67 FR 56 pgs. 13397-13398 - Self-Regulatory Organizations; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, Inc. Adopting Sanctioning Guidelines for Violations of the Exchange's Order Handling Rules
Type: NOTICEVolume: 67Number: 56Pages: 13397 - 13398
Docket number: [Release No. 34-45569; File No. SR-Phlx-2001-60]
FR document: [FR Doc. 02-6900 Filed 3-21-02; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-45569; File No. SR-Phlx-2001-60]
Self-Regulatory Organizations; Order Approving a Proposed Rule Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, Inc. Adopting Sanctioning Guidelines for Violations of the Exchange's Order Handling Rules
March 15, 2002.
I. Introduction
On May 31, 2001, the Philadelphia Stock Exchange, Inc. ("Phlx" or "Exchange") filed with the Securities and Exchange Commission ("SEC" or "Commission"), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 ("Act"),1and Rule 19b-4 thereunder,2a proposed rule change to adopt new sanctioning guidelines to assist the Exchange in enforcing compliance with its options order handling rules.3On December 18, 2001, the Exchange filed Amendment No. 1 to the proposed rule change.4The proposed rule change, as amended by Amendment No. 1, was published for comment in the Federal Register on February 13, 2002.5No comments were received on the proposed rule change. This order approves the proposed rule change, as amended.
Footnotes:
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 The Exchange filed this proposed rule change pursuant to the provisions of Section IV.B.i of the Commission's September 11, 2000 Order Instituting Public Administrative Proceedings Pursuant to Section 19(h)(1) of the Act, which required the Exchange to adopt rules establishing, or modifying existing, sanctioning guidelines such that they are reasonably designed to effectively enforce compliance with options order handling rules. See Securities Exchange Act Release No. 43268 (September 11, 2000), Administrative Proceeding File No. 3-10282 (the "Order").
4 See letter from Linda S. Christie, Counsel, Phlx, to Deborah Lassman Flynn, Assistant Director, Division of Market Regulation ("Division"), Commission, dated December 17, 2001 ("Amendment No. 1"). In Amendment No. 1, the Exchange amended Phlx Rule 960.10(a) to incorporate the Exchange's Enforcement Sanction Guide by reference into the Exchange's rules. The proposed new language requires the Exchange's Business Conduct Committee ("BCC") to refer to the Enforcement Sanction Guide for factors to be considered and appropriate sanctions when imposing disciplinary sanctions for violations of the Exchange's option order handling rules.
5 See Securities Exchange Act Release No. 45415 (February 7, 2002), 67 FR 6781.
II. Description of the Proposal
The Exchange proposes to adopt sanctioning guidelines ("Guide") to assist the various individuals involved in the Exchange's enforcement process, including the Exchange's BCC, by recommending ranges of monetary sanctions to be applied to violations of certain Exchange rules and Option Floor Procedure Advices ("OFPAs"). The Guide covers certain offenses related to the trading of options on the Exchange trading floor, with particular emphasis on options order handling rules.6The Guide is proposed as an internal document to be used by the BCC, hearing panels, and the Board of Governors ("Adjudicatory Bodies") in determining appropriate sanctions to be imposed in formal disciplinary proceedings. The Exchange's enforcement staff may also refer to the Guide in negotiating settlements.
Footnotes:
6 In addition to filing this proposed Guide, the Exchange has submitted another proposed rule change to adopt guidelines to be used in determining when it is appropriate to aggregate violations of the Exchange's options order handling rules. See Securities Exchange Act Release No. 45421 (February 7, 2002), 67 FR 6961 (February 13, 2002) (SR-Phlx-2001-114).
The Exchange has drafted the Guide with an introduction and matrices. The introduction explains the purpose and intent of the Guide and presents an overview of the Exchange's enforcement program, including a description of factors to be considered when sanctioning misconduct in disciplinary proceedings. The matrices cover the Exchange's options order handling rules. Each matrix outlines recommended monetary sanction ranges and specific factors for consideration when a particular options order handling rule has been violated.7The proposed Guide would also allow for non-monetary sanctions, such as suspension, expulsion, or other sanctions in egregious cases. The matrices are also arranged by subject matter and trading floor participant (floor broker, registered options trader, specialist).
Footnotes:
7 The Exchange informed Commission staff that the Adjudicatory Bodies would be permitted to consider the entire disciplinary history of the member and, in any event, would be required to consider all violations within the past three years. Telephone conversation between Linda Christie, Counsel, Phlx, and Sonia Patton, Special Counsel, Division, Commission, on March 8, 2002.
The proposed Guide would cover only matters brought before the Exchange's BCC, which has jurisdiction over disciplinary actions pursuant to Exchange By-law Article X, Sec. 10-11 and Exchange Rule 960.1. The Guide would not apply to violations charged under the Exchange's minor rule violation enforcement and reporting plan, which consists of Exchange Rule 970 and the corresponding OFPA.
III. Discussion
After careful review, 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.8In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,9which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market, and to protect investors and the public interest. The Commission also finds that the proposed rule change is consistent with Section 6(b)(6) of the Act,10which requires that the rules of an exchange provide that its members be appropriately disciplined for violations of exchange rules, the Act, and rules and regulations thereunder, by expulsion, suspension, limitation of activities, functions, and operations, fine, censure, being suspended or barred from being associated with a member, or any other fitting sanction.
Footnotes:
8 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
9 15 U.S.C. 78f(b)(5).
10 15 U.S.C. 78f(b)(6).
At this time, the Commission believes the proposed sanctioning guidelines are reasonably designed to effectively enforce compliance with the options order handling rules. Nevertheless, the Commission expects the Exchange to continue to evaluate the adequacy of the proposed sanctioning guidelines to determine whether they do, in fact, effectively enforce compliance with the options order handling rules.11
Footnotes:
11 The Commission's examination staff will also monitor the application of these guidelines to determine whether they do, in fact, improve member compliance with the options order handling rules.
IV. Conclusion
For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and rules and regulations thereunder.
It is therefore ordered , pursuant to Section 19(b)(2) of the Act,12that the proposed rule change (SR-Phlx-2001-60), as amended, is approved.
Footnotes:
12 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.13
Footnotes:
13 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6900 Filed 3-21-02; 8:45 am]
BILLING CODE 8010-01-P