00-23613. Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to the Reporting Structure of the Internal Audit Department

September 7, 2000.

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 August 24, 2000, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Exchange proposes to amend its By-Law Article X, Section 10-9, to state that the Exchange's Internal Audit Department will report to the Audit Committee of the Exchange. The text of the proposed rule change is available at the Office of the Secretary, the Exchange, and at 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 Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange 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

Currently, pursuant to Phlx By-law Article X, Section 10-9(b), the Internal Audit Department reports to both the Audit Committee and the General Counsel of the Exchange. The purpose of the proposed By-Law amendment is to change the reporting structure of the Internal Audit Department so that it reports only to the Audit Committee, a body composed in such a way that facilitates the exerecise of independent judgment in oversight matters relating to the Exchange.^[3] The proposed rule change should enhance the independence of the Internal Audit Department ^[4] and is consistent with the responsibility of the Audit Committee to review the actions of the Internal Audit Department. The proposed amendment should also conform the reporting structure of the Internal Audit Department to industry practice.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6 of the Act in general,^[5] and with Section 6(b)(5) in particular,^[6] in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest by clarifying the reporting structure of the Internal Audit Department.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition.

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

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

III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

The foregoing proposed rule change is concerned solely with the administration of the Exchange. Therefore, the proposed rule change has become immediately effective pursuant to Section 19(b)(3)(A)(iii) of the Act ^[7] and Rule 19b-4(f)(3) thereunder. ^[8] At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.

IV. 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 at the Phlx. All submissions should refer to File No. SR-Phlx-00-51 and should be submitted by October 5, 2000.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.^[9]

Margaret H. McFarland,

Deputy Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.10b-4.

3.  The Audit Committee consists of three members who are public members of the Exchange's Board. Audit Committee members cannot serve in a management capacity with the Exchange or any affiliate, and must be free of any other relationships that would interfere with the exercise of independent judgment. Phlx By-Law Article X, Section 10-9(a).

4.  See, Standard 100 of Standards for the Professional Practice of Internal Auditing (The Institute of Internal Auditors, 1998): “Internal auditors should be independent of the activities they audit.”

5.  15 U.S.C. 78f.

6.  15 U.S.C. 78f(b)(5).

7.  15 U.S.C. 78s(b)(3)(A)(iii).

8.  17 CFR 240,19b-4(f)(3).

9.  17 CFR 200.30-3(a)(12).