00-17597. Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Philadelphia Stock Exchange, Inc. to Divide Its Allocation, Evaluation and Securities Into Two Separate Committees

I. Introduction

On March 28, 2000, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 ^[2] thereunder, a proposed rule change that would divide its Allocation, Evaluation and Securities Committee into two separate committees, one for equities and one for options. The proposed rule change was published for comment in the Federal Register on May 30, 2000.^[3] The Commission received no comments on the proposal. This order approves the Phlx's proposed rule change.

II. Description of the Proposal

The Exchange proposes to amend Phlx By-Law Article X, Section 10-7 to divide its Allocation, Evaluation and Securities Committee into two separate committees: an Equity Allocation, Evaluation and Securities Committee and an Option Allocation, Evaluation and Securities Committee. The Exchange also proposes to amend Phlx Rule 500 to reflect the changes in the amended By-Law.

Currently, the Allocation, Evaluation and Securities Committee is composed of one Public Governor, one Non-Industry Governor, three persons who conduct a public securities business, two persons who are active on the equity trading floor, and two persons who are active on the options trading floor.^[4] The committee is responsible for appointing specialist units on each floor,^[5] approving the transfer of equities and options among specialist units on each floor,^[6] allocating equities and options to specialist units on each floor; ^[7] evaluating the performance of specialist units on each floor,^[8] reallocating equities and options from one specialist unit to another on each floor; ^[9] and supervising questions pertaining to securities admitted to dealings on the Exchange.^[10]

Under the proposal, each new committee will consist of nine members. Five persons will be members of both new committees: three off-floor persons who conduct a securities business, one Non-Industry Governor, and one Public Governor. Of the two Governors, one will chair both committees. The remainder of the Equity Allocation, Evaluation and Securities Committee will consist of four persons who are active on the equity trading floor as floor brokers or specialists. The remainder of the Option Allocation, Evaluation and Securities Committee will consist of one person who is active on the options trading floor as a floor broker and three persons who are active on the options trading floor as specialists, registered options traders, or floor brokers.

Each new committee will consist of core members, who will serve a three-year term that will be renewable once, and annual members, who will serve a one-year term that will be renewable twice. The core members of the Equity Allocation, Evaluation and Securities Committee will consist of three persons who conduct a public securities business and two persons who are active on the equity trading floor as specialists or floor brokers. The annual members of the Equity Allocation, Evaluation and Securities Committee will consist of the Public Governor, the Non-Industry Governor, and two persons who are active on the equity trading floor as specialists or floor brokers. The core members of the Option Allocation, Evaluation and Securities Committee will consist of three persons who conduct a public securities business, one person who is active on the options trading floor as a floor broker, and one person who is active on the options trading floor as a specialist, registered options trader, or floor broker. The annual members of the Option Allocation, Evaluation and Security Committee will consist of the Public Governor, the Non-Industry Governor, and two persons who are active on the options trading floor as specialists, registered options traders, or floor brokers.

III. Discussion

After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act.^[11] In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act.^[12] Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade and to protect investors and the public interest.

The Exchange's proposal will split the existing Allocation, Evaluation and Securities Committee, which has some members who are active on the equities floor and some who are active on the options floor, into two new committees. Currently, these floor members, along with the rest of the committee, evaluate specialists and vote to allocate securities to specialist regardless of whether their particular experience is in equities or options. After formation of the two new committees, persons who are active on one of the floors will be members only of the committee that governs their floor. The Commission believes that dividing the committees in this manner will bring greater expertise to the Exchange's allocation and evaluation function, while at the same time preserving independent views on each of the two committees. Accordingly, the Commission believes that the proposed rule change will promote just and equitable principles of trade and benefit investors by ensuring that each new committee includes individuals, with more specific expertise, responsible for allocating securities to, and evaluating the performance of, specialists.

IV. Conclusion.

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,^[13] that the proposed rule change (SR-Phlx-00-28) is approved.

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.  See Exchange Act Release No. 42800 (May 19, 2000), 65 FR 34521.

4.  See Exchange Rule 500.

5.  See Exchange Rule 501.

6.  See Exchange Rule 508.

7.  See Exchange Rule 511(b).

8.  See Exchange Rules 511(c) to 511(e) and 515.

9.  See id.

10.  See Exchange Rules 800 to 899.

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

12.  15 U.S.C. 78f(b)(5).

13.  15 U.S.C. 78s(b)(2).

14.  17 CFR 200.30-3(a)(12).