[Federal Register: March 25, 2008 (Volume 73, Number 58)]
[Notices]
[Page 15826-15828]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25mr08-113]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57528; File No. SR-Phlx-2008-18]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change Relating to the Imposition of Fines for Minor Rule Plan
Violations
March 19, 2008.
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 March 12, 2008, 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 and
II below, which Items have been prepared by the Phlx. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and to approve the proposal on an accelerated
basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to adopt Phlx Options Floor Procedure Advice
(``OFPA'') F-35, Violations of Exercise and Exercise Advice Rules for
Noncash-Settled Equity Option Contracts, to add a summary fine schedule
for Expiring Exercise Declaration or Contrary Exercise Advice
violations regarding noncash settled equity options.\3\ The Exchange
also proposes to modify Phlx Rule 970, Floor Practice Advices:
Violations, Penalties, and Procedures,\4\ to increase the maximum
permissible fine to $5,000 for a violation of a Floor Procedure Advice.
The text of the proposed rule change is available at the Exchange, the
Commission's Public Reference Room, and http://www.Phlx.com/exchange/
phlx-rule-fil.htm.
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\3\ These declarations or advices indicate, among other things,
whether at expiration the holder of an in-the-money noncash settled
equity option intends to waive The Options Clearing Corporation's
(``OCC'') Exercise-by-Exception procedure or exercise the option.
See Phlx Rule 1042.
\4\ Phlx Rule 970 sets forth the criteria for the imposition of
fines (currently not to exceed $2,500) on any member, member
organization, or any partner, officer, director, or person employed
by or associated with any member or member organization, for any
violation of a Floor Procedure Advice, which violation the Exchange
shall have determined is minor in nature (known as ``Minor Rule Plan
Fines''). The fines are imposed in lieu of commencing a
``disciplinary proceeding'' as that term is used in Phlx Rules
960.1-960.12. Such Minor Rule Plan Fines are subject to Rule 19d-1
under the Act. See Securities Exchange Act Release No. 45421
(February 7, 2002), 67 FR 6961 (February 14, 2002) (SR-Phlx-2001-
114).
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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 Phlx 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 III 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
The Exchange proposes to (a) implement new OFPA F-35 to establish a
fine schedule for contrary exercise advice violations, and (b) expand
Phlx Rule 970 to allow fines not to exceed $5,000, for the purpose of
increasing and strengthening the sanctions imposed by the Exchange's
Minor Rule Plan (``MRP''). The Exchange believes that establishing the
specified fines with respect to individual members and member
organizations with a 24-month rolling surveillance period should serve
as an effective deterrent to such violative conduct. The Exchange also
believes that failure to submit exercise instructions is the type of
objective requirement that is easy and appropriate to administer.
In addition, the Exchange, as a member of the Intermarket
Surveillance Group (``ISG''),\5\ as well as certain other self-
regulatory organizations (``SROs'') executed and filed on October 29,
2007, with the Commission, a final version of an Agreement pursuant to
Section 17(d)
[[Page 15827]]
of the Act (the ``17d-2 Agreement'').\6\ As set forth in the 17d-2
Agreement, the SROs have agreed that their respective rules concerning
the filing of Expiring Exercise Declarations, also referred to as
Contrary Exercise Advices, of options contracts, are common rules. As a
result, the proposal to amend Phlx's MRP will further result in
consistency in sanctions among the SROs that are signatories to the
17d-2 Agreement concerning Contrary Exercise Advice violations.
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\5\ ISG is a regulatory information-sharing organization
comprised of all U.S. national securities exchanges and national
securities associations, most U.S. futures exchanges, and certain
non-U.S. exchanges and associations trading securities and related
products.
\6\ See Letter to Richard Holley, Division of Market Regulation,
Securities and Exchange Commission, from Nyieri Nazarian, Assistant
General Counsel, American Stock Exchange, October 29, 2007.
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2. Statutory Basis
The Exchange believes that this proposed rule change is consistent
with Section 6(b) of the Act,\7\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\8\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
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Specifically, the Exchange believes that the proposed rule change
should strengthen its ability to carry out its oversight
responsibilities as an SRO and reinforce its surveillance and
enforcement functions. Additionally, the Exchange believes that the
proposed rule change should promote consistency in minor rule violation
fines and respective SRO reporting obligations as set forth pursuant to
Rule 19d-1(c)(2) under the Act,\9\ which governs minor rule violation
plans.
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\9\ 17 CFR 240.19d-1(c)(2).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received.
III. 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. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form at http://
www.sec.gov/rules/sro.shtml; or
Send an e-mail to rule-comments@sec.gov. Please include
File No. SR-Phlx-2008-18 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-Phlx-2008-18. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site at http://www.sec.gov/rules/
sro.shtml. 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, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File No. SR-Phlx-2008-18 and should be
submitted on or before April 15, 2008.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
After careful consideration, the Commission finds that the
Exchange's proposed rule change is consistent with the requirements of
Section 6 of the Act,\10\ and the rules and regulations thereunder
applicable to a national securities exchange.\11\ In particular, the
Commission believes that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\12\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices; to promote just and
equitable principles of trade; to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities; to remove impediments to and perfect the mechanism of a
free and open market and a national market system; and, in general, to
protect investors and the public interest.
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\10\ 15 U.S.C. 78f.
\11\ In approving this proposed rule change, 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).
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The Commission further believes that Phlx's proposal to sanction
individuals and member organizations who fail to submit Advice Cancel
or exercise instructions in a timely manner is consistent with Sections
6(b)(1) and 6(b)(6) of the Act,\13\ which require that the rules of an
exchange enforce compliance with, and provide appropriate discipline
for, violations of Commission and Exchange rules. In addition, the
Commission finds that the proposal is consistent with the public
interest, the protection of investors, or otherwise in furtherance of
the purposes of the Act, as required by Rule 19d-1(c)(2) under the
Act,\14\ which governs minor rule violation plans. The Commission
believes that the proposed rule change should strengthen the Exchange's
ability to carry out its oversight and enforcement responsibilities as
an SRO in cases where full disciplinary proceedings are unsuitable in
view of the minor nature of the particular violation.
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\13\ 15 U.S.C. 78f(b)(1) and 78f(b)(6).
\14\ 17 CFR 240.19d-1(c)(2).
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In approving this proposed rule change, the Commission in no way
minimizes the importance of compliance with the Phlx's rules and all
other rules subject to the imposition of fines under the MRP. The
Commission believes that the violation of any SRO rules, as well as
Commission rules, is a serious matter. However, the MRP provides a
reasonable means of addressing rule violations that do not rise to the
level of requiring formal disciplinary proceedings, while providing
greater flexibility in handling certain violations. The Commission
expects that the Phlx will continue to conduct surveillance with due
diligence
[[Page 15828]]
and make a determination based on its findings, on a case-by-case
basis, whether a fine of more or less than the recommended amount is
appropriate for a violation under the Phlx MRP or whether a violation
requires formal disciplinary action.
The Phlx has requested that the Commission find good cause for
approving the proposed rule change prior to the thirtieth day after
publication of the notice thereof in the Federal Register. The
Commission hereby grants that request. The Phlx's proposal is
substantially similar to those of other options exchanges, which
previously have been approved by the Commission.\15\ The Commission
does not believe that Phlx's proposal raises any novel regulatory
issues, and no comments were received on any of these earlier
proposals. Accordingly, the Commission finds good cause, pursuant to
Section 19(b)(2) of the Act,\16\ for approving the proposed rule change
prior to the thirtieth day after publication of the notice thereof in
the Federal Register.
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\15\ See, e.g., Securities Exchange Act Release No. 57314
(February 12, 2008), 73 FR 9377 (February 20, 2008) (SR-CBOE-2007-
143).
\16\ 15 U.S.C. 78s(b)(2).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\17\ and Rule 19d-1(c)(2) under the Act,\18\ that the proposed rule
change (SR-Phlx-2008-18), be, and hereby is, approved and declared
effective on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(2).
\18\ 17 CFR 240.19d-1(c)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-5966 Filed 3-24-08; 8:45 am]
BILLING CODE 8011-01-P