[Federal Register Volume 65, Number 199 (Friday, October 13, 2000)]
[Notices]
[Pages 61014-61016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-26280]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43415; File No. SR-PHLX-00-52]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. Relating to Review of 
Decisions of the Exchange's Business Conduct Committee

October 4, 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 18, 2000, the Philadelphia Stock Exchange Inc. (``PHLX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``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.
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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 Phlx proposes to amend the text of Phlx Rule 960.9 to 
incorporate procedures for the hearing of appeals in disciplinary 
matters. Specifically, the procedures would be divided into four 
categories: (a) Petition by Respondent; (b) Conduct of Review, (c) 
Review on Motion by Board of Governors; and (d) Petition by Enforcement 
Staff.
    First, with respect to petitions by a Respondent, the proposed rule 
provides that a Respondent's petition for appeal must be in writing and 
filed with the Secretary of the Exchange within 10 days after service 
of notice and a copy of the decision of the Business Conduct Committee, 
and that it specify the findings and conclusions that are the subject 
of the petition along with the reasons for review thereof. Exchange 
Enforcement Staff will then have 15 days to file a written response, 
with the Respondent receiving 15 days after service of the Enforcement 
Staff's response to file a response thereto.
    Second, paragraph (b) of the proposed rule, ``Conduct of Review,'' 
provides that the review is to be conducted by the Exchange's Board of 
Governors (``Board''), or an Advisory Committee made up of three 
Governors, with at least one being a non-industry Governor appointed by 
the Chairman of the Board. No Governor who was a member of the hearing 
panel below may participate in the hearing on review. The review shall 
be based solely on the record below, unless the Board of Governors or 
Advisory Committee hearing the review allows oral argument after 
receiving a written request for one. If an Advisory committee hears the 
review, it is to submit a written report to the Board.
    The proposed rule sets forth guidelines that the Board or an 
Advisory committee must follow in making the decision on review. The 
decision of the business Conduct Committee can be affirmed, reversed or 
modified, in whole or in part. A modification may include an increase 
or decrease of the sanction. The findings, conclusions, and decision of 
the Business Conduct Committee may not be reversed, or modified, in 
whole or in part, if the factual conclusions in the decision are 
supported by substantial evidence, and such decision is not arbitrary, 
capricious or an abuse of discretion. The Board must serve its written 
decision on the petitioner.
    Paragraph (c) of the proposed rule includes procedures for a review 
by the Board of Governors on its own initiative. The review would 
follow the previously described procedure.
    Finally, paragraph (d) of the proposed rule sets forth procedures 
by which the Exchange's Enforcement Staff, within 10 days after service 
of notice and a copy of the decision of the Business Conduct Committee, 
may petition the Board for permission to appeal, by presenting to the 
Board a petition specifying the findings and conclusions that are 
subject of the petition, along with the reasons the staff is 
petitioning for review. Should the Board grant permission, Exchange 
Enforcement Staff shall serve a copy of the petition on the Respondent 
within 5 days. Respondent then has 15 days to file a written response 
with the Board, and Exchange Enforcement Staff then has 15 days to file 
a reply.
    The proposed rule language follows. Additions are italicized; 
deletions are bracketed.

Rule 960.9. Review

    (a) Petition by Respondent. A Respondent shall have 10 days 
after service of notice and a copy of a decision made pursuant to 
Rules 960.6(c) and 960.8 to appeal such decision to the Board of 
Governors in accordance with By-Law Article XI, Section [11-1] 11-3. 
Such petition shall be in writing and shall specify the findings and 
conclusions of the Business Conduct Committee which is the subject 
of the petition, together with the reasons that Respondent petitions 
for review of these findings and conclusions. Any objections to a 
decision not specified in the petition for review shall be 
thereafter waived. Within 15 days after a Respondent's petition for 
review has been filed with the Secretary of the Exchange pursuant 
By-Law Article XI, Section 11-1(a), Enforcement staff may submit to 
the Secretary a written response to the petition. A copy of the 
response must be served upon the Respondent. A Respondent has 15 
days from the service of the response to file a reply with the 
Secretary and the Enforcement staff.
    (b) Conduct of Review.
    (i) The review shall be conducted by the Board of Governors or 
an Advisory Committee thereof pursuant to By-Law Article XI, Section 
11-3. If an Advisory Committee is appointed to conduct the review, 
it shall be composed pursuant to By-Law Article XI, Section 11-2. 
Any Board member who participated in a matter before the Business 
Conduct Committed may not participate in any review of that matter 
by the Board of Governors or an Advisory Committee. Unless the Board 
of Governors or the Advisory Committee shall decide to hear oral 
argument, such review shall be based solely upon the record and the 
written exceptions filed by the parties. The review shall be heard 
as soon as practicable.
    (ii) Should the Board of Governors conduct the review, then 
based upon such review, the Board of Governors by a majority vote of 
its members, shall decide to affirm, reverse or modify, in whole or 
in part the decision of the Business Conduct Committee. Such 
modification may include any increase or decrease of the sanction. 
The Board of Governors may not reverse, or modify, in whole or in 
part, the findings, conclusions and decision of the Business Conduct 
Committee if the factual conclusions in the decision are supported 
by substantial evidence and such decision is not arbitrary, 
capricious or an abuse of discretion. The decision of the Board 
shall be in writing,

[[Page 61015]]

shall be promptly served on the Respondent in accordance with Rule 
960.11, and shall be final and conclusive subject to Rule 960.9(c) 
and (d), as well as the provisions of the Securities Exchange Act of 
1934.
    (iii) Should the review be conducted by an Advisory Committee, 
the Advisory Committee shall submit a written report to the Board of 
Governors. In such report, the Advisory Committed shall recommend to 
affirm, reverse or modify, in whole or in part, the decision of the 
Business Conduct Committee. Such modification may include an 
increase or decrease of the sanction. The Advisory Committee may not 
reverse, or modify, in whole or in part, the findings, conclusions 
or decision of the Business Conduct Committee if the factual 
conclusions in the decision are supported by substantial evidence 
and such decision is not arbitrary, capricious or an abuse of 
discretion. The Board of Governors by a majority vote of its 
members, shall decide to affirm, reject or modify, in whole or in 
part the recommendations of the Advisory Committee. Such 
modification may include an increase or decrease of the sanction. 
The Board of Governors may not reverse, or modify, in whole or in 
part, the findings, conclusions and decision of the Advisory 
Committee if the factual conclusions in the decision are supported 
by substantial evidence and such decision is not arbitrary, 
capricious or an abuse of discretion. The decision of the Board 
shall be in writing, shall be promptly served on the Respondent in 
accordance with Rule 960.11, and shall be final and conclusive 
subject to Rule 960.9(c) and (d), as well as to the provisions of 
the Securities Exchange Act of 1934.
    (c) Review on Motion of Board Governors. The Board of Governors 
may on its own initiative order review of a decision made pursuant 
to rules 960.6(c) or 960.8 within 20 days after notice of the 
decision has been served on the Respondent. Such review shall be 
conducted in accordance with the procedure set forth in paragraph 
(b) of this Rule. Should the Board of Governors vote to disapprove 
this modification or reversal, the Board shall make its own findings 
and issue a final decision of the Exchange. An Advisory Committee 
appointed by the Board of Governors may conduct such a review 
pursuant to By-Law Article XI, Section 11-3 and in accordance with 
the provisions of Rule 960.9.
    (d) Petition by Enforcement Staff. An appeal of a decision made 
pursuant to Rules 960.6(c) or 960.8 may also be taken by the 
Enforcement staff by petitioning the Board of Governors, within 10 
days after service of notice and a copy of a decision, for 
permission to proceed with such appeal in accordance with By-Law 
Article XI, Section 11-3. Such petition shall be in writing and 
shall specify the findings and conclusions of the Business Conduct 
Committee which are the subject of the petition, together with the 
reasons that Enforcement staff petitions for review of these 
findings and conclusions. Any objections to a decision not specified 
in the petition for review shall be thereafter waived. If permission 
to appeal is granted, staff shall serve a copy of the petition on 
the Respondent within five days of permission to appeal being 
granted. Within 15 days Respondent may submit to the Board of 
Governors a written response to the petition. A copy of the response 
must be served upon the Exchange's Enforcement staff, who then has 
15 days from the service of the response to file a reply with the 
Board of Governors and the Respondent.

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 
test 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
    The Exchange proposes to adopt specific procedures for the hearing 
of appeals of decisions rendered by the Exchange's Business Conduct 
Committee pursuant to Phlx Rules 960.6(c) and 960.8 to ensure that 
appeals of disciplinary matters are accomplished in a consistent and 
orderly fashion.
(a) Background
    Currently, Phlx Rule 960.9 states that a Respondent has 10 days 
after service of notice and a copy of the decision of the Business 
Conduct Committee within which to request an appeal to the Exchange 
Board of Governors pursuant to Exchange By-law Article XI, Section 11-
1. Exchange By-law Article XI, Section 11-1 states that an appeal to 
the Board of Governors may be taken from a decision of a Standing 
Committee by a member or member organization interested therein by 
filing a written notice of appeal with the Secretary of the Exchange 
within 10 days after the decision has been rendered. Section 11-2 
states that an appeal to the Exchange Board of Governors from a 
decision of a Standing Committee shall be heard by an Advisory 
Committee of three Governors, with at least one being a non-industry 
Governor appointed by the Chairman of the Board, and that the Advisory 
Committee shall examine the record on appeal and give an advisory 
opinion to the Board of Governors. Section 11-3 specifically addresses 
appeals from decisions of the Business Conduct Committee. Sub-section 
(a) of Section 11-3 reiterates the Respondent's right to appeal as 
previously stated in Section 11-1 (a); however, it also allows for 
Exchange staff to petition the Board of Governors within 10 days after 
the decision, for permission to appeal. Sub-section (b) of Section 11-3 
dictates that the appeal shall be based on the written record; however, 
it gives the parties the right to request oral argument before the 
Board of Governors or the Advisory Committee.
(b) Proposal
    The proposed revisions to Phlx Rule 960.9 have been developed to 
apply to disciplinary matters, which have unique issues. The procedures 
currently encompassed in Exchange by-laws were not formulated strictly 
for disciplinary matters, and, as a result, were often silent to those 
unique issues. The proposed revisions to Phlx Rule 960.9 set forth 
detailed procedures for hearing of an appeal from a Business Conduct 
Committee decision.
    The proposed amendment to sub-paragraph (a) of Phlx Rule 960.9 
states that the Respondent's petition for appeal must be in writing and 
filed with the Secretary of the Exchange within 10 days after service 
of notice and a copy of the decision of the Business Conduct Committee. 
The petition must specify the findings and conclusions that are the 
subject of the petition, along with the reasons the Respondent is 
petitioning for review. Exchange Enforcement Staff will have 15 days 
after a Respondent files its petition to file a written response. The 
Respondent may file a reply within 15 days after service of the 
Enforcement Staff's response. These provisions are intended to provide 
time guidelines for requesting an appeal.
    Sub-paragraph (b)(i) of the proposed rule provides that the review 
shall be conducted by the Exchange's Board of Governors, or an Advisory 
Committee made up of three Governors, with at least one being a non-
industry Governor appointed by the Chairman of the Board. No Governor 
who was a member of the hearing panel below may participate in the 
hearing on review. This is intended to establish who hears the appeal.
    Unless the Board of Governors or Advisory Committee hearing the 
review allows oral argument, the review shall be based solely on the 
record below. If an Advisory Committee hears the review, it shall 
submit a written report to the Board. Sub-paragraphs (b)(ii) and (iii) 
of the proposed rule set forth the guidelines that the Board or an 
Advisory

[[Page 61016]]

Committee must follow in making the decision on review. The Board in 
its decision, or the Advisory Committee in its report to the Board, 
shall affirm, reverse or modify, in whole or in part, the decision of 
the Business Conduct Committee. A modification may include an increase 
or decrease of the sanction. However, neither the Board nor the 
Advisory Committee reverse, or modify, in whole or in part, the 
findings, conclusions, and decision of the Business Conduct Committee, 
if the factual conclusions in the decision are supported by substantial 
evidence, and such decision is not arbitrary, capricious or an abuse of 
discretion. A written decision of the Board must be served on the 
petitioner.
    The proposed rule change also includes procedures for a review by 
the Board of Governors on its own initiative in sub-paragraph (c). The 
review would follow the procedure set forth in sub-paragraph (b) of the 
proposed rule. Together, these provisions are intended to establish a 
standard and process of review.
    Finally, sub-paragraph (d) of the proposed rule sets forth the 
procedures by which the Exchange's Enforcement staff, within 10 days 
after service of notice and a copy of the decision of the Business 
Conduct Committee, may petition the Board for permission to appeal. The 
petition must specify the findings and conclusions that are subject to 
the petition, along with the reasons for review thereof. If permission 
is granted, the staff must serve a copy of the petition on the 
Respondent within 5 days. Respondent then has 15 days to file a written 
response with the Board, and the staff would have 15 days of service of 
the Respondent's initial response to file a reply. This paragraph is 
intended to expressly cover staff appeals.\3\
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    \3\ Review of appeals initiated by the Exchange's Enforcement 
staff will be conducted in accordance with the procedure set forth 
in paragraph (b) of the proposed rule. Telephone conversation 
between Charles Falgie, Director of Enforcement, Phlx, and Anitra 
Cassas, Attorney, Division of Market Regulation, Commission, on 
October 3, 2000.
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    The Exchange believes that the proposed revisions, which have been 
developed specifically for issues unique to disciplinary matters, 
should facilitate appeals being processed in a systematical fashion. 
Furthermore, the Exchange believes that the proposed rule should 
promote an objective, consistent appeals procedure for both members of 
the Exchange and for the Exchange's Enforcement Staff. The provisions 
should also prevent undue delay, and any inconvenience that affects the 
parties as a direct result of such a delay. Finally, the proposed 
revisions will provide the Board of the Advisory Committee with a 
precise procedure to apply to such a hearing.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6 of the Act,\4\ in general, and Sections 6(b)(6) and 
6(b)(7),\5\ in particular, in that it is designed to ensure that 
Exchange members and persons associated with members are appropriately 
disciplined for violations of the provisions of the Act, the rules and 
regulations thereunder, or the rules of the Exchange, as well as 
providing a fair procedure for the disciplining of Exchange members and 
persons associated with members.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b) and 15 U.S.C. 78f(b)(7).
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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 inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, 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 an Timing 
for Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal 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 at the Commission's 
Public Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the PHLX. All 
submissions should refer to File No. SR-PHLX-00-52 and should be 
submitted by November 3, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-26280 Filed 10-12-00; 8:45 am]
BILLING CODE 8010-01-M