68338 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Notices

18See Securities Exchange Act Release 37770,

supra note 4.

19 19 U.S.C. 78s(b)(2).

20 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 39178

(October 1, 1997), 62 FR 52804.

4The PHLX has represented that it currently

interprets the term ‘‘employees’’ in Rule 761 to

include persons such as partners, directors, officers

and branch managers. The PHLX has also

represented that the proposed commentary will not

change the existing interpretation of the term

‘‘employee’’ except to expand the universe of

persons defined as employees. Letter from Michele

R. Weisbaum, Vice President and Associate General

Counsel, PHLX, to Kevin Ehrlich, Attorney,

Division of Market Regulation, dated December 18,

1997.

5 15 U.S.C. 78f(b)(5).

6See Chicago Stock Exchange Rule 5 and

Interpretation .02; Cincinnati Stock Exchange Rule

5.1; Pacific Exchange Rule 2.6(e) and Commentary

.03; Chicago Board Options Exchange Rule 4.18 and

Commentary .02; Boston Stock Exchange Rule 37(a)

and Commentary .03.

change that implemented the pilot

program initially was published in the

Federal Register for the full comment

period, and no comments were

received.18 The Commission also finds

good cause for approving Amendment

No. 2 prior to the thirtieth day after the

date of publication of notice in the

Federal Register. Amendment No. 2

strengthened the proposed rule change

by clarifying that the EAC will consider

mitigating circumstances only an a caseby-case basis, and will only apply them

in exceptional circumstances which

demonstrate that imposing the

restrictions is not justified. Accordingly,

the Commission believes good cause

exists, consistent with the Act, to

accelerate approval of the proposed rule

change and of Amendment No. 2.

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

2 to the rule proposal. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549. 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 at

the Commission’s Public Reference

Room. Copies of such filing also will be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to File No.

SR–PCX–97–43 and should be

submitted by January 21, 1998.

III. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) 19 that the proposed

rule change, as amended, is hereby

approved on an accelerated basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–33995 Filed 12–30–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39468; File No. SR–PHLX–

97–39]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Granting Approval to Proposed

Rule Change Relating to Changes in

Insider Trading and Securities Fraud

Enforcement Act Rules

December 18, 1997.

I. Introduction

On August 18, 1997, 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

include PHLX member organizations

within the scope of Insider Trading and

Securities Fraud Act (‘‘ITSFEA’’)

coverage and clarify the definition of

‘‘employee’’ to include indirectly

compensated persons such as

independent contractors.

The proposed rule change was

published for comment in the Federal

Register on October 9, 1997.3 No

comments were received on the

proposal. This order approves the

proposal.

II. Description of the Proposal

Presently, PHLX is the designated

examining authority (‘‘DEA’’) for

approximately eighteen firms that do

not have a floor presence. Because

PHLX Rule 761 and Floor Procedure

Advice F–13 (collectively, ‘‘PHLX

ITSFEA rules’’) which implement

ITSEFA-related written supervisory

procedures currently only cover PHLX

floor units, members without a floor

unit are exempt from the application of

these rules. The Exchange is removing

this exception. Accordingly, all PHLX

members will be covered by the PHLX

ITSFEA rules.

Additionally, the PHLX ITSFEA rules

currently impose certain regulatory

requirements upon ‘‘employees’’ of

members. The rule, however, does not

contain a definition of such term. PHLX

proposes to add a commentary to these

rules in order to interpret the term

‘‘employee’’ to include ‘‘every person

who is compensated directly or

indirectly by the member organization

for the solicitation or handling of

business in securities, including those

trading securities from the account of

the member organization, whether such

securities are those dealt in on the

Exchange or those dealt over-thecounter.’’ This change will now include

persons as ‘‘employees’’ who might

have previously been excluded based on

the nature of their compensation

arrangements.4

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. The Commission

believes the proposal is consistent with

the requirements of Section 6 of the Act

in general and, in particular, with

Section 6(b)(5) in that it is designed to

promote just and equitable principles of

trade and prevent fraudulent and

manipulative acts and practices.5

The Commission finds that the

proposal will further the goals of

ITSFEA by extending to all PHLX

members the requirements to maintain

written supervisory procedures

designed to prevent the misuse of

material, non-public information by

employees. The rules of other selfregulatory organizations currently

extend ITSFEA-related requirements to

all members.6

The Commission believes that the

proposal will also further the goals of

ITSFEA by defining the term

‘‘employees’’ to include ‘‘every person

compensated directly or indirectly by

the member organization for the

solicitation or handling of business in

securities, including those trading

securities from the account of the

member organization, whether such

securities are those dealt in on the

Exchange or those dealt over-thecounter.’’ In particular, this proposed

change appropriately expands coverage

of Rule 761 and Floor Procedure Advice

F–13 to include as employees those
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Notices 68339

7 15 U.S.C. 78s(b)(2).

8 17 CFR 200.30–3(a)(12).

1See Letter from Gerald D. O’Connell, Senior

Vice President, Market Regulation and Trading,

Operations, Phlx, to Jennifer Choi, Division of

Market Regulation, SEC, dated July 26, 1996

(‘‘Amendment No. 1’’).

2 17 CFR 240.19b–4.

3All times refer to Eastern Time (ET).

4 VTS and UTS are trademarks of UTTC and

VWAP is a trademark of the Dover Group.

5The Exchange also proposes several minor

amendments to Rule 101, including placing ‘‘A.M.’’

and ‘‘P.M.’’ in capital letters and adding a heading

to each commentary.

individuals who are technically

independent contractors, but carry out

the same functions as persons employed

directly by the member organization.

Expanding the class of persons required

to supply member firms with all trading

accounts for which that person

maintains a beneficial interest should

help members to monitor the trading

activities of those individuals that have

a close nexus to the member’s

solicitation or handling of business in

securities. The requirement should also

make covered individuals aware of the

prohibition against the misuse of

material, nonpublic information. In

addition, the Commission believes that

requiring all covered persons to update

the Exchange’s ‘‘ITSFEA Account List’’

should assist Exchange and Commission

review of those records and make any

fraudulent acts easier to deter and

detect.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (SR–PHLX–97–

39) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–33991 Filed 12–30–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39481; File No. SR–Phlx–

96–14]

Self-Regulatory Organizations; Notice

of Filing of Amendment No. 2 to

Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to the Universal Trading

System’s Morning Session

December 22, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. § 78s(b)(1), notice is

hereby given that on April 29, 1996 the

Philadelphia Stock Exchange, Inc.

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) a proposed

rule change, and on July 26, 1996,

submitted to the Commission

Amendment No. 1 to the proposed rule

change.1 The original filing, as amended

by Amendment No. 1, was published for

comment in Securities Exchange Act

Release No. 37640 (September 4, 1996),

61 FR 47993 (September 11, 1996). No

comment letters were received. On

October 29, 1997, the Exchange

submitted to the Commission

Amendment No. 2 to the proposed rule

change. The proposed rule change, as

amended, is described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange, pursuant to Rule 19b–

4 under the Act,2 proposes to

implement a daily pre-opening order

matching session (‘‘Morning Session’’ or

‘‘Session’’) for the execution of largesized stock orders on a volume weighted

average price (‘‘VWAPTM’’) basis. This

amendment restates the original

proposal and proposes to: (1) Clarify the

system functions of the Exchange and

the Universal Trading System

(‘‘System’’ or ‘‘UTSTM’’); (2) delete

references to over-the-counter (‘‘OTC’’)

securities; (3) provide for an equity

trading floor UTS terminal and prohibit

floor members from UTS trading in nonspecialty issues; (4) update and detail

matching priority provisions; (5) update

and detail order types and order entry

procedures; (6) clarify participation and

subscriber access; (7) separate and

elaborate ‘‘upon extraordinary

circumstances’’ language; and (8)

expand upon the liability provisions.

The Morning Session has been

designed to provide investors with the

means to execute large-sized stock

orders anonymously and at fair market

prices approximately 15 minutes prior

to the opening of the ‘‘regular trading

session’’ (i.e., 9:30 A.M.–4:00 P.M.).3

The price of Morning Session

transactions will be determined at

approximately 4:15 P.M. on the same

day. At that time, the Exchange shall

assign the applicable VWAP and report

each such trade to the appropriate

reporting authority, the Consolidated

Tape or other, as ‘‘VWAP’’ trades.

The receipt and matching of orders for

the Morning Session will be handled

electronically through the UTS. The

UTS is a system which was devised for

facilitating the operational aspects of the

Morning Session. The UTS was

developed by Universal Trading

Technologies Corporation (‘‘UTTC’’) by

agreement with the Exchange. This

proposal relates only to the first product

of the UTS, the VWAP Trading System

(‘‘VTSTM’’).4

Each of the approximately 2,700

equity securities currently available for

trading on the Exchange, both listed and

traded pursuant to Unlisted Trading

Privileges (‘‘UTP’’) (except OTC

securities) will be eligible for the

Morning Session. However, the

Exchange will publish a list of securities

trading on the UTS, periodically

reflecting additions and deletions. Upon

implementation of this proposal, a

certain number of Phlx issues will be

activated for UTS trading, as a phase-in

of the System, and a list of these

securities will be published.

The present proposal consists of the

adoption of a new rule applicable solely

to the Morning Session, Rule 237—UTS

Morning Session (‘‘Rule’’). In addition,

Phlx Rule 101 is proposed to be

amended to add the Morning Session as

an exception to regular trading hours.5

The Rule is organized as follows: an

introductory paragraph, followed by

paragraphs: (a) Explaining reporting; (b)

defining the UTS; (c) governing who the

participants are; (d) explaining order

entry; (e) specifying order priority; (f)

defining the VWAP; (g) governing short

sales in the UTS; (h) concerning

disputes; (i) containing provisions

relating to limitation of liability; (j)

pertaining to trading halts; and (k)

governing extraordinary circumstances.

UTS trades will be subject to

transaction and access fees as

established in the Exchange’s fee

schedule.

The Universal Trading System

The UTS will operate as a separate

system, linked to Exchange systems at

the reporting stage. UTS access will be

available to direct subscribers, by dialup into the UTS system, utilizing

software and a log-on procedure

dependent upon whether the subscriber

is accessing UTS through a personal

computer or main-frame system. UTS

access is also available through

subscribers acting as brokers.

Participation is described more fully

below. Thus, UTS access may include

various types of computer hardware,

software and handheld devices.