On August 18, 2000, 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”)  and Rule 19b-4 thereunder. The Exchange proposed amendments to its rules concerning appeals from decisions in disciplinary proceedings. The proposed rule change was published for comment in the Federal Register on October 13, 2000. The Commission received no comments on the proposal. This order approves the proposed rule change.
I. Description of the Proposal
The Exchange proposes to amend the text of Phlx Rule 960.9 to incorporate specific procedures for appeals from decisions rendered in disciplinary Start Printed Page 71193proceedings by the Exchange's Business Conduct Committee pursuant to Phlx Rules 960.6(c) and 960.8. Currently, decisions made in disciplinary proceedings are appealed in accordance with Phlx By-Law Article XI. The procedures set forth in the Phlx's By-Laws, however, were not strictly formulated for disciplinary matters, and, as a result, are often silent on unique issues that apply to disciplinary matters. To ensure that appeals in disciplinary proceedings are accomplished in a consistent and orderly manner, the Exchange expanded the procedures in Phlx Rule 960.9 into four categories: (a) Petition by Respondent; (b) Conduct of Review; (c) Review on Motion by Board of Governors; and (d) Petition by Enforcement Staff.
The proposed amendment to paragraph (a) of Phlx Rule 960.9 is intended to provide time guidelines for requesting an appeal. The Respondent's petition for appeal must be in writing and filed with the Secretary of the Exchange within 10 days after service of notice and a copy of the decision of the Business Conduct Committee. The petition must specify the findings and conclusions that are the subject of the petition, along with the reasons the Respondent is petitioning for review. Exchange Enforcement Staff will have 15 days to file a written response. The Respondent may then file a reply within 15 days after service of the Enforcement Staff's response.
Paragraph (b) of the proposed rule, “Conduct of Review,” provides that the review shall be conducted by the Exchange's Board of Governors (“Board”), or an Advisory Committee made up of three Governors, with at least one being a non-industry Governor appointed by the Chairman of the Board. No Governor who was a member of the hearing panel below may participate in the hearing on review. Unless the Board of Governors or Advisory Committee hearing the review allows oral argument, the review will be based solely on the record below. If an Advisory Committee hears the review, it must submit a written report to the Board.
Sub-paragraphs (b)(ii) and (iii) of the proposed rule set forth the standard of review for the Board or Advisory Committee. The decision of the Business Conduct Committee can be affirmed, reversed or modified, in whole or in part. A modification may include an increase or decrease of the sanction. However, neither the Board nor the Advisory Committee may reverse or modify the findings, conclusions, and decision of the Business Conduct Committee if the factual conclusions in the decision are supported by substantial evidence, and such decision is not arbitrary, capricious or an abuse of discretion.
In paragraph (c), the proposed rule change includes procedures for a review by the Board of Governors on its own initiative. The review would follow the procedure set forth in paragraph (b) of the proposed rule. Together, these provisions are intended to establish a standard and process of review.
Finally, paragraph (d) of the proposed rule sets forth the procedures by which the Exchange's Enforcement staff may petition the Board for permission to appeal. The petition must specify the findings and conclusions that are the subject of the petition, along with the reasons the staff is petitioning for review. If the Board grants permission, the Exchange's Enforcement staff must serve a copy of the petition on the Respondent within 5 days. The respondent then has 15 days to file a written response with the Board, and the staff would have 15 days to file a reply.
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, with the requirements of Sections 6(b)(6) and 6(b)(7). Section 6(b)(6) requires that members and persons associated with members be appropriately disciplined for violation of any provision of the Act, the rules and regulations thereunder, or the rules of the Exchange. Section 6(b)(7) of the Act requires, among other things, that the rules of the Exchange provide a fair procedure for the disciplining of members and persons associated with the members.
Currently, the Phlx does not have detailed procedures for appeals from decisions in summary and regular disciplinary proceedings. The Commission believes that the proposed procedures in Phlx Rule 960.9 could provide for a more appropriate and fair disciplinary procedure. For example, paragraphs (b) and (c) of revised Rule 960.9 set forth a standard of review the Board of Governors or the Advisory Committee must follow in deciding whether to affirm, reverse or modify the decision of the Business Conduct Committee. The Commission believes that explicit standards will help ensure that decisions in disciplinary proceedings are not rendered arbitrarily.
The Commission also believes that the clear time guidelines set forth in paragraphs (a), (c), and (d) enhance the fairness of the disciplinary procedure. Currently, Phlx Rule 960.9 only dictates the time a respondent has to file an appeal. Under the proposal, the expanded procedures in Rule 960.0 layout the timetable for responses and replies to be filed. Thus, respondents and the Exchange's Enforcement staff will not be subjected to unnecessary delays. The Commission believes this is a more fair procedure because it brings a measure of finality to disciplinary proceedings.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-PHLX-00-52) is approved.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
3. Securities Exchange Act Release No. 43415 (October 4, 2000), 65 FR 61014 (File No. SR-PHLX-00-52).Back to Citation
4. Review of appeals initiated by the Exchange's Enforcement staff will be conducted in accordance with the procedure set forth in paragraph (b) of the proposed rule. Telephone conversation between Charles Falgie, Director of Enforcement, Phlx, and Anitra Cassas, Special Counsel, Division of Market Regulation, Commission, on October 3, 2000.Back to Citation
[FR Doc. 00-30382 Filed 11-28-00; 8:45 am]
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