[Federal Register Volume 65, Number 230 (Wednesday, November 29, 2000)]
[Notices]
[Pages 71192-71193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30382]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43584; File No. SR-PHLX-00-52]


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

November 17, 2000.
    On August 18, 2000, the Philadelphia Stock Exchange Inc. (``PHLX'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 
19b-4 thereunder.\2\ The Exchange proposed amendments to its rules 
concerning appeals from decisions in disciplinary proceedings. The 
proposed rule change was published for comment in the Federal Register 
on October 13, 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-4.
    \3\ Securities Exchange Act Release No. 43415 (October 4, 2000), 
65 FR 61014 (File No. SR-PHLX-00-52).
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I. Description of the Proposal

    The Exchange proposes to amend the text of Phlx Rule 960.9 to 
incorporate specific procedures for appeals from decisions rendered in 
disciplinary

[[Page 71193]]

proceedings by the Exchange's Business Conduct Committee pursuant to 
Phlx Rules 960.6(c) and 960.8. Currently, decisions made in 
disciplinary proceedings are appealed in accordance with Phlx By-Law 
Article XI. The procedures set forth in the Phlx's By-Laws, however, 
were not strictly formulated for disciplinary matters, and, as a 
result, are often silent on unique issues that apply to disciplinary 
matters. To ensure that appeals in disciplinary proceedings are 
accomplished in a consistent and orderly manner, the Exchange expanded 
the procedures in Phlx Rule 960.9 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.
    The proposed amendment to paragraph (a) of Phlx Rule 960.9 is 
intended to provide time guidelines for requesting an appeal. 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 to file a written 
response. The Respondent may then file a reply within 15 days after 
service of the Enforcement Staff's response.
    Paragraph (b) of the proposed rule, ``Conduct of Review,'' provides 
that the review shall 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. Unless the Board of Governors or 
Advisory Committee hearing the review allows oral argument, the review 
will be based solely on the record below. If an Advisory Committee 
hears the review, it must submit a written report to the Board.
    Sub-paragraphs (b)(ii) and (iii) of the proposed rule set forth the 
standard of review for the Board or Advisory Committee. 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. However, neither the Board nor the Advisory Committee 
may reverse or modify 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.
    In paragraph (c), the proposed rule change includes procedures for 
a review by the Board of Governors on its own initiative. The review 
would follow the procedure set forth in paragraph (b) of the proposed 
rule. Together, these provisions are intended to establish a standard 
and process of review.
    Finally, paragraph (d) of the proposed rule sets forth the 
procedures by which the Exchange's Enforcement staff may petition the 
Board for permission to appeal. The petition must specify the findings 
and conclusions that are the subject of the petition, along with the 
reasons the staff is petitioning for review. If the Board grants 
permission, the Exchange's Enforcement staff must serve a copy of the 
petition on the Respondent within 5 days. The respondent then has 15 
days to file a written response with the Board, and the staff would 
have 15 days to file a reply.\4\
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    \4\ 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, Special Counsel, Division of Market Regulation, Commission, 
on October 3, 2000.
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II. Discussion

    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 and, in 
particular, with the requirements of Sections 6(b)(6) and 6(b)(7).\5\ 
Section 6(b)(6) requires that members and persons associated with 
members be appropriately disciplined for violation of any provision of 
the Act, the rules and regulations thereunder, or the rules of the 
Exchange. Section 6(b)(7) of the Act requires, among other things, that 
the rules of the Exchange provide a fair procedure for the disciplining 
of members and persons associated with the members.
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    \5\ 15 U.S.C. 78f(b)(6) and (b)(7).
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    Currently, the Phlx does not have detailed procedures for appeals 
from decisions in summary and regular disciplinary proceedings. The 
Commission believes that the proposed procedures in Phlx Rule 960.9 
could provide for a more appropriate and fair disciplinary procedure. 
For example, paragraphs (b) and (c) of revised Rule 960.9 set forth a 
standard of review the Board of Governors or the Advisory Committee 
must follow in deciding whether to affirm, reverse or modify the 
decision of the Business Conduct Committee. The Commission believes 
that explicit standards will help ensure that decisions in disciplinary 
proceedings are not rendered arbitrarily.
    The Commission also believes that the clear time guidelines set 
forth in paragraphs (a), (c), and (d) enhance the fairness of the 
disciplinary procedure. Currently, Phlx Rule 960.9 only dictates the 
time a respondent has to file an appeal. Under the proposal, the 
expanded procedures in Rule 960.0 layout the timetable for responses 
and replies to be filed. Thus, respondents and the Exchange's 
Enforcement staff will not be subjected to unnecessary delays. The 
Commission believes this is a more fair procedure because it brings a 
measure of finality to disciplinary proceedings.

III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-PHLX-00-52) is approved.

    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. 00-30382 Filed 11-28-00; 8:45 am]
BILLING CODE 8010-01-M