[Federal Register Volume 59, Number 94 (Tuesday, May 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11924]
[[Page Unknown]]
[Federal Register: May 17, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34044; File No. SR-Phlx-93-39]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change To Adopt a Supervision
Rule
May 11, 1994.
On November 2, 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 a comprehensive
supervision rule.
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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. 33303 (December 8, 1993), 58 FR 65610
(December 15, 1993). No comments were received on the proposal.
The Phlx proposed to amend its Rule 748 to add detailed supervision
requirements.\3\ Phlx Rule 748 currently requires members to supervise
activities in customer accounts handled by the firm's branch office
managers, customers' men and service men. The rule change amends the
language such that a member is required to supervise all accounts
handled by registered representatives.\4\ In addition, the proposed
rule change expands upon the supervision requirement by adding a
requirement that all offices, departments and business activities of
members and member organizations, and participants and participant
organizations (including foreign incorporated branch offices), be under
the supervision and control of such members and that the responsibility
of doing so be affirmatively delegated to persons within the firms.
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\3\The proposed rule is similar to New York Stock Exchange Rule
342 (Offices--Approval, Supervision and Control).
\4\Registered Representatives of a member or participant
organization must be registered with and approved by the Exchange.
See Phlx Rule 604 (Registration and Termination of Registered
Representatives).
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Furthermore, proposed Rule 748(c) details the delegation of such
responsibility to qualified persons. Persons assuming responsibility
must provide for written supervisory procedures and a separate system
of follow-up and review to determine whether delegated authority is
being properly exercised.
The following is the text of the rule, with italics representing
new language to be added and brackets representing deleted language:
Supervision [of Accounts]
Rule 748(a). Every member is required either personally or through
a general partner or an officer who is a holder of voting stock in his
organization to supervise diligently all accounts handled by [branch
office managers, customers' men and service men] registered
representatives employed by such organization.
(b) Each office, department or business activity of a member,
member organization, participant or participant organization (including
foreign incorporated branch offices) shall be under the supervision and
control of the member, member organization, participant or participant
organization establishing it and of the personnel delegated such
authority and responsibility.
The person in charge of a group of employees shall reasonably
discharge his duties and obligations in connection with supervision and
control of the activities of those employees related to the business of
their employer and compliance with securities laws and regulations.
(c) The general partners or directors of each member organization
or participant organization shall provide for appropriate supervisory
control and shall designate a general partner or principal executive
officer to assume overall authority and responsibility for internal
supervision and control of the organization and compliance with
securities laws and regulations. This person shall:
(1) Delegate to qualified principals or employees responsibility
and authority for supervision and control of each office, department or
business activity, and provide for appropriate written procedures of
supervision and control.
(2) Establish a separate system of follow-up and review to
determine that the delegated authority and responsibility are being
properly exercised.
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)(1) and 6(b)(5) of
the Act.\5\ Section 6(b)(1) requires that an exchange be organized and
have the capacity to carry out the purposes of the Act and to comply,
and to enforce compliance by its members and persons associated with
its members with the Act. 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 interest.
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\5\15 U.S.C. 78f(b)(1) and (5) (1988).
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The Commission believes that imposing specific obligations on
members and participants to supervise and control their activities and
the activities of their employees in connection with their business and
compliance with the federal securities laws, promotes investor
protection and the public interest. In addition, a comprehensive
supervision rule should help to prevent fraudulent and manipulative
acts and practices consistent with section 6(b)(5) of the Act.
The rule requiring comprehensive supervision by Exchange members
and participants of their activities, moreover, should promote the
Exchange's ability to enforce compliance by members and persons
associated with members with the Act and regulations thereunder,
consistent with section 6(b)(1) of the Act. As amended, Rule 748
specifies that each member provide written procedures of supervision
and control to be followed by persons with delegated authority and
establish a separate system of follow-up and review to determine that
the delegated authority and responsibility are being properly
exercised. The Commission believes that these written procedures and
follow-up system of review will enable the Exchange to monitor its
members and ensure compliance with the Act.
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\6\ that the proposed rule change (SR-Phlx-93-39) is approved.
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\6\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-11924 Filed 5-16-94; 8:45 am]
BILLING CODE 8010-01-M
