Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Philadelphia Stock Exchange, Inc., Relating to Limiting Time for Submission of Settlement Offers

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-37974; File No. SR-PHLX-96-42]

Self-Regulatory Organizations; Order Approving Proposed Rule

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

Time for Submission of Settlement Offers

November 22, 1996.

On September 27, 1996, 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 proposed rule change amends PHLX

Rule 960.7, ``Offers of Settlement,'' to limit the time when a

respondent may submit a written settlement offer to the PHLX's Business

Conduct Committee (``BCC'') to within 120 calendar days immediately

following the date of service of the statement of charges upon the

respondent.

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\1\ 15 U.S.C. Sec. 78s(b)(1) (1988).

\2\ 17 CFR 240.19b-4 (1995).

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Notice of the proposed rule change was published for comment in the

Federal Register on October 23, 1996.\3\ No comments were received on

the proposal. This order approves the proposed rule change.

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\3\ Securities Exchange Act Release No. 37838 (October 17,

1996), 61 FR 55062.

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Currently, PHLX Rule 960.7 allows a respondent in any proceeding

under the PHLX's disciplinary rules to submit a written settlement

offer to the Exchange's BCC at any time during the course of the

proceeding. The Exchange proposes to amend PHLX Rule 960.7 to limit the

time when a respondent may submit a written settlement offer to the BCC

to within 120 calendar days immediately following the date of service

of the statement of charges upon the respondent in accordance with PHLX

Rule 960.11, ``Service of Notice and Extension of Time Limits.'' Under

the proposal, the Exchange may schedule a hearing during the 120-day

period immediately following the date of service of the statement of

charges or as soon as practicable thereafter.

The purpose of the proposal is to adopt a time limit during which

respondents involved in a disciplinary matter before the PHLX's BCC may

submit settlements offers. Because PHLX Rule 960.7 currently allows

settlement offers to be submitted at any time, the BCC was concerned

that respondents could intentionally submit inadequate offers of

settlement for the sole purpose of delaying a scheduled hearing until

the offer is reviewed by the full BCC. The proposal will allow the BCC

to schedule hearings after the 120-day period knowing that there will

not be last minute requests for continuances based upon late offers of

settlement.

Under proposed Interpretation and Policy .01, the BCC may schedule

a hearing during the 120-day period immediately following the date of

service of the statement of charges on the respondent.\4\ The BCC will

continue to have the ability to entertain settlement offers after the

120-day period if its review does not delay the scheduled hearing in

the matter.

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\4\ Under PHLX Rule 960.5, ``Hearing,'' a respondent must be

given at least 15 business days notice of the time of a hearing.

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The PHLX 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, to prevent

[[Page 63889]]

fraudulent and manipulative acts and practices, to foster cooperation

and coordination with persons engaged in regulating, clearing,

settling, processing information with respect to, and facilitating

transactions in securities, to remove impediments to and perfect the

mechanism of a free and open market and a national market system, as

well as to protect investors and the public interest by allowing for

more expeditious completion of disciplinary matters.

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, the requirements of Section 6(b)(5) \5\ in that it is

designed to prevent fraudulent and manipulative acts and practices and

to protect investors and the public interest. The Commission also

believes that the proposal is consistent with Section 6(b)(7) of the

Act because it provides a fair procedure for disciplining members.\6\

Specifically, by limiting the time allowed for the submission of

settlement offers, the Commission believes that the proposal should

facilitate the PHLX's efforts to provide prompt, effective, and

meaningful discipline for violations of Exchange rules and the federal

securities laws. In addition, by minimizing opportunities for delay,

the proposal should help to preserve evidence and the availability of

witnesses, thereby enhancing the quality, consistency, and fairness of

the Exchange's disciplinary proceedings and enabling the PHLX to better

enforce compliance by its members with the Exchange's rules and the

federal securities laws. By facilitating the prompt resolution of

disciplinary proceedings, the proposal also will promote efficiency in

the use of the Exchange's resources.

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\5\ 15 U.S.C. Sec. 78f(b)(5) (1988).

\6\ In approving this rule, the Commission has considered the

proposed rule's impact on efficiency, competition, and capital

formation. 15 U.S.C. Sec. 78c(f).

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The PHLX states that because PHLX Rule 960.7 currently allows

settlement offers to be submitted at any time, the Exchange's BCC was

concerned that respondents could intentionally submit inadequate offers

of settlement for the sole purpose of delaying a scheduled hearing

until the offer is reviewed by the full BCC. The Commission believes

that the proposed time limit for submitting settlement offers should

allow the PHLX's disciplinary proceedings to progress promptly by

preventing members from submitting inadequate settlement offers in

order to delay a hearing.

At the same time, the Commission believes that the proposal

protects members' rights to fair procedures in Exchange disciplinary

proceedings. Specifically, the proposal allows respondents to submit

settlement offers \7\ up to 120 days following the date of service of a

statement of charges upon the respondent.\8\ Although a hearing may be

scheduled during the 120-day period, PHLX Rule 960.5 provides that a

respondent must be given at least 15 business days notice of the time

of a hearing. Accordingly, the Commission believes that the proposal

preserves a respondent's right to submit settlement offers and provides

a respondent with adequate time to submit settlement offers, thereby

providing a fair procedure for the disciplining of members, consistent

with Section 6(b)(7).

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\7\ A respondent may submit more than one settlement offer

during the 120-day period. Telephone conversation between Michele R.

Weisbaum, Vice President and Associate General Counsel, PHLX, and

Yvonne Fraticelli, Attorney, Office of Market Supervision, Division

of Market Regulation, Commission, on October 2, 1996.

\8\ The proposal allows the BCC to consider settlement offers

submitted after the 120-day period as long as consideration of an

offer does not delay the hearing in the matter.

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Finally, the Commission notes that the rules of the Chicago Board

Options Exchange, Inc. (``CBOE'') also provide a 120-day period for

submitting settlement offers.\9\

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\9\ See CBOE Rule 17.8(a), ``Offers of Settlement.''

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It is therefore ordered, pursuant to Section 19(b)(2) of the

Act,\10\ that the proposed rule change (SR-PHLX-96-42) is approved.

\10\ 15 U.S.C. Sec. 78s(b)(2) (1988).

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For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\11\

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\11\ 17 CFR 200.30-3(a)(12) (1995).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-30526 Filed 11-29-96; 8:45 am]

BILLING CODE 8010-01-M