01-6542. Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of That Portion of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to the prohibition Against Harassment and Certain Similar ...

March 9, 2001.

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 January 11, 2001, 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 Phlx. The Commission is publishing this notice to solicit comments on the proposed rule changes from interested persons and to approve on an accelerated basis the portion of the proposal prohibiting harassment and certain other improper conduct.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Phlx proposes to file its Employee Code of Conduct and its Code of Conduct for Board Members and Committee Members (collectively “Codes of Conduct”). The Phlx proposes to incorporate in its Codes of Conduct language similar in import to that of proposed new Commentary .01 (“Prohibition Against Harassment”) to Exchange Rule 707 (“Just and Equitable Principles of Trade”).^[3]

The text of the proposed rule change is available at the Phlx or the Commission.

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. The text of these statements may be examined at the places specified in Item III 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 Exchange has long insisted that members of the Boards of Governors of the Exchange and its subsidiaries, committee members of the Exchange and its subsidiaries, and employees, officers, and agents of the Exchange and its subsidiaries (“Covered Persons”) observe the highest standards of business ethics and fair dealing. The Exchange has therefore had an Employee Code of Conduct and a Code of Conduct of Board Members and Committee Members. The Exchange is now proposing to file these Codes of Conduct, which contain new proposed anti-harassment language similar to Commentary .01 of Rule 707, with the Commission.^[4]

The Phlx proposes to amend the Codes of Conduct to state that Covered Persons may not 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 person or entity has: (a) Made a proposal to any exchange or other market to list or trade any option class; (b) advocated or proposed to list or trade an option class on any exchange or other market; (c) commenced making a market in or trading any option class on any exchange or other market; (d) sought to increase the capacity of any options exchange or the options industry to disseminate quote or trade data; (e) sought to introduce new option products; or (f) acted, or sought to act, competitively.

The Codes of Conduct also would generally discuss certain practices that may improperly affect competition and the need to discuss certain issues with the Exchange's Antitrust Compliance Officer. The proposed language would specifically prohibit agreements with employees or members of any other exchange: that any option class shall be traded exclusively on any one exchange; to allocate trading of any option class or classes between or among exchanges; or to require, prevent or limit the listing, delisting, or trading of any option class.^[5]

The purpose of adding the new proposed language prohibiting harassment for listing and competitive conduct in the Codes of Conduct is to extend to Covered Persons the Exchange's codification, in File No. SR-Phlx-00-94, of existing Exchange 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. The Exchange has therefore brought disciplinary actions, in furtherance of its obligations as a self-regulatory organization, involving violations of Exchange Rules 707 and 708. In order to emphasize the importance to Phlx members and reinforce the Exchange's prohibition of any such conduct, the Exchange has codified, in Commentary .01 to Rule 707, in File No. SR-Phlx-00-94, the prohibition against harassment, intimidation, or retaliation because of listing or competitive practices. The Exchange wants to similarly emphasize to Covered Persons the import of this prohibition by including it in the Codes of Conduct applicable to such persons.

In addition, the Phlx believes that the conduct prohibited in the Codes of Conduct may be fundamentally inconsistent with the obligations of Covered Persons, and contrary to the best interests of the Exchange.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act ^[6] in general, and furthers the objectives of Section 6(b)(5) ^[7] in particular, in that it is designed to prevent improper actions by members of the Boards of Governors of the Exchange and its subsidiaries, committee members of the Exchange and its subsidiaries, and employees, officers, and agents of the Exchange and its subsidiaries by prohibiting them from engaging in harassment and other improper behavior because of listing or competitive practices.

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.

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

The Phlx has neither solicited nor received written comments on the proposed rule change.

III. 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-01-03 and should be submitted by April 16, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change

The Commission finds that the portion of the proposed rule change prohibiting harassment and other improper conduct is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,^[8] and in particular, with the requirements of Section 6 of the Act.^[9] Specifically, the Commission finds that the portion of the proposal prohibiting harassment and other improper conduct is consistent with Sections 6(b)(5) of the Act ^[10] in that it is designed to codify the Exchange's prohibition against harassment and improper practices in a manner that promotes just and equitable principles of trade, prevents fraudulent and manipulative acts and practices, maintains fair and orderly markets, and protects investors and the public interest.

The Phlx's new proposed language prohibiting harassment and other similar improper conduct for listing and competitive actions in the Codes of Conduct is intended to extend to Covered Persons the Exchange's codification of existing Exchange policy prohibiting harassment and intimidation on its trading floors and certain other similar improper trading practices contained in Commentary .01 to Phlx Rule 707. These sections provide genrally that it is conduct inconsistent with just and equitable principles of trade for Covered Persons to engage in harassing and certain improper retaliatory actions as a result of another market participant's listing or competitive behavior. The Commission believes that this codification of existing policy in Phlx's Codes of Conduct is a reasonable means to ensure that the existing prohibitions against harassment and other similar improper conduct are extended to members of the Boards of Governors of the Exchange and its subsidiaries, committee members of the Exchange and its subsidiaries, and employees, officers, and agents of the Exchange and its subsidiaries.

The Commission finds good cause for approving the portion of the proposed rule change prohibiting harassment and other similar improper conduct prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. The Commission notes that the portion of the proposed rule change prohibiting harassment and other similar improper conduct is based on Commentary .01 to Phlx Rule 707, which the Commission approved previously.^[11] The Commission also observes that that portion of the proposed rule change concerns issues that previously have been the subject of a full comment period pursuant to Section 19(b) of the Act.^[12] The Commission does not believe that the portion of the proposed rule change prohibiting harassment and other similar improper conduct raises novel regulatory issues that were not addressed in the previous filing. Accordingly, the Commission finds that there is good cause, consistent with Section 19(b)(2) of the Act,^[13] to approve the portion of the proposal prohibiting harassment and other similar improper conduct on an accelerated basis.

It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, that the portion of the proposed rule change prohibiting harassment and other similar improper conduct (SR-Phlx-01-03), is approved on an accelerated basis.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[14]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  On November 13, 2000, the Exchange filed SR-Phlx-00-94, which added proposed new Commentary .01 to Exchange Rule 707 regarding prohibition against harassment and other improper behavior because of listing or competitive practices. Simultaneously with this filing, the Exchange filed SR-Phlx-01-02, which adds proposed Commentary .02 to Exchange Rule 1009 regarding listing procedures and is currently pending with the Commission. These three filings are being done in order to, among other things, fulfill Securities and Exchange Commission requirements pursuant to In the Matter of Certain Activities of Options Exchanges, Securities Exchange Act Release No. 43268 (September 11, 2000). Although proposed by the Phlx as part of this filing, the Commission is not considering at this time proposed procedures for the listing of new options classes. Instead, the Phlx's proposed listing procedures will be considered pursuant to File No. SR-Phlx-01-02.

4.  The Commission has directed the options markets to implement rules and codes of conduct regarding the type of behavior described herein. See Securities Exchange Act Release No. 43268, supra note 3.

5.  The Exchange recognizes that Covered Persons may engage in inter-exchange discussions properly authorized by the Commission (e.g., commission-authorized capacity mitigation discussions, which may include discussions about mitigation strategies such as delisting options).

6.  15 U.S.C. 78f(b).

7.  15 U.S.C. 78f(b)(5).

8.  In approving this rule, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

9.  15 U.S.C. 78f.

10.  15 U.S.C. 78f(b)(5).

11.  See Securities Exchange Act Release No. 43989 (February 20, 2001), 66 FR 12581 (February 27, 2001) (File No. SR-Phlx-00-94)

12.  15 U.S.C. 78s(b).

13.  15 U.S.C. 78s(b)(2).

14.  17 CFR 200.30-3(a)(12).