represented that the proposed commentary will not change the
existing interpretation of the term ``employee'' except to expand
the universe of persons defined as employees. Letter from Michele R.
Weisbaum, Vice President and Associate General Counsel, PHLX, to
Kevin Ehrlich, Attorney, Division of Market Regulation, dated
December 18, 1997.
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III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange.
The Commission believes the proposal is consistent with the
requirements of Section 6 of the Act in general and, in particular,
with Section 6(b)(5) in that it is designed to promote just and
equitable principles of trade and prevent fraudulent and manipulative
acts and practices.\5\
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\5\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal will further the goals of
ITSFEA by extending to all PHLX members the requirements to maintain
written supervisory procedures designed to prevent the misuse of
material, non-public information by employees. The rules of other self-
regulatory organizations currently extend ITSFEA-related requirements
to all members.\6\
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\6\ See Chicago Stock Exchange Rule 5 and Interpretation .02;
Cincinnati Stock Exchange Rule 5.1; Pacific Exchange Rule 2.6(e) and
Commentary .03; Chicago Board Options Exchange Rule 4.18 and
Commentary .02; Boston Stock Exchange Rule 37(a) and Commentary .03.
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The Commission believes that the proposal will also further the
goals of ITSFEA by defining the term ``employees'' to include ``every
person compensated directly or indirectly by the member organization
for the solicitation or handling of business in securities, including
those trading securities from the account of the member organization,
whether such securities are those dealt in on the Exchange or those
dealt over-the-counter.'' In particular, this proposed change
appropriately expands coverage of Rule 761 and Floor Procedure Advice
F-13 to include as employees those
[[Page 68339]]
individuals who are technically independent contractors, but carry out
the same functions as persons employed directly by the member
organization. Expanding the class of persons required to supply member
firms with all trading accounts for which that person maintains a
beneficial interest should help members to monitor the trading
activities of those individuals that have a close nexus to the member's
solicitation or handling of business in securities. The requirement
should also make covered individuals aware of the prohibition against
the misuse of material, nonpublic information. In addition, the
Commission believes that requiring all covered persons to update the
Exchange's ``ITSFEA Account List'' should assist Exchange and
Commission review of those records and make any fraudulent acts easier
to deter and detect.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\7\ that the proposed rule change (SR-PHLX-97-39) is approved.
\7\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-33991 Filed 12-30-97; 8:45 am]
BILLING CODE 8010-01-M
