Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Philadelphia Stock Exchange, Inc. Relating to Mandatory Trading Floor Training Requirements

[Federal Register Volume 64, Number 172 (Tuesday, September 7, 1999)]
[Notices]
[Pages 48695-48697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23106]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41788; File No. SR-Phlx-99-29]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Philadelphia Stock 
Exchange, Inc. Relating to Mandatory Trading Floor Training 
Requirements

August 25, 1999.
    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 August 5, 1999, 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, II 
and III, below, which Items have been prepared by the Exchange. 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.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Phlx Rule 625, Options Trading Floor 
Training, to include equity floor members.\3\ The proposal will require 
all equity floor members and their respective personnel to complete 
mandatory training related to that employee's function on the trading 
floor. The Exchange proposes to adopt new Equity Floor Procedure 
Advice, F-30, Equity Trading Floor Training, and an accompanying fine 
schedule, such that a minor rule violation enforcement and reporting 
plan (``minor rule plan'') citation could be issued.\4\ The text of 
amended Rule 625 and new Equity Floor Procedure Advice is presented 
below. Deleted text is brackets, and new text in italics.
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    \3\ On March 22, 1999, the Commission approved a similar 
proposal with respect to equity option and index option floor 
members. See Securities Exchange Act Release No. 41201 (March 22, 
1999) 64 FR 15391 (March 31, 1999) (SR-Phlx-99-06).
    \4\ The Phlx's minor rule plan, codified in Phlx Rule 970, 
contains floor procedure advices with accompanying fine schedules. 
Rule 19d-1(c)(2) 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 actions. However, minor rule 
violations not exceeding $2,500 are deemed not final, thereby 
permitting periodic, as opposed to immediate, reporting.
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F-30  EQUITY TRADING FLOOR TRAINING
    All new equity floor members, whether specialists or floor brokers, 
and their respective personnel, shall successfully complete mandatory 
training related to that employee's function on the trading floor. All 
current members and their respective personnel shall be subject to 
continuing mandatory training requirements in order to instruct these 
individuals on changes in existing automated systems or any new 
technology that is utilized by the Exchange.
    Failure to attend the scheduled mandatory training described above 
may result in the issuance of a fine in accordance with the fine 
schedule below.

Fine Schedule (Implemented on a three year running calendar basis)

F-30

1st Occurence  $250.00
2nd Occurence  $350.00
3rd Occurence  $500.00

[[Page 48696]]

4th Occurence  Sanction is discretionary with Business Conduct 
Committee
Rule 625  [Options] Trading Floor Training
    All new equity, equity option and index option floor members, 
whether specialists, floor brokers or Registered Options Traders, and 
their respective personnel, shall successfully complete mandatory 
training related to that employee's function on the trading floor. All 
current members and their respective personnel shall be subject to 
continuing mandatory training requirements in order to instruct these 
individuals on changes in existing automated systems or any new 
technology that is utilized by the Exchange.

II. Self-Regulatory Organization's Statement Regarding the Purpose 
of, and Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange 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 Exchange 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

    The purpose of the proposal is to require all new equity floor 
members, whether specialists or floor brokers, and their respective 
personnel, to attend mandatory training related to that employee's 
function on the trading floor. In addition, all current equity floor 
members and their respective personnel shall be subject to continuing 
training requirements. The Exchange believes that continued training 
requirements are necessary in order to instruct these individuals on 
changes in existing automated systems or new technology that is 
utilized by the Exchange. The Exchange intends to schedule and give 
notice of such training sessions, as it deems appropriate. In this way, 
the proposal should help to ensure that all members are familiar with 
new technology or changes in existing technology.
    Technology advances are ever-changing. To benefit users and remain 
competitive, the Exchange believes it is imperative to implement 
technology improvements and system enhancements. Moreover, these 
improvements and enhancements often provide for more efficient and 
quicker dissemination of information to the markets, thereby allowing 
investors to receive information on a more timely basis. Furthermore, 
technology improvements and system enhancements generally reduce the 
risk of clerical error. Therefore, the Exchange believes that mandated 
training will help to ensure that Exchange members and their respective 
personnel are proficient in using new technology, which should help to 
promote a more efficient trading environment.
    Additionally, the mandated training requirement would be 
incorporated as an Equity Floor Procedure Advice, such that a minor 
rule plan citation could be issued.\5\ The minor rule plan will enable 
the Exchange to quickly sanction members for non-compliance.\6\ Under 
Phlx Rule 625, if an Exchange member has not participated in mandatory 
or continuing training requirements, a fine can be issued immediately. 
The Phlx believes the issuance of a fine will help to alleviate 
situations where failure to partcipate in mandatory training is a 
recurring problem, because violations by a member organization will 
result in escalating fines, and, eventually, possible disciplinary 
action by the Exchange's Business Conduct Committee (``BCC''). For 
failure to attend an Exchange mandated training class, the Exchange 
proposes a fine of (i) $250 for a first offense; (ii) $350 for a second 
offense; and (iii) $500 for a third offense. The sanction is 
discretionary with the BCC for a fourth offense. The Exchange believes 
that this type of violation is appropriate for the minor rule plan 
because it is objective and, thus violations are readily subject to 
verification.
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    \5\ The Phlx also proposes to amend its minor rule plan to 
include the new advice.
    \6\ The Fine Schedule allows for a fine to be implemented on a 
three-year running calendar basis. The term ``three-year running 
calendar basis'' means that the Exchange will impose sanctions on a 
three-year running cycle, by which a violation of the training 
requirements which occurs within three years of the first violation 
of the training requiremenets, will be treated as a second 
occurrence, and any subsequent violation within three years of the 
previous violation of the training requirements will be subject to 
the next hgighest sanction specified in the Fine Schedule.
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    For these reasons, the Exchange believes that the proposal is 
consistent with Section 6 of the Act,\7\ in general, and with Section 
6(b)(5),\8\ in particular, in that it is designed to facilitate 
transactions in securities and to promote just and equitable principles 
of trade. Specifically, the Exchange believes that the proposal will 
promote a more efficient trading environment by (i) educating personnel 
regarding the use of improved technology and system enhancements; (ii) 
providing for quicker dissemination of information because the Exchange 
can train personnel as soon as changes are made; and (iii) lessening 
the risk of clerical errors. Moreover, mandatory training for equity 
floor members and their respective personnel is consistent with the 
provisions of Section 6(c)(3)(B) of the Act,\9\ which makes it the 
responsibility of an exchange to prescribe standards of training, 
experience, and competence for persons associated with self-regulatory 
organization members. In addition, the Exchange believes the proposal 
is consistent with the Securities Industry Continuing Education 
Program, which seeks to promote the protection of investors through 
periodic training of securities professionals.
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    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(c)(3)(B).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule 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 solicited or received.

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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from the date on which it 
was filed and the Exchange provided the Commission with written notice 
of its intent to file the proposed rule change at least five business 
days prior to the filing date, it has become effective pursuant to 
Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) \11\ 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate such rule change if 
it appears to the Commission that such action is necessary or 
appropriate in the public

[[Page 48697]]

interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
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 pubic in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, NW, 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-99-29 and should be 
submitted by September 28, 1999.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-23106 Filed 9-3-99; 8:45 am]
BILLING CODE 8010-01-M