[Federal Register Volume 65, Number 250 (Thursday, December 28, 2000)]
[Notices]
[Pages 82437-82440]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-33126]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 43740; File No. SR-Phlx-00-48]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Philadelphia Stock Exchange, Inc. Relating to Telephone
Use on the Options Floor
December 19, 2000.
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 June 16, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change described in Items I, II, and
III below, which Items have been prepared by the Exchange. The Exchange
filed Amendment No. 1 to the proposed rule change on December 1,
2000.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange submitted a new Form 19b-4, which replaces and
supersedes the original filing (``Amendment No. 1''). Amendment No.
1 amends the purpose section of the proposed rule change to provide
a description of provisions governing floor brokers, registered
options traders, general access phones, and exchange liability.
Amendment No. 1 also clarifies that registration and maintenance of
registration records is handled through the Exchange's Membership
Services Department. Finally Amendment No. 1 amends proposed Phlx
Rule 606(e)(3) to include specialists.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to amend Exchange Rule 606 and to create new
Options Floor Procedure Advice (``OFPA'') F-31 to establish rules and
procedures for telephone use on the Phlx's options floor. The text of
the proposed rule change is set forth below. All text is being added.
Wire and Other Connections
Communications and Equipment
Rule 606
(e)(1) Registration. Members and member organizations must
register, prior to use, any new telephone to be used on the Options
Floor. Each phone registered with the Exchange must be registered by
category of user. If there is a change in the category of any user,
the phone must be re-registered with the Exchange. At the time of
registration, members and member firm representatives must sign a
statement that they are aware of and understand the rules and
procedures governing the use of telephones on the Options Floor.
(2) Capacity and Functionality. No wireless telephone used on
the Options Floor may have an output greater than one watt. No
person on the Options Floor may use any device for the purpose of
maintaining an open line of continuous communication whereby a
person not located in the trading crowd may continuously monitor the
activities in the trading crowd. This prohibition covers intercoms,
walkie-talkies and any similar devices. Speed-dialing features are
permitted on any member telephone.
(3) Specialist and Registered Options Traders.
(a) Specialists and Registered Options Traders (``ROTs'') may
use their own cellular and cordless phones to place calls to any
person at any location (whether on or off the Options Floor).
(b) ROTs located off the Options Floor may not place an order by
calling a Floor Broker who is present in a trading crowd. ROTs
located off the Options Floor may not otherwise place an order by
calling the specialist phone in the trading crowd. Any telephonic
order entered from off the Options Floor must be placed with a
person located in a member firm booth.
(4) Floor Brokers.
(a) Floor Brokers may use cellular and cordless telephones, but
only to communicate with persons located on the Options Floor. These
telephones may not included a call forwarding feature. Headsets are
permitted for Floor Brokers, but if the Exchange determines that a
Floor Broker is maintaining a continuous open line through the use
of a headset, the Floor Broker will be prohibited form future use of
any headset for a length of time to be determined by the Exchange.
(b) All orders phoned to the Floor Brokers must be received
initially at the Floor Broker's booth. Floor Brokers may not receive
telephonic orders while in the trading crowd except from their
booth. Any telephonic order entered from off the Options Floor must
be placed with a person located in a member firm booth.
(5) Clerks.
(a) Floor Broker clerks are subject to the same terms and
conditions on telephone use as Floor Brokers.
(b) Stock Execution clerks are subject to the same terms and
conditions on telephone use as Floor Brokers.
(c) The Options Committee reserves the right to prohibit clerks
from using cellular or cordless phones on the floor at any time that
it is necessary due to electronic interference problems or capacity
problems resulting from the number of such phones then in use on the
Options Floor. In such circumstances, the Committee will first
consider restricting the use of such phones by Stock Execution
Clerks, and then by Floor Broker Clerks.
(6) General Access In-House Phones. The general access in-house
telephones located outside of the trading post areas may be used by
any member, clerk or floor broker to communicate with persons
located on the Options Floor or within the Exchange complex.
[[Page 82438]]
(7) Telephone Records. Members must maintain their cellular or
cordless telephone records, including logs of calls placed, for a
period of not less than one year. The Exchange reserves the right to
inspect and/or examine such telephone records.
(8) Exchange Liability. The Exchange assumes no liability to
members or member organizations due to conflicts between telephones
in use on the Options Floor or due to electronic interference
problems resulting from the use of telephones on the trading floor.
Options Floor Procedure Advice F-31 Communications and Equipment
(1) Registration. Members and member organizations must
register, prior to use, any new telephone to be used on the Options
Floor. Each phone registered with the Exchange must be registered by
category of user. If there is a change in the category of any user,
the phone must be re-registered with the Exchange. At the time of
registration, members and member firm representatives must sign a
statement that they are aware of and understand the rules and
procedures governing the use of telephones on the Options Floor.
(2) Capacity and Functionality. No wireless telephone used on
the Options Floor may have an output greater than one watt. No
person on the Options Floor may use any device for the purpose of
maintaining an open line of continuous communication whereby a
person not located in the trading crowd may continuously monitor the
activities in the trading crowd. This prohibition covers intercoms,
walkie-talkies and any similar devices. Speed-dialing features are
permitted on any member telephone.
(3) Specialists and Registered Options Traders.
(a) Specialists and Registered Options Traders (``ROTs'') may
use their own cellular and cordless phones to place calls to any
person at any location (whether on or off the Options Floor).
(b) ROTs located off the Options Floor may not place an order by
calling a Floor Broker who is present in a trading crowd. ROTs
located off the Options Floor may not otherwise place an order by
calling the specialist phone in the trading crowd. Any telephonic
order entered from off the Options Floor must be placed with a
person located in a member firm booth.
(4) Floor Brokers.
(a) Floor Brokers may use cellular and cordless telephones, but
only to communicate with persons located on the Options Floor. These
telephones may not include a call forwarding feature. Headsets are
permitted for Floor Brokers, but if the Exchange determines that a
Floor Broker is maintaining a continuous open line through the use
of a headset, the Floor Broker will be prohibited from future use of
any headset for a length of time to be determined by the Exchange.
(b) All orders phoned to Floor Brokers must be received
initially at the Floor Broker's booth. Floor Brokers may not receive
telephonic orders while in the trading crowd except from their
booths. Any telephonic order entered from off the Options Floor must
be placed with a person located in a member firm booth.
(5) Clerks.
(a) Floor Broker clerks are subject to the same terms and
conditions on telephone use as Floor Brokers.
(b) Stock Execution clerks are subject to the same terms and
conditions on telephone use as Floor Brokers.
(c) The Options Committee reserves the right to prohibit clerks
from using cellular or cordless phones on the floor at any time that
it is necessary due to electronic interference problems or capacity
problems resulting from the number of such phones then in use on the
Options Floor. In such circumstances, the Committee will first
consider restricting the use of such phones by Stock Execution
Clerks, and then by Floor Broker Clerks.
(6) General Access In-House Phones. The general access in-house
telephones located outside of the trading post areas may be used by
any member, clerk or floor broker to communicate with persons
located on the Options Floor or within the Exchange complex.
(7) Telephone Records. Members must maintain their cellular or
cordless telephone records, including logs of calls placed, for a
period of not less than one year. The Exchange reserves the right to
inspect and/or examine such telephone records.
(8) Exchange Liability. The Exchange assumes no liability to
members or member organizations due to conflicts between telephones
in use on the Options Floor or due to electronic interference
problems resulting from the use of telephones on the trading floor.
FINE SCHEDULE (implemented on a three year running calendar
basis)
F-31
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1st Occurrence............................ $250.00.
2nd Occurrence............................ $500.00.
3rd Occurrence............................ $1,000.00.
4th and thereafter........................ Sanction is discretionary
with Business Conduct
Committee.
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* * * * *
II. Self-Regulatory Organization's Statements Regarding 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 IV 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The purpose of the proposed rule change is to establish rules and
procedures for telephone use on the options floor. Proposed Phlx Rule
606(e) and OFPA F-31 would set forth procedures and restrictions
regarding telephone use on the options floor. The proposed rule
contemplates that certain types of telephones (i.e., cellular phones)
may be used for personal purposes.\4\ The proposed rule would limit the
use of telephones on the options floor for business purposes, depending
on the category of user (specialist, registered options trader
(``ROT''), floor broker, or clerk).
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\4\ All categories of users are permitted to make and receive
personal phone calls, subject to existing prohibitions when
necessary because of electronic interference. Telephone call between
Rick Rudolf, Counsel, Phlx, Deborah Flynn, Senior Special Counsel,
Commission, and Sonia Patton, Staff Attorney, Commission (December
18, 2000).
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The proposed rule change would require members and member
organizations to register by category of user, any new telephone to be
used on the options floor, prior to use. Registration and maintenance
of registration records would be handled through the Exchange's
Membership Services Department. If there is a change in the category of
user, the telephone must be re-registered with the Exchange. At the
time of registration, the user must sign a statement that the user is
aware of and understands the rules governing the use of telephones on
the options floor. The Exchange believes that this should facilitate
record keeping and should also enhance the ability of the Exchange's
Market Surveillance Department to investigate potential violations of
the rule.
The proposed rule would also provide that no person on the options
floor may use any device, including, but not limited to, intercoms,
walkie-talkies, and similar devices, for the pupose of maintaining an
open line of communication whereby a person located in a trading crowd
may continuously monitor the activities of that crowd.
Capacity and Functionality. The proposed rule specifies the
capacity and functionality permitted for use of telephones on the
options floor. Specifically, proposed Phlx Rule 606(e)(2) provides that
no wireless telephone on the options floor may have an output of more
than one watt. The purpose of this provision is to minimize
[[Page 82439]]
the possibility of radio frequency or other interference with the
systems of the Exchange or those of other members.\5\ The proposed rule
would also state that no person on the options floor may use any device
for the purpose of maintaining an open line of continuous communication
whereby a person not located in the trading crowd may continuously
monitor the activities in the trading crowd. This prohibition covers
intercoms, walkie-talkies, and any similar devices.
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\5\ Currently, Exchange Rule 606(b)(2) prohibits members, member
organizations and any person associated with a member organization
from establishing or maintaining any telephonic, electronic or
wireless transmitting system or device, and from operating any other
equipment on the Options Floor, that creates radio frequency or
other interference with the systems of the Exchange or other
members.
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Members and Member Firm Employees. The propposed rule sets forth
specific guidelines for each category of user on the options floor, as
follows:
Specialists and ROTs. Proposed Phlx Rule 606(e)(3) would provide
that specialists and ROTs may use their own cellular and cordless
phones to place calls to any person at any location (whether on or off
the options floor).\6\ The proposal would also provide that specialists
and ROTs located off the options floor may not place an order by
calling a floor broker located in a trading crowd or directly to the
specialist phone. Any telephonic order entered from off the options
floor must be placed with a person located in a floor broker booth. The
Exchange believes that this should facilitate adequate surveillance of
telephonic orders and ensure that there is a record of the order in the
event that a problem arises in connection with the order.
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\6\ Specialists are also permitted to receive incoming calls,
but cannot receive orders from the trading crowd. The Phlx has also
noted that there is nothing in their rules that would prohibit
specialists from using their phones to solicit orders, as long as
the solicitations are consistent with Phlx Rule 1064(c). Telephone
call between Rick Rudolf, Counsel, Phlx, Deborah Flynn, Senior
Special Counsel, Commission, and Sonia Patton, Staff Attorney,
Commission (December 18, 2000).
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Floor Brokers. Proposed Phlx Rule 606(e)(4) would allow floor
brokers to use cellular and cordless phones, but only to communicate
with persons located on the options floor. The proposed rule would
prohibit floor brokers from receiving telephonic orders while in the
trading crowd. Orders phoned to floor brokers must be received at the
floor broker's booth.\7\ This should facilitate the adequate
surveillance of telephonic orders and should ensure that there is a
record of each telephonic order in the event of a trading problem or
dispute relating to an order. Moreover, the Phlx believes the
prohibition against floor brokers receiving telephonic orders in the
trading crowd is consistent with Exchange procedures that require floor
brokers to time stamp tickets for each order at the time of receipt of
the order, prior to representing the order in the crowd for
execution.\8\
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\7\ Someone from the floor broker's booth would be permitted to
call a floor broker to request the broker come and pick up an order
from the booth. Telephone call between Rick Rudolf, Counsel, Phlx,
Deborah Flynn, Senior Special Counsel, Commission, and Sonia Patton,
Staff Attorney, Commission (December 18, 2000).
\8\ See OFPA C-2.
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Clerks. Proposed Phlx Rule 606(e)(5) would provide that floor
broker clerks and stock execution clerks are subject to the same terms
and conditions on telephone use as floor brokers. The proposal also
states that the Options Committee reserves the right to prohibit clerks
from using cellular or cordless phones on the floor at any time that it
is necessary due to electronic interference problems.\9\ In such
circumstances, the Options Committee would first consider restricting
the use of phones by ROT clerks, then by stock execution clerks, and
then finally, by floor broker clerks.
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\9\ The term ``electronic interference'' refers to radio
frequency interference or to a situation where a user cannot get a
good signal because of interference with monitors, static, or a bay
station not working properly. See Securities Exchange Act Release
No. 41450 (May 25, 1999), 64 FR 29727 (June 2, 1999) (SR-Phlx-99-
14).
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General Access In-House Phones, Telephone Records, and Exchange
Liability. Proposed Phlx Rule 606(e)(6) states that the general access
in-house telephones located outside of the trading post areas may be
used by any member, clerk or floor broker to communicate with persons
located on the options floor or within the Exchange complex.
Proposed Phlx Rule 606(e)(7) would require members to maintain all
cellular or cordless telephone records for at least one year, and
provides the Exchange the right to inspect and/or examine these
records. The Exchange believes that this requirement should facilitate
the review by the Exchange's Examinations Department of the records of
members for whom the Exchange is the Designated Examining Authority,
and should allow for investigations and possible enforcement action by
the Exchange's Market Surveillance Department in the event of
allegations of violations of the proposed rules.
Finally, Proposed Phlx Rule 606(e)(8) states that the Exchange
assumes no liability to members or member organizations due to
conflicts between telephones in use on the options floor or due to
electronic interference problems resulting from the use of telephones
on the trading floor.
Proposed OFPA F-31 contains the same provisions as proposed Rule
Phlx 606(e) in order to facilitate on-floor reference to the Exchange's
regulations regarding on-floor communications devices. If a violation
of OFPA F-31 is deemed to be minor pursuant to the Exchange's Minor
Rule Plan,\10\ a fine schedule, implemented on a three year running
calendar basis, would be implemented as follows:
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\10\ See Exchange Rule 970.
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1st Occurrence............................ $250.00.
2nd Occurrence............................ $500.00.
3rd Occurrence............................ $1,000.00.
4th and thereafter........................ Sanction is discretionary
with Business Conduct
Committee.
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The three year running calendar would begin on the date of the
first infraction.
2. Statutory Basis
The Exchange believes that the proposed rule change, as amended, is
consistent with section 6(b) of the Act\11\ in general, and furthers
the objectives of section 6(b)(5)\12\ in particular, in that it is
designed 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 regulating communications
to and from the Exchange's options floor.
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\11\ 15 U.S.C. 78f(b).
\12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change, as
amended, 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
The Exchange did not solicit or receive written comments on the
proposed rule change.
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 or such date if it finds such
[[Page 82440]]
longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the Phlx 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, including whether the proposed rule
change, as amended, is consistent with the Act. Persons making written
submission should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. 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 will also be available for inspection and copying at the
principal office of the Phlx. All submissions should refer to the File
No. SR-Phlx-00-48 and should be submitted by January 18, 2001.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-33126 Filed 12-27-00; 8:45 am]
BILLING CODE 8010-01-M