[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Notices]
[Pages 24943-24945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11510]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35671; File No. SR-PHLX-94-61]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change and Notice of Filing and Order Granting Accelerated Approval of
Amendment No. 1 to the Proposed Rule Change by the Philadelphia Stock
Exchange, Inc., Relating to Floor Procedure Advice F-8, Failure to
Comply With an Exchange Inquiry
May 4, 1995.
On November 21, 1994, the Philadelphia Stock Exchange, Inc.
(``PHLX'' or ``Exchange'') filed with the Securities and Exchange
Commission [[Page 24944]] (``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 amend Floor
Procedure Advice (``Advice'') F-8, ``Failure to Comply with an Exchange
Inquiry,'' to require PHLX members, member organizations, and
associated persons to comply promptly with any request for information
made by the Exchange in connection with any regulatory inquiry or
examination relating to the Exchange's regulatory obligations. Advice
F-8, as proposed, will apply to activities concerning equities,\3\
equity options, index options, and foreign currency options
(``FCOs'').\4\
\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19v-4 (1994).
\3\On March 15, 1995, the PHLX amended its proposal to apply
Advice F-8 to equities as well as options. See Letter from Edith
Hallahan, Special Counsel, PHLX, to Michael Walinskas, Branch Chief,
Office of Market Supervision, Division, Commission, dated March 14,
1995. (``Amendment No. 1''). Under Amendment No. 1, Equity Advice
EM-1 will be renumbered as F-8.
\4\See Letter from Gerald D. O'Connell, First Vice President
Market Regulation and Trading Operations, PHLX, to Michael
Walinskas, Branch Chief, Office of Market Supervision (``OMS''),
Division of Market Regulation (``Division''), Commission, dated
January 30, 1995 (``January 30 Letter'').
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The proposed rule change was published for comment in the Federal
Register on February 7, 1995.\5\ No comments were received on the
proposal.
\5\See Securities Exchange Act Release No. 35305 (January 31,
1995), 60 FR 7252 (February 7, 1995).
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Currently, Advice F-8 requires Exchange members,\6\ member
organizations, and associated persons, to comply promptly with any
request for information made by the Exchange's Market Surveillance
Department in connection with any investigation within the Exchange's
disciplinary jurisdiction involving activities on the equity and option
(including equity options, stock index options, and FCOs) trading
floors. The PHLX proposes to amend Advice F-8 to: (1) Now also apply to
activities on the equity trading floor, and (2) extend the requirements
of Advice F-8 to include PHLX Examinations Department requests, as well
as any requests made by the Exchange in connection with any other
regulatory inquiry, investigation, or examination relating to the
Exchange's regulatory obligations.
\6\Advice F-8 also applies to FCO participants and participant
organizations. See January 30 Letter, supra note 4. See also PHLX
Rule 13, ``Foreign Currency Options Participant,'' which provides
that FCO participants are subject to the provisions of the
Exchange's rules that are applicable to a member of the Exchange and
states that each reference to a member of the Exchange in the PHLX's
rules is deemed to pertain also to FCO participants.
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The PHLX notes that the Advice, which is administered under the
Exchange's minor rule violation enforcement and reporting plan (``minor
rule plan''),\7\ was adopted in order to expedite the Exchange's
investigation process by enabling the Exchange to summarily reprimand
failures to respond to such requests for information.\8\
\7\The PHLX's minor plan, codified in PHLX Rule 970, contains
floor procedure advices with accompanying fine schedules. Rule 19d-
1(c)(2) under the Act authorizes national securities exchanges to
adopt minor rule violation plans for summary discipline and
abbreviated reporting; Rule 19d-1(c)(1) requires prompt filing with
the Commission of any final disciplinary action. However, minor rule
violations not exceeding $2,500 are deemed not final, thereby
permitting periodic, as opposed to immediate, reporting.
\8\See Securities Exchange Act Release No. 26899 (June 7, 1989),
54 FR 25526 (June 15, 1989) (order approving File No. SR-PHLX-89-
20).
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Advice F-8 will continue to contain a prompt compliance requirement
relating to Exchange requests for information pursuant to the advice.
Under the proposal, information requested by the Exchange's
Examinations Department must be received within two business days from
the date of the original request in order to satisfy the prompt
compliance requirement of Advice F-8.\9\ For other Exchange requests
made pursuant to Advice F-8, information must be received within 10
business days from the date of the original request in order to satisfy
the prompt compliance requirement.
\9\The two-business day requirement applies, for example, to
requests for books and records. See Letter from Edith Hallahan,
Special Counsel, PHLX, to Michael Walinskas, Branch Chief, OMS,
Division, Commission, dated November 30, 1994.
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Finally, the PHLX proposes to amend Advice F-8 to reduce the fine
for a first violation of the Advice from $500 to $200, and to provide
that each additional request for information not furnished within the
allotted time period may be considered as a separate occurrence for
purposes of the Advice's fine schedule.\10\
\10\Under the Advice F-8's fine schedule, as amended, the
Exchange will impose a fine of $200 for the first occurrence, $1,000
for the second occurrence, $2,500 for the third occurrence, and a
sanction discretionary with the Exchange's Business Conduct
Committee (``BCC'') for the fourth and subsequent occurrences.
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According to the PHLX, the modification of the fine schedule is
designed to deter delays in compliance with Exchange requests for
information by counting each repeat request as a separate occurrence.
The proposal to reduce the fine for a first occurrence from $500 to
$200 is designed to reflect the potential for increased application of
the fines.
The PHLX believes that extending the requirements of Advice F-8 to
include Examinations Department and other regulatory requests should
enhance the Exchange's ability to meet its regulatory obligations
expeditiously. Accordingly, the Exchange believes that the proposed
rule change is consistent with 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, to prevent fraudulent and
manipulative acts and practices, and to protect investors and the
public interest.
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, the requirement of Section 6(b)(5)\11\ that the rules of an
exchange be designed to prevent fraudulent and manipulative acts and
practices and to protect investors and the public interest. In
addition, the Commission finds that the proposal is consistent with the
requirement of Section 6(b)(1) of the Act that an exchange have the
capacity to enforce compliance by its members with the provisions of
the Act, the rules and regulations thereunder, and the rules of the
exchange.
\11\15 U.S.C. 78f(b)(5) (1988).
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The Commission believes, as it has stated in the past,\12\ that in
order to effect its supervisory and compliance role over members and
members organizations, it is necessary for an exchange to have the
ability to set timetables for the receipt of information, and the
disciplinary authority to compel members to comply with such requests.
By requiring Exchange members to comply promptly with Exchange requests
for information in connection with any regulatory inquiry,
investigation, or examination, the proposal protects investors and the
public interest by facilitating the prompt resolution of Exchange
investigations, examinations, and disciplinary proceedings. This, in
turn, should enhance the quality, consistency, and fairness of the
important Exchange oversight functions and enable the PHLX to better
enforce compliance by its members with the Exchange's rules and the
federal securities laws.
\12\See Securities Exchange Act Release Nos. 27151 (August 18,
1989), 54 FR 35972 (August 30, 1989) (order approving File No. SR-
PHLX-89-20); and 25763 (May 27, 1988), 53 FR 20925 (June 7, 1988)
(order approving File No. SR-NYSE-87-10).
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The Commission believes that it is reasonable for the Exchange to
apply the [[Page 24945]] revised F-8 prompt compliance requirement to
matters involving equities, equity options, index options, and FCOs,
and to extend the prompt compliance requirement to information requests
made by the Exchange in connection with any regulatory inquiry,
investigation, or examination in order to expedite the Exchange's
investigations and to provide consistent treatment for all Exchange
requests for information. In addition, the Commission believes that
including Advice F-8 in the Exchange's minor rule plan will enable the
PHLX to impose immediate sanctions for failures to respond to Exchange
requests for information, thereby encouraging timely compliance with
the provisions of Advice F-8.\13\ Moreover, the Commission believes
that it is appropriate to include Advice F-8 in the Exchange's minor
rule plan because failures to respond to Exchange requests for
information are objective in nature and are easily verifiable, and thus
lend themselves to the use of expedited proceedings.
\13\Under the PHLX's minor rule plan, the Exchange may impose a
fine not to exceed $2,500 for violations of Advices in lieu of
commencing a disciplinary proceeding. In any action taken under the
minor rule plan, the PHLX must serve the person against whom a fine
is imposed with a written statement setting forth (1) the Advice(s)
alleged to have been violated; (2) the act or omission constituting
each violation; (3) the fine imposed for each violation; and (4) the
date by which the determination becomes final and the fine becomes
due and payable to the Exchange, or when the determination must be
contested. Any person against whom a fine is imposed pursuant to the
minor rule plan may contest the Exchange's determination by filing
an answer with the Exchange department taking the action, when the
matter will be referred to the Exchange's BCC for their
consideration.
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The Commission believes it is reasonable for the PHLX to require
members to provide information within two business days for
Examinations Department requests, and within 10 business days for all
other Exchange requests for information. In this regard, the Commission
notes that Examinations Department requests will be made in connection
with books and records which members must maintain on an ongoing basis
and which should be readily available. In contrast, other information
requests made by the Exchange may involve events which occurred in the
past and for which information may not be readily available.\14\
\14\For example, the Exchange's Market Surveillance Department
may request information in connection with a particular trade or
trades or a customer complaint about the handling of an order.
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The Commission believes that it is reasonable for the PHLX to amend
Advice F-8 to reduce the fine for a first violation of the Advice from
$500 to $200, and to provide that each additional request for
information not furnished within the allotted time period may be
considered as a separate occurrence for purposes of the Advice's fine
schedule. The Commission believes that this provision should help to
deter delays in compliance with Exchange requests for information and
result in appropriate discipline, which should further ensure the
protection of investors and the public interest.
The Commission finds good cause for approving Amendment No. 1 to
the proposed rule change prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register in
order to make the treatment of equities under Advice F-8 consistent
with the treatment of equity options, index options, and FCOs. The
Commission notes that the portion of the proposal applicable to equity
options, index options, and FCOs was subject to the full notice and
comment period and that no comments were received on that portion of
the proposal. Since Amendment No. 1 makes the treatment of equities
under Advice F-8 consistent with the treatment of options, Amendment
No. 1 raises no new regulatory issues. Accordingly, the Commission
believes it is consistent with Sections 6(b)(5) and 19(b)(2) of the Act
to approve Amendment No. 1 on an accelerated basis.
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1 to the proposed rule change.
Persons making written submissions should file six copies thereof with
the Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 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 at the Commission's Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. Copies of
such filing will also be available for inspection and copying at the
principal office of the above-mentioned self-regulatory organization.
All submissions should refer to the file number in the caption above
and should be submitted by May 31, 1995.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (File No. SR-PHLX-94-61) is
approved.
\15\15 U.S.C. 78s(b)(2) (1982).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
\16\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-11510 Filed 5-9-95; 8:45 am]
BILLING CODE 8010-01-M
