Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the Philadelphia Stock Exchange, Inc., Relating to Floor Procedure Advice F-8, Failure To Comply With an Exchange Inquiry

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35305; File No. SR-PHLX-94-61]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the Philadelphia Stock Exchange, Inc., Relating to Floor

Procedure Advice F-8, Failure To Comply With an Exchange Inquiry

January 31, 1995.

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 November

21, 1994, 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 self-

regulatory organization.\1\ The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

\1\On November 30, 1994, the PHLX amended its proposal to

clarify that the proposed two-day period for compliance with

Exchange Examinations Department requests would apply, for example,

to requests for books and records, rather than to requests for

financial information, which are governed by PHLX Rule 703(e). See

Letter from Edith Hallahan, Special Counsel, PHLX, to Michael

Walinskas, Branch Chief, Office of Market Supervision (``OMS''),

Division of Market Regulation (``Division''), Commission, dated

November 30, 1994 (``November 30 Letter''). On January 31, 1995, the

PHLX amended its proposal to delete references to foreign currency

option (``FCO'') participants and participant organizations in Floor

Procedure Advice (``Advice'') F-8, ``Failure to Comply with an

Exchange Inquiry.'' See Letter from Edith Hallahan, Special Counsel,

Regulatory Services, PHLX, to Michael Walinskas, Branch Chief, OMS,

Division, Commission, dated January 30, 1995 (``January 30

Letter''). However, Advice F-8 continues to apply to FCO

participants and participant organizations. Specifically, the PHLX

notes in its January 30 Letter that PHLX Rule 13, ``Foreign Currency

Options Participant'' provides that FCO participants are subject to

the provisions of the Exchange's rules that are applicable to a

member of the Exchange and each reference to a member of the

Exchange in the PHLX's rules is deemed to pertain also to FCO

participants.

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I. Self-Regulatory Organization's Statement of the Terms of Substance

of the Proposed Rule Change

Currently, Advice F-8 requires Exchange members to comply promptly

with any request for information made by the Exchange's Market

Surveillance Department in connection with any investigation within the

Exchange's disciplinary jurisdiction. The Exchange proposes to amend

Advice F-8 to require members to comply with Exchange requests for

information in connection with any regulatory inquiry, investigation,

or examination relating to the Exchange's disciplinary jurisdiction or

regulatory obligations. The PHLX also proposes to amend the Advice to

require that information requested by the Exchange's Examinations

Department be received within two business days from the date of the

original request in order to satisfy the prompt compliance requirement

of Advice F-8. Finally, the PHLX proposes to amend Advice F-8 to reduce

the fine for a first violation of the Advice from $500 to $200, and to

provide that each additional request for information not furnished

within the allotted time period may be considered as a separate

occurrence for purposes of the Advice's fine schedule.\2\ The text of

[[Page 7253]] the proposed rule change is available at the Office of

the Secretary, PHLX, and at the Commission.

\2\Under the Advice F-8's fine schedule, as amended, the

Exchange will impose a fine of $200 for the first occurrence, $1,000

for the second occurrence, $2,500 for the third occurrence, and a

sanction discretionary with the Exchange's Business Conduct

Committee for the fourth and subsequent occurrences.

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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 self-regulatory organization

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 IV below. The self-regulatory organization

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

Currently, Advice F-8 requires cooperation with requests for

information made by the Exchange's Market Surveillance Department and

contains a fine schedule for violations. The Advice is administered

under the Exchange's minor rule violation enforcement and reporting

plan (``minor rule plan''),\3\ which the PHLX also proposes to amend.

Advice F-8 serves as an important tool in the Exchange's effort to

conduct investigations expeditiously, requiring members to respond

promptly to such requests. Prompt compliance with Market Surveillance

requests is currently defined as ten business days. This Advice was

adopted in order to expedite the Exchange's investigation process by

enabling the Exchange to summarily reprimand any failure to respond to

such requests.\4\

\3\The PHLX's minor rule plan, codified in PHLX Rule 970,

contains floor procedure advices with accompanying fine schedules.

Rule 19d-1(c)(2) under the Act authorizes national securities

exchanges to adopt minor rule violation plans for summary discipline

and abbreviated reporting; Rule 19d-1(c)(1) requires prompt filing

with the Commission of any final disciplinary action. However, minor

rule violations not exceeding $2,500 are deemded not final, thereby

permitting periodic, as opposed to immediate, reporting.

\4\See Securities Exchange Act Release No. 26899 (June 7, 1989),

54 FR 25526 (June 15, 1989) (order approving File No. SR-PHLX-89-

20).

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The PHLX proposes to extend the requirements of Advice F-8 to

include Examinations Department requests, for which compliance will be

required within two business days, as well as other regulatory

inquiries. The purpose of this change is to facilitate the Exchange's

ability to promptly collect regulatory information, with the deterrent

of a preset fine schedule.

With respect to the fine schedule accompanying Advice F-8, the

proposed language regarding separate occurrences is intended to deter

delays in compliance with an Exchange request by counting a repeat

request for information as a separate occurrence. If each successive

request for the same information is treated as a separate occurrence

and thus as a successive violation subject to the next highest fine,

the Exchange believes that prompt compliance is encouraged. The PHLX

also proposes to reduce the fine for a first occurrence from $500 to

$200 to reflect the potential for increased application of such fines.

The Exchange believes that the proposed changes to Advice F-8 are

consistent with the types of provisions currently included in the

Exchange's minor rule plan. Moreover, extending the requirements of

Advice F-8 regarding prompt compliance with Exchange inquiries to

include Examinations Department and other regulatory requests should

enhance the Exchange's ability to meet its regulatory obligations

expeditiously. For example, under Advice F-8, as amended, a member will

be required to comply with an Examinations Department request for books

and records within two business days from the date of the original

request.\5\

\5\See November 30 Letter, supra note 1.

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For the above reasons, the Exchange believes that the proposed rule

change is consistent with 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, prevent fraudulent and manipulative

acts and practices, as well as to protect investors and the public

interest, by bolstering the Exchange's ability to receive certain

information from its members promptly.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The PHLX 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

No written comments were either received or requested.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of 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 reason for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(a) By order approve such 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. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 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 Section, 450 Fifth Street, NW.,

Washington, DC. Copies of such filing will also be available for

inspection and copying at the principal office of the above-mentioned

self-regulatory organization. All submissions should refer to the file

number in the caption above and should be submitted by February 28,

1995.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\6\

\6\17 CFR 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-2970 Filed 2-6-95; 8:45 am]

BILLING CODE 8010-01-M