[Federal Register Volume 65, Number 221 (Wednesday, November 15, 2000)]
[Notices]
[Pages 69113-69114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29182]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43524; File No. SR-Phlx-00-74]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Regarding Exchange Liability in 
Connection with the Administration of its Proprietary Indices

November 6, 2000.

I. Introduction

    On August 4, 2000, the Philadelphia Stock Exchange, Inc. 
(``Exchange'' or ``Phlx'') 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 
thereunder,\2\ a proposed rule change seeking to amend Phlx Rule 1102A, 
Limitation of Exchange Liability, to add to the

[[Page 69114]]

limitation of the Exchange's liability, in connection with its 
administration of Phlx proprietary indices, negligent acts or omission. 
Notice of the proposed rule change appeared in the Federal Register on 
September 22, 2000.\3\ The Commission received no comments on the 
proposal. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-1.
    \3\ See Securities Exchange Act Release No. 43292 (September 14, 
2000), 64 FR 54719.
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II. Description of the Proposal

    The Phlx currently lists and trades options on several proprietary 
indices.\4\ Phlx Rule 1102A limits the Exchange's liability in 
connection with the administration of its proprietary indices. The 
Exchange proposes to amend Phlx Rule 1102A to disclaim liability for 
negligent conduct. The Exchange represents that there is a great deal 
work involved in the daily calculation and dissemination of these 
indices. In addition, the Exchange represents that although much of 
such work is automated, manual input is still required and the 
potential for human error exists which exposes the Exchange to a risk 
of liability. Potential human errors include inputting a symbol or 
index value incorrectly or missing a corporate action that has an 
effect on the index.
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    \4\ Examples of the Exchange's proprietary indices Computer Box 
Maker Index (BMX), Phlx Oil Service Index (OSX), Gold-Sliver Index 
(XAU), National Over-the-Counter Index (XOC), Phlx Forest and Paper 
Products Sector Index (FPP), Over-the-Counter Prime Index (OTX), 
Utility Index (UTY), Semiconductor Index (SOX), TheStreet.com 
Internet Sector Index (DOT) and Wireless Telecom Sector Index (YLS).
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    Phlx Rule 1102A disclaims Exchange liability for damages caused by 
errors, omissions or delays in the calculation or dissemination of any 
index value resulting from any conduct beyond the reasonable control of 
the Exchange, including an act of God, a power failure, or any error, 
omission or delay in the reported price of the underlying security. The 
Exchange believes that these disclaimer provisions are arguably 
ambigous with respect to whether the Exchange remains potentially 
liable for damages caused by any human error or omission by an Exchange 
employee in connection with the performance of the Exchange's index 
responsibilities. The Exchange believes, however, that the proposed 
amendment to Phlox Rule 1102 would make clear that the Exchange 
disclaims liability for negligent conduct, in addition to conduct 
beyond the Exchange's reasonable control, currently covered by Phlx 
Rule 1102A. The Exchange represents that other exchanges, including the 
American Stock Exchange ``(Amex''),\5\ disclaim liability for negligent 
conduct in connection with their index operations. Finally, the 
Exchange acknowledges that Phlx Rule 1102A cannot be relied upon by the 
Exchange to limit liability to non-members or for any intentional or 
negligent violation of federal securities laws.
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    \5\ See Amex Rule 902C.
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III. Discussion

    For the reasons discussed below, the Commission finds that the 
proposed rule change is consistent with the Act and the rules and 
regulations under the Act applicable to a national securities exchange. 
In particular, the Commission believes that the proposed rule change is 
consistent with the requirements of section 6(b)(5) of the Act \6\ that 
rules of an exchange be designed to facilitate transactions in 
securities.\7\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ In approving this proposed rule change, the Commission has 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    The Commission notes that the proposed rule change is to the Amex's 
rule.\8\ Further, the Commission notes that the proposed change cannot 
be used to limit the Phlx's liability to non-members for any 
intentional or negligent violations of the federal securities laws. The 
Commission believes that the prosed change should serve to facilitate 
transactions in securities. In this regard, the Commission believes 
that the proposal will encourage the Exchange continue to make options 
in its proprietary indices available to investors.
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    \8\ See supra note 5.
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(2) of the Act,\9\ 
that the proposed rule change (SR-Phlx-00-74) is approved.
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    \9\ 15 U.S.C. 78s(b)2.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29182 Filed 11-14-00; 8:45 am]
BILLING CODE 8010-01-M