[Federal Register Volume 59, Number 68 (Friday, April 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8404]
[[Page Unknown]]
[Federal Register: April 8, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33850; File No. SR-Phlx-93-53]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change To Adopt Rule 708, Acts
Detrimental to the Interest or Welfare of the Exchange
April 1, 1994.
On November 4, 1993, 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 adopt new Phlx Rule 708, Acts
Detrimental to the Interest or Welfare of the Exchange.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 33302 (December 8, 1993), 58 FR 65610
(December 15, 1993). No comments were received on the proposal.
The Phlx proposes to adopt rule 708, Acts Detrimental to the
Interest or Welfare of the Exchange.\3\ The proposed rule concerns
unethical behavior not necessarily related to trading principles or the
handling of accounts covered by Phlx Rule 707, Just and Equitable
Principles of Trade.\4\ The Exchange states that the new rule will
serve as a more appropriate jurisdictional basis for acts such as those
listed in Commentary .01 to the rule. The following is the text of the
rule:
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\3\Other national securities exchanges have similar rules
prohibiting acts detrimental to the interest or welfare of the
exchange. See New York Stock Exchange Rule 476(a)(7); American Stock
Exchange Constitution, section 4(j).
\4\Phlx Rule 707 provides: ``A member, member organization, or
person associated with or employed by a member or member
organization shall not engage in conduct inconsistent with just and
equitable principles of trade.''
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Acts Detrimental to the Interest or Welfare of the Exchange
Rule 708. A member, member organization, or person associated
with or employed by a member or member organization shall not engage
in acts detrimental to the interest or welfare of the Exchange.
Commentary .01
Acts which could be deemed detrimental to the interest or
welfare of the Exchange include, but are not limited to, the
following:
(a) Conviction or guilty plea to any felony charge or any
securities or fraud-related criminal misconduct;
(b) Use or attempted use of unauthorized assistance while taking
any securities industry or Exchange-related qualification
examination;
(c) Failure to make a good faith effort to pay any fees, dues,
fines or other monies due and owing to the Exchange;
(d) Destruction or misappropriation of Exchange or member
property;
(e) Misconduct on the trading floor, in violation of the
Exchange's Order and Decorum Regulations, that is repetitive,
egregious or of a publicly embarrassing nature to the Exchange.
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, and, in
particular, with the requirements of sections 6(b) (5) and (6) of the
Act.\5\ Section 6(b)(5) requires that the rules of an exchange be
designed to promote just and equitable principles of trade, to prevent
fraudulent and manipulative acts, and, in general, to protect investors
and the public. Section 6(b)(6) requires that the rules of an exchange
provide that its members, and persons associated with its members, be
appropriately disciplined for violation of the rules of the exchange.
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\5\15 U.S.C. 78f(b) (5) and (6) (1988).
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The Commission believes that adoption of Phlx Rule 708, Acts
Detrimental to the Interest or Welfare of the Exchange, should enable
the Exchange to enforce its rules by providing a more direct
jurisdictional basis upon which to initiate disciplinary action under
Phlx Rule 960, which contains the Exchange's disciplinary process and
procedures.\6\ Specifically, Phlx Rule 708 will provide disciplinary
jurisdiction for things such as failure to make a good faith effort to
pay fees, dues, fines or other monies due to the Exchange, and
unethical or inappropriate actions that do not readily fit under Phlx
Rule 707.\7\ The Commission believes that allowing the Phlx to initiate
disciplinary proceedings for failure to make a good faith effort to pay
a fee, due, fine or other monies due to the Exchange, will aid in
deterring behavior violative of the Phlx Rules.
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\6\Under Phlx Rule 960 the Exchange prepares a statement of
charges, the respondent is given 15 business days to file a written
answer, and a hearing before a Hearing Panel is held upon the
request of the respondent or upon a motion of the Business Conduct
Committee. The Business Conduct Committee reviews the entire record
of the disciplinary proceedings, and, by a majority of the members
voting, makes a written decision whether the respondent has
committed violations and the appropriate sanctions therefor.
Sanctions may include expulsion, suspension, fines, censure,
limitations or termination as to activities, functions, operations,
or association with a member or member organization, or any other
fitting sanction. The respondent has 15 business days to petition
the Disciplinary Review Committee for review of the decision.
\7\The Commission notes that some of the enumerated actions
(e.g., conviction of a felony charge) subjects a person to a
statutory disqualification, as defined in section 3(a)(39) of the
Act, and emphasizes that the Exchange currently has other bases on
which to discipline a member subject to a statutory
disqualification.
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In addition, new rule 708 will provide the Exchange with clear
authority to bring actions against Exchange members according to the
procedures contained in Phlx Rule 960 for repetitive or egregious
violations of the Phlx Rule 60 Order and Decorum Regulations. Under
Phlx Rule 60, a Floor Official or Exchange Official may impose on
members and member organizations assessments not to exceed $1,000.00
per occurrence for breaches of regulations which relate to
administration of, and order, decorum, health, safety and welfare, on,
the exchange.\8\ The Business Conduct Committee may then determine that
there is probable cause to conclude that the actions violate new Rule
708 and recommend that disciplinary actions be taken by the Exchange
under rule 960.\9\
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\8\There currently are seven rule 60 Regulations which address
smoking, food, liquids and beverages, identification badges/access
cards, order, visitors and applicants, dress, and proper utilization
of the security system. Each regulation contains its own schedule of
fines per occurrence.
In addition, the Phlx currently has pending with the Commission
a proposed rule change to add language to Regulation 4 (Order) under
rule 60 which provides that in instances where an act violating the
regulation is deemed particularly egregious, or when an individual
has established a pattern of order violations, two Floor Officials
may refer to the matter to the Business Conduct Committee. See
Commission File No. SR-Phlx-94-14.
\9\Phlx Rule 960.2(e) states that whenever it appears to the
Business Conduct Committee that there is probable cause for finding
a violation within the disciplinary jurisdiction of the Exchange it
shall direct the staff of the Exchange to prepare a statement of
charges. The Rule also provides that whenever the Business Conduct
Committee determines that violations have not occurred or that
disciplinary action is not warranted, it shall so instruct the
Exchange's staff.
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Although the Commission believes the Phlx already has the ability
to bring repetitive and egregious violations of any of its rules to the
Business Conduct Committee for consideration for full disciplinary
proceedings, and expects it to do so in appropriate situations, the
Commission does not believe it is unreasonable to state this
specifically in a separate rule to make it clear to members that
egregious violations will be prosecuted appropriately.
The Commission believes that the new rule is consistent with
section 6(b)(5) of the Act in that it will enable the Exchange to
ensure proper conduct by its members, which leads to more efficient and
reliable markets, and is consistent with section 6(b)(6) of the Act in
that the rule provides that its members, and persons associated with
its members, may be appropriately disciplined for violation of the
rules of the Exchange.
It is therefore ordered, Pursuant to section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-Phlx-93-53) is approved.
\10\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8404 Filed 4-7-94; 8:45 am]
BILLING CODE 8010-01-M
