Document ID: SEC-2006-0476-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Philadelphia Stock Exchange, Inc.
Posted Date: 2006-04-12T04:00Z

[Federal Register: April 12, 2006 (Volume 71, Number 70)]
[Notices]               
[Page 18798-18801]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ap06-130]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53612; File No. SR-Phlx-2006-15]

 
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing and Order Granting Accelerated Approval of Proposed 
Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Registration 
Filing Requirements and Reporting Requirements

April 6, 2006.

    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 17, 2006, 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. On April 3, 2006, 
the Phlx filed Amendment No. 1 to the proposed rule change.\3\ On April 
5, 2006, the Phlx filed Amendment No. 2 to the proposed rule change.\4\ 
The Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons and is 
approving the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Phlx made clarifying and technical 
changes to the proposal.
    \4\ In Amendment No. 2, the Phlx made further clarifying and 
technical changes to the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Phlx proposes to: (1) Amend Exchange Rules 600, 604, 620, 623 
and 1024, Options Floor Procedure Advice (``OFPA'') F-25 and Equity 
Floor Procedure Advice (``EFPA'') F-25 to require all member and 
participant organizations, that do not already participate in Web CRD 
as a member of a participating exchange or the National Association of 
Securities Dealers (``NASD'') to submit Form U4, and Form U5, and 
amendments thereto to the Web Central Registration Depository (``Web 
CRD'') \5\ as well as to submit fingerprint cards directly to the NASD; 
(2) amend Exchange Rule 1024 to require persons to be Registered 
Representatives \6\ of a member or participant organization in order to 
solicit or accept customer orders for foreign currency options or in 
the alternative to require persons who have not successfully completed 
the Series 7 General Securities Representative Examination to submit an 
application for waiver of the Series 7 for approval; (3) amend Exchange 
Rules 600, 604, 620 and 1024 to add language specifying a timeframe in 
which to amend Form U4, Form U5 and Form BD; (4) amend its minor rule 
violation enforcement and reporting plan (``MRP'') by adopting two new 
floor procedure advices, EFPA F-34 and OFPA F-34, respectively, 
pursuant to Exchange Rule 970, for failures to timely submit amendments 
to Form U4, Form U5 and Form BD; \7\ and (5) make other minor 
clarifying changes to certain of these rules. The text of the proposed 
rule change is available on the Phlx's Web site (http://www.phlx.com), 

at the Phlx's Office of the Secretary, and at the Commission's Public 
Reference Room.
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    \5\ Web CRD is a web-based system that provides broker-dealers 
and their associated persons ``one-stop filing'' with the 
Commission, NASD, and other self-regulatory organizations and 
regulators. Web CRD is operated by NASD and is utilized by 
participating securities regulators in connection with registering 
and licensing broker-dealers and their associated persons.
    \6\ Registered Representative categories include registered 
options principals, general securities representatives, general 
securities sales supervisors and United Kingdom limited general 
securities registered representatives. See Phlx Fee Schedule 
Appendix A at footnote 25.
    \7\ Rule 19d-1(c)(1) under the Act, 17 CFR 240.19d-1(c)(1), 
requires any self-regulatory organization for which the Commission 
is the appropriate regulatory agency that takes any final 
disciplinary action with respect to any person to promptly file a 
notice thereof with the Commission. However, rule violations 
resulting in a fine not exceeding $2,500 are not deemed final and 
therefore not subject to the same reporting requirements.
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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 Phlx 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 purpose of the proposed rule change is to create a more 
efficient, centralized registration process by migrating from a manual 
paper-based Exchange procedure to Web CRD for registration and NASD 
processing of fingerprints, with more defined deadlines and a more 
streamlined disciplinary process. The proposal also seeks to eliminate 
the Series 15 as a prerequisite for trading foreign currency options, 
which is rarely used. The proposal also makes other minor technical 
changes.
Web CRD
    The Web CRD process would assist in maintaining all historical 
information related to associated persons of member and participant 
organizations in one central repository, as well as create efficient 
disclosure utilizing an online database, which can be accessed by

[[Page 18799]]

other exchanges and regulators. Additionally, the Web CRD process would 
track and capture information related to registration and continuing 
education. Finally, the Web CRD system would capture information 
related to fingerprinting and statutory disqualification, which would 
enable regulators and broker-dealers to make informed decisions 
concerning employment and membership.
    Members, member and participant organizations would be required to 
submit Forms U4 and U5 (and amendments thereto) electronically through 
the Web CRD system. Currently, member and participant organizations 
submit Forms U4 and U5 in paper form to the Exchange. Although Form BD 
is required to be submitted to Web CRD, the proposed rule change 
codifies this requirement into Phlx Rule 600(c), and applies to 
amendments as well.\8\
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    \8\ 17 CFR 240.15b-1.
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    Currently, members, member and participant organizations submit 
manual rolled fingerprint cards \9\ to the Exchange, which then 
forwards the cards to the FBI, the fingerprint processing arm of the 
Office of the Attorney General of the United States. The FBI identifies 
submitted fingerprints, retrieves relevant criminal history 
information, and returns fingerprint reports (including the original 
fingerprint cards) to the Exchange. Upon receipt of the approved 
fingerprint cards, the Exchange sends this information to the member or 
participant organization, as applicable, and keeps a copy for its 
records. This proposed rule change would require the members, member 
and participant organizations to send the fingerprint cards to the NASD 
for processing. All trading floor personnel, including clerks, interns, 
stock execution clerks and other associated persons of member or 
participant organizations, who are not registered and only submit 
fingerprint cards to the NASD, will be classified as Non-Registered 
Fingerprint (``NRF'') filers.
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    \9\ The NASD will accept Federal Bureau of Investigation 
(``FBI'') fingerprint results in lieu of fingerprint cards.
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    The Exchange anticipates that the proposed migration to Web CRD 
will take place on April 10, 2006, at which time Web CRD will be 
available to process Phlx member and participant organization 
submissions electronically. On May 12, 2006, the use of Web CRD, 
pursuant to this proposed rule change becomes mandatory.\10\ The 
Exchange will provide notification in writing to the membership of the 
effective date of the rule change.
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    \10\ The period from April 10-May 11, 2006 is intended as a 
phase-in and to permit manual filing in case there is a problem 
filing via Web CRD. Other than filing via Web CRD, the rule change 
takes effect April 10, 2006.
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Elimination of Series 15 Examination
    The removal of the Series 15 Foreign Currency Options Examination 
and the requirement to be a Registered Representative to solicit or 
accept customer orders for foreign currency options would eliminate the 
need to allocate staff resources to maintaining the examination in the 
future.\11\ The Series 7 General Securities Representative Examination 
covers many other financial instruments as well as the material covered 
by the Series 15 examination, such as questions regarding the sale and 
trading of listed foreign currency options.
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    \11\ Since 1999, the Series 15 examination has only been 
administered about 20 times.
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    From June 1986, the Series 7 examination has included questions 
regarding the trading of listed foreign currency options. For that 
reason, Registered Representatives who passed the Series 7 examination 
after June 1986 have been eligible to sell foreign currency options on 
the Phlx without taking the Series 15. In addition, in 1993,\12\ the 
Exchange amended Rule 1024(a)(ii) to establish a procedure to waive the 
Series 15 examination which allows Registered Representatives who 
passed the Series 7 examination prior to June 1986 to sell Phlx foreign 
currency options based on the length and depth of their industry 
experience, in lieu of having to pass a separate Series 15 examination 
that relates solely to foreign currency options.
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    \12\ See Securities Exchange Act Release No. 32990 (September 
30, 1993), 58 FR 52339 (October 7, 1993)(SR-Phlx-92-10).
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    In this proposal, in addition to eliminating the Series 15 
examination altogether, the Exchange proposes to establish the same 
criteria for waiver of the Series 7 examination, which requires a 
description of the applicant's options experience and certification of 
that experience by a current or former supervisor with knowledge of the 
registered representative's options experience.\13\ The Director of 
Examinations will determine whether the applicant demonstrates 
sufficient knowledge of options to allow the applicant to sell foreign 
currency options without taking the Series 7 examination.
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    \13\ The supervisor must certify that the applicant understands 
options and has applied his or her knowledge in the course of 
trading and monitoring options positions over a period of no less 
than six months.
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    Additionally, other minor changes are being made to Exchange Rule 
1024 for purposes of clarification. The Exchange is amending the 
language in Exchange Rule 1024(a)(i) to clarify the registration 
obligations of Options Principals.
Failures To Submit Timely Amendments to Form U4, Form U5 and Form BD
    The Exchange is adding language to Exchange Rules 600, 604, 620 and 
1024 as well as adding Floor Procedure Advices pursuant to the 
Exchange's minor rule plan and Exchange Rule 970 to clarify the 
timeframe within which member and participant organizations must amend 
Forms U4, U5 and BD to allow for prompt disclosure. The Exchange 
proposes a timeframe of 30 days from the time the filer knew or should 
have known of the facts which gave rise to the amendment to submit 
amended Forms U4, U5 and BD. By including this language in both the 
Exchange Rules and Advices, Exchange staff would retain the discretion 
to initiate formal disciplinary proceedings. The Exchange believes that 
the proposed Advices should encourage member organizations and 
participant organizations to timely submit Forms U4, U5 and BD and 
thereby timely disclose the information contained in those forms. The 
disclosure of this information should enable the Exchange and the 
public to receive current information on registered persons and 
entities.
    Specifically, the Advices will authorize the Exchange to impose a 
fine on any member or participant organization without formal 
disciplinary action. Exchange staff will review the number and 
seriousness of the violation, as well as previous disciplinary history 
of the violator, to determine if a matter is appropriate for 
disposition under the minor rule plan. Once a member or participant 
organization is fined under the minor rule plan, the Exchange may issue 
progressively higher fines for all subsequent violations within a 
rolling 12 month period or initiate more formal disciplinary 
proceedings. The addition of these Advices to the Exchange's minor rule 
plan should allow Exchange staff the ability to impose more meaningful 
sanctions for violations that merely warrant a cautionary letter, for 
example, but do not necessarily rise to the level of a formal 
disciplinary proceeding pursuant to Exchange Rule 960. Additionally, 
the Advices would allow for disposition of minor or technical 
violations of Exchange rules by means of a less costly and less time 
consuming process as compared to a

[[Page 18800]]

formal disciplinary process. Expediting resolutions for technical 
violations, while retaining the discretion to bring formal disciplinary 
action, should allow for efficient dispositions of rule violations.
Other
    The language in Exchange Rule 604(e)(ii), related to off-floor 
traders currently engaged in off-floor trading activities, is being 
deleted because the language is no longer applicable. The term 
participant organization is being added for clarification in the 
various rules.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Sections 
6(b) and 6(c) of the Act \14\ in general, and furthers the objectives 
of Section 6(b)(5) of the Act \15\ in particular, in that it is 
designed 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, by providing information to a central repository.
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    \14\ 15 U.S.C. 78f(b) and 78f(c).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with Section 
6(c)(3)(B) of the Act \16\ in that it is the Exchange's responsibility 
to prescribe standards of training, experience and competence for 
persons associated with the Exchange's members, and member and 
participant organizations. In addition, under Section 6(c)(3)(B) of the 
Act,\17\ the Exchange may bar a natural person from becoming a member 
or person associated with a member, if the person does not meet the 
standards of training, experience and competence as are prescribed in 
the rules of the Exchange.
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    \16\ 15 U.S.C. 78f(c)(3)(B).
    \17\ Id.
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    Further, the Exchange believes that its proposal is consistent with 
Sections 6(b)(1),\18\ 6(b)(6),\19\ 6(b)(7) \20\ and 6(d)(1) \21\ of the 
Act, which require that the rules of an exchange enforce compliance 
with, and provide appropriate discipline for, violations of Commission 
and Exchange rules. In addition, because existing Exchange Rule 970 
provides procedural rights to a person fined under the MRP to contest 
the fine and permits a hearing on the matter, the Exchange believes the 
minor rule plan, as amended by this proposal, should provide a fair 
procedure for the disciplining of members and persons associated with 
members. Finally, the Exchange believes 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 \22\ which governs minor rule violation plans. The 
Exchange believes that the proposed change to the MRP should strengthen 
the Exchange's ability to carry out its oversight and enforcement 
responsibilities as a self-regulatory organization in cases where 
formal disciplinary proceedings are unsuitable in view of the minor 
nature of the particular violation. In addition, the Exchange believes 
that its proposal furthers the objectives of Section 6(b)(6) of the 
Act,\23\ in that it provides that its members be appropriately 
disciplined for violations of exchange rules, the Act, and rules and 
regulations thereunder, by expulsion, suspension, limitation of 
activities, functions, and operations, fine, censure, being suspended 
or barred from being associated with a member, or any other fitting 
sanction.
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    \18\ 15 U.S.C. 78f(b)(1).
    \19\ 15 U.SC. 78f(b)(6).
    \20\ 15 U.S.C. 78f(b)(7).
    \21\ 15 U.S.C. 78f(d)(1).
    \22\ 17 CFR 240.19d-1(c)(2).
    \23\ 15 U.S.C. 78f(b)(6).
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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 either 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, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-Phlx-2006-15 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 Number SR-Phlx-2006-15. 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 (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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the Phlx. 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 Number SR-Phlx-2006-15 and should be submitted on or before May 3, 
2006.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\24\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act,\25\ which requires, among other things, that the Exchange's 
rules 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, and, in general, to protect 
investors and the public interest. The Commission believes that the 
proposed

[[Page 18801]]

rule change clarifies the Phlx registration process and promotes 
uniformity of registration in the industry. In addition, the proposed 
rule change should enhance the ability of regulators to monitor broker-
dealers and their associated persons. Requiring firms that are only 
members of the Phlx to register through Web CRD will put them on a par 
with other Phlx member firms that are members of another SRO and, as 
such, are already registering through Web CRD.
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    \24\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposed rule change is 
consistent with Section 6(c)(3)(B) of the Act,\26\ which states that an 
Exchange may prescribe standards of training, experience and competence 
for persons associated with Exchange members. Further, the Commission 
believes that the procedures for obtaining a waiver of the Series 7 
examination should help to ensure that only persons with adequate 
experience in options trading and knowledge of foreign currency options 
and the underlying markets will be granted a waiver of the Series 7 
examination requirement.
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    \26\ 15 U.S.C. 78f(c)(3)(B).
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    The Commission also believes that the proposed rule change is 
consistent with Section 6(b)(6) of the Act \27\ in that it provides for 
the appropriate discipline for violation of Phlx rules. Moreover, the 
Commission believes that the proposed rule change is consistent with 
Section 6(b)(7) of the Act \28\ in that it provides a fair procedure 
for the disciplining of Phlx members. Finally, the Commission finds 
that the proposed rule change is consistent with Rule 19d-1(c)(2) under 
the Act,\29\ which governs minor rule violation plans. The Commission 
believes it is reasonable for Phlx to be able to sanction late filings 
of amendments to Form U4, Form U5 and Form BD pursuant to its MRP.
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    \27\ 15 U.S.C. 78f(b)(6).
    \28\ 15 U.S.C. 78f(b)(7).
    \29\ 17 CFR 240.19d-1(c)(2).
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    The Exchange has requested accelerated approval of the proposed 
rule change. The Commission finds good cause for approving the proposed 
rule change, as amended, prior to the thirtieth day after the date of 
publication of the notice of filing in the Federal Register. 
Accelerated approval of the proposed rule change should allow the 
Exchange to migrate to Web CRD, as scheduled, on April 10, 2006 and 
make regulatory information with respect to members and their 
associated persons more readily available to regulators. In addition, 
the Commission has approved similar rule changes implementing 
electronic registration for the Pacific Exchange, Inc. and the Chicago 
Board Options Exchange, Incorporated.\30\ The Commission has also 
approved a similar rule change for NASD to include failures to timely 
submit amendments to Form U5 in its Minor Rule Violation Plan.\31\ 
Finally, the Commission does not believe that the Exchange's proposal 
raises any novel regulatory issues. Therefore, the Commission finds 
good cause, consistent with Section 19(b)(2) of the Act,\32\ to approve 
the proposed rule change, as amended, on an accelerated basis.
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    \30\ See Securities Exchange Act Release Nos. 51398 (March 18, 
2005), 70 FR 15672 (March 28, 2005) (SR-PCX-2005-10) and 46308 
(August 2, 2002), 67 FR 51905 (August 9, 2002) (SR-CBOE-2001-66).
    \31\ See Securities Exchange Act Release No. 50446 (September 
24, 2004), 69 FR 58568 (September 30, 2004) (SR-NASD-2004-121).
    \32\ 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,\33\ that the proposed rule change (SR-Phlx-2006-15), as amended, 
is hereby approved on an accelerated basis.
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    \33\ Id.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-5362 Filed 4-11-06; 8:45 am]

BILLING CODE 8010-01-P