Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Retroactive Amendment of Exchange Rule 640(a) Pertaining to the Continuing Education Regulatory Element Requirement, 35756-35759 [E5-3191]
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35756
Federal Register / Vol. 70, No. 118 / Tuesday, June 21, 2005 / Notices
member’s net income without any
reserve against net capital. OCC believes
that the exemption in Rule 15c3–1(a)(6)
gives those clearing members added
leverage enabling them to expand
positions to several times their net
capital.
In order to provide an adjustment
period for those clearing members that
may be affected by IP .01, IP .01 will not
take effect until July 27, 2005, for firms
that are clearing members at the time
when it becomes effective.
III. Discussion
Section 17A(b)(3)(F) of the Act
requires, among other things, that the
rules of a clearing agency be designed to
assure the safeguarding of securities and
funds which are in its custody or
control or for which it is responsible.5
The proposed rule change imposes a
more stringent net capital requirement
than is currently in OCC’s rules for the
purpose of assuring that OCC has
collected sufficient capital from its
members in relation to such members’
clearance and settlement activity. The
Commission is satisfied with OCC’s
explanation that for purposes of OCC’s
minimum net capital requirement those
members that qualify for the exemption
in Rule 15c3–1(a)(6) should be required
to deduct the risk based haircuts in Rule
15c3–1(c)(2)(vi) and Appendix A under
Rule 15c3–1. This more conservative
approach to minimum net capital
requirements should better enable OCC
to protect itself and its members from
the potential losses associated with
insolvency situations. Accordingly, the
Commission finds that the proposed
rule change is designed to assure the
safeguarding of securities and funds
which are in OCC’s custody or control
or for which OCC is responsible.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and in
particular Section 17A of the Act and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (File No. SR–
OCC–2004–17) be and hereby is
approved.
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.6
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–3195 Filed 6–20–05; 8:45 am]
BILLING CODE 8010–01–P
5 15
6 17
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51816; File No. SR–Phlx–
2005–23]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting
Accelerated Approval of Proposed
Rule Change and Amendment No. 1
Thereto Relating to the Retroactive
Amendment of Exchange Rule 640(a)
Pertaining to the Continuing Education
Regulatory Element Requirement
June 9, 2005.
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 April 15,
2005 the Philadelphia Stock Exchange,
Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’ or ‘‘SEC’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by Phlx. On May 10,
2005, the Exchange filed Amendment
No. 1 to the proposed rule change to
make the effective date of the proposed
rule change April 4, 2005. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended from interested
persons, and is approving the proposed
rule change, as amended, on an
accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Phlx proposes to amend Phlx
Rule 640(a) to eliminate all exemptions
from the requirement to complete the
Regulatory Element of the Continuing
Education Program. Below is the text of
the proposed rule change. Proposed new
language is in italics. Proposed
deletions are in [brackets].
Continuing Education for Registered
Persons
Rule 640. (a) Regulatory Element [—]
(1) Requirements—No member or
participant organization shall permit
any registered person to continue to,
and no registered person shall continue
to, perform duties as a registered person,
unless such person has complied with
the continuing education requirements
of paragraph (a) of this Rule.
Each registered person shall complete
the Regulatory Element of the
continuing education program on the
occurrence of their second registration
U.S.C. 78q–1(b)(3)(F).
CFR 200.30–3(a)(12).
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22:07 Jun 20, 2005
1 15
2 17
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PO 00000
U.S.C. 78s(b)(1).
CFR 240.19b–4.
Frm 00142
Fmt 4703
Sfmt 4703
anniversary date(s), and every three
years thereafter or as otherwise
prescribed by the Exchange. On each
occasion[s], the Regulatory Element
must be completed within 120 days
after the person’s registration
anniversary date. A person’s initial
registration date, also known as the
‘‘base date,’’ shall establish the cycle of
anniversary dates for purposes of this
Rule. The content of the Regulatory
Element of the program shall be
determined by the Exchange for each
registration category of persons subject
to the rule.
[(1) Persons who have been
continuously registered for more than
ten years as of the effective date of this
Rule are exempt from the requirements
of this rule relative to participation in
the Regulatory Element of the
continuing education program, provided
such persons have not been subject to
any disciplinary action within the last
ten years as enumerated in
subparagraph (a)(3)(i) and (ii) of this
Rule. However, persons delegated
supervisory responsibility or authority
pursuant to PHLX Rule 748 and
registered in such supervisory capacity
are exempt from participation in the
Regulatory Element under this provision
only if they have been continuously
registered in a supervisory capacity for
more than ten years as of the effective
date of this rule and provided such
supervisory person has not been subject
to any disciplinary action under
paragraphs (a)(3)(i) and (ii) of this Rule.]
[In the event that a registered person
who is exempt from participation in the
Regulatory Element subsequently
becomes the subject of a disciplinary
action as enumerated in subsection
(a)(3)(i) and (ii), such person shall be
required to satisfy the requirements of
the Regulatory Element as if the date the
disciplinary action becomes final is the
person’s initial registration anniversary
date.]
(2) No change.
(3) Disciplinary Actions [Re-entry into
program]—Unless otherwise determined
by the Exchange, a registered person
will be required to re-take [re-enter] the
Regulatory Element of the program and
satisfy the program’s requirements in
their entirety in the event such person:
(i) Becomes subject to any statutory
disqualification as defined in Section
3(a)(39) of the Securities Exchange Act
of 1934;
(ii) Becomes subject to suspension or
to the imposition of a fine of $5,000 or
more for violation of any provision of
any securities law or regulation, or any
agreement with or rule or standard of
conduct of any securities governmental
agency, securities self-regulatory
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Federal Register / Vol. 70, No. 118 / Tuesday, June 21, 2005 / Notices
organization, or as imposed by any such
regulatory or self-regulatory
organization in connection with a
disciplinary proceeding; or
(iii) Is ordered as a sanction in a
disciplinary action to re-take [re-enter]
the Regulatory Element [continuing
education program] by any securities
governmental agency or securities selfregulatory organization.
The retaking of the Regulatory
Element [Re-entry] shall commence
with [initial] participation within 120
days of the registered person becoming
subject to the statutory disqualification,
in the case of (i) above, or the
disciplinary action becoming final, in
the case of (ii) or (iii) above. The date
that the disciplinary action becomes
final will be deemed the person’s new
base date [of initial registration
anniversary date] for purposes of this
Rule.
(4) No change.
(b) No change.
Commentary
.01 No change.
.02 No change.
.03 Any registered person who has
terminated association with a registered
broker or dealer and who has, within
two years of the date of termination,
become reassociated in a registered
capacity with a registered broker or
dealer shall participate in the
Regulatory Element at such intervals
that may apply (second registration
anniversary and every three years
thereafter) based on the initial
registration also known as the ‘‘base
date’’, anniversary date, rather than
based on the date of reassociation in a
registered capacity.
Any former registered person who
becomes reassociated in a registered
capacity with a registered broker or
dealer more than two years after
termination as such will be required to
satisfy the program’s requirements in
their entirety, (second registration
anniversary and every three years
thereafter) based on the most recent
registration date.
.04 No change.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Phlx included statements concerning
the purpose of, and basis for the
proposed rule change, as amended and
discussed any comments it had received
on the proposed rule change as
amended. The text of these statements
may be examined at the places specified
in Item III below. Phlx has prepared
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22:07 Jun 20, 2005
Jkt 205001
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
1. Purpose
The Phlx represents that the purpose
of the proposed rule change is to
eliminate all exemptions from the
Continuing Education Regulatory
Element Program for registered
representatives and, as such, to make
Phlx Rule 640(a) consistent with
applicable rules of other self-regulatory
organizations (‘‘SROs’’).3
Currently, Phlx Rule 640(a) sets forth
the rules governing the requirements for
registered representatives to participate
in the Continuing Education Regulatory
Element Program (the ‘‘Regulatory
Element’’).4 The Regulatory Element is a
computer-based education program
administered by the National
Association of Securities Dealers
(‘‘NASD’’) to help ensure that registered
persons are kept up-to-date on
regulatory, compliance, and sales
practice matters in the industry.5 Unless
exempt, each registered person is
required to complete the Regulatory
Element initially within 120 days after
the person’s second registration
anniversary date and, thereafter, within
120 days after every third registration
anniversary date.6 There are three
3 See Securities Exchange Act Release Nos. 50404
(September 16, 2004), 69 FR 57126 (September 23,
2004); 50456 (September 27, 2004), 69 FR 59285
(October 4, 2004); 50557 (October 18 2004), 69 FR
62311 (October 25, 2004); and 50651 (November 10,
2004) 69 FR 67374 (November 17, 2004).
4 The Continuing Education Program also has a
‘‘Firm Element.’’ See Phlx Rule 640(b). The Firm
Element of the Continuing Education Program
applies to any person registered with an NASD
member firm who has direct contact with customers
in the conduct of the member’s securities sales,
trading and investment banking activities, any
person registered as a research analyst pursuant to
NASD Rule 1050, and to the immediate supervisors
of such persons (collectively called ‘‘covered
registered persons’’). The requirement stipulates
that each member firm must maintain a continuing
and current education program for its covered
registered persons to enhance their securities
knowledge, skill and professionalism. Each firm has
the requirement to annually conduct a training
needs analysis, develop a written training plan, and
implement the plan.
5 Phlx Rule 640(a)(4) permits a member firm to
deliver the Regulatory Element to registered persons
on firm premises (‘‘In-Firm Delivery’’) as an
alternative to having persons take the training at a
designated center provided that firms comply with
specific requirements relating to supervision,
delivery site(s), technology, administration, and
proctoring. In addition, Phlx Rule 640(a)(4)(E)(iii)
requires that persons serving as proctors for the
purposes of In-Firm Delivery must be registered.
6 This is the current Regulatory Element schedule,
as amended in 1998.
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35757
Regulatory Element programs: the S201
Supervisor Program for registered
principals and supervisors, the S106
Series 6 Program for Series 6
representatives, and the S101 General
Program for Series 7 and all other
registrations.
According to the NASD,
approximately 135,000 registered
persons are exempt from the Regulatory
Element. These include registered
persons who, when the Continuing
Education Program was adopted in
1995, had been registered for at least ten
years and who did not have a significant
disciplinary action 7 in their CRD record
for the previous ten years (so-called
‘‘grandfathered’’ persons). These also
include those persons who had
‘‘graduated’’ from the Regulatory
Element by satisfying their tenth
anniversary requirement before July
1998, when Phlx Rule 640 was amended
and the graduation provision
eliminated, and who did not have a
significant disciplinary action in their
CRD record for the previous ten years.8
At its December 2003 meeting, the
Securities Industry/Regulatory Council
on Continuing Education (‘‘Council’’) 9
discussed the current exemptions from
the Regulatory Element and agreed
unanimously to recommend that the
SROs repeal the exemptions and require
all registered persons to participate in
the Regulatory Element. In reaching this
conclusion, the Council was of the view
that there is great value in exposing all
industry participants to the benefits of
the Regulatory Element, in part because
of the significant regulatory issues that
7 For purposes of Phlx Rule 640(a), a significant
disciplinary action generally means a statutory
disqualification, a suspension or imposition of a
fine of $5,000 or more, or being subject to an order
from a securities regulator to re-take the Regulatory
Element. See Phlx Rule 640(a)(3).
8 When Phlx Rule 640 was first adopted in 1995,
the Regulatory Element required registered persons
to satisfy the Regulatory Element on the second,
fifth, and tenth anniversary of their initial securities
registration. After satisfying the tenth anniversary
requirement, a person was ‘‘graduated’’ from the
Regulatory Element. A graduated principal reentered the Regulatory Element if he or she
incurred a significant disciplinary action. A
graduated person who was not a principal reentered if he or she acquired a principal registration
or incurred a significant disciplinary action.
9 As of the date of this filing, the Council consists
of 17 individuals, six representing SROs, and 11
representing the industry. The Council was
organized in 1995 to facilitate cooperative industry/
regulatory coordination of the Continuing
Education Program in keeping with applicable
industry regulations and changing industry needs.
Its roles include recommending and helping to
develop specific content and questions for the
Regulatory Element, defining minimum core
curricula for the Firm Element, developing and
updating information about the program for
industry-wide dissemination, and maintaining the
program on a revenue-neutral basis while assuring
adequate financial reserves.
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Federal Register / Vol. 70, No. 118 / Tuesday, June 21, 2005 / Notices
have emerged over the past few years.
The Regulatory Element programs
include teaching and training content
that is continuously updated to address
current regulatory concerns as well as
new products and trading strategies.
Exempt persons currently do not have
the benefit of this material.
In addition, the Council introduced a
new content module to the Regulatory
Element programs that specifically
addresses ethics and requires
participants to recognize ethical issues
in given situations. Participants are
required to make decisions in the
context of, for example, peer pressure,
the temptation to rationalize, or a lack
of clear-cut guidance from existing rules
or regulations. The Council strongly
believes that all registered persons,
regardless of their years of experience in
the industry, should have the benefit of
this training.
Consistent with the Council’s
recommendation, the proposed rule
change to Phlx Rule 640(a) would
eliminate the current Regulatory
Element exemptions. The other SRO
members of the Council also supported
eliminating the exemptions and are
pursuing amendments to their
respective rules.
Phlx will announce the April 4, 2005
effective date of the proposed rule
change in a notice to membership to be
published upon approval of the
proposed rule change by the
Commission.10 Following approval of
the proposed rule change,
implementation will be based on the
application of the existing requirements
of the Regulatory Element (Phlx Rule
640(a)(1)) to all registered persons. The
way in which CRD applies these
requirements is as follows. CRD
establishes a ‘‘base date’’ for each
registered person and calculates
anniversaries from that date. Usually,
the base date is the person’s initial
securities registration. However, the
base date may be revised to be the
effective date of a significant
disciplinary action in accordance with
Phlx Rule 640(a)(3) or the date on which
a formerly registered person re-qualifies
for association with an NASD member
by qualification exam. Using the base
date, CRD creates a Regulatory Element
requirement on the second anniversary
of the base date and then every three
years thereafter. Beginning on or after
the effective date of the proposed rule
change, registered persons formerly
exempt from the Regulatory Element
10 Telephone conversation between Edith H.
Hallahan, Senior Vice President and Deputy
General Counsel and Mia C. Zur, Attorney, Division
of Market Regulation, Commission (June 7, 2005).
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22:07 Jun 20, 2005
Jkt 205001
requirement must satisfy such
requirement on the occurrence of a
Regulatory Element base date
anniversary (i.e., the second anniversary
of the base date and every three years
thereafter). (see examples in the Table
below)
Registered
person
A
B
C
D
Initial registration date
11 4/4/85
...............
...............
...............
...............
7/1/83
8/1/84
4/3/85
First regulatory
element requirement of a
registered person formerly
exempt from
the regulatory
element (assuming an effective date of
April 4, 2005)
4/4/05
7/1/06
8/1/07
4/3/08
In addition, the proposed rule
amendment would replace references in
Phlx Rule 640(a)(3) to ‘‘re-entry’’ in the
Regulatory Element with a requirement
to ‘‘re-take’’ the Regulatory Element to
clarify that the significant disciplinary
action provisions apply to all registered
persons and not only to currently
exempt persons. A person’s base date
may also be revised to be the date on
which a formerly registered person requalifies for association with a member
or member firm.
2. Statutory Basis
The Exchange believes the proposed
rule change is consistent with the
provisions of Section 6(c) of the Act,12
in general and furthers the objectives of
Section 6(c)(3)(B) of the Act,13 in
particular, since under that section, it is
the Exchange’s responsibility to
prescribe standards of training,
experience and competence for persons
associated with Exchange members and
member organizations.
Additionally, under Section 6(c)(3)(B)
of the Act,14 the Exchange may bar a
natural person from becoming a member
or person associated with a member, if
such natural person does not meet such
standards of training, experience and
competence as are prescribed by the
rules of the Exchange. Pursuant to this
statutory obligation, the Exchange is
rescinding all currently effective
exemptions from required participation
11 A registered person with an initial registration
date of April 4, 1985 will have a Regulatory
Element anniversary date on April 4 of 1987, 1990,
1993, 1996, 1999, 2002 and 2005.
12 15 U.S.C. 78f(c).
13 15 U.S.C. 78f(c)(3)(B).
14 Id.
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Fmt 4703
Sfmt 4703
in the Regulatory Element programs, as
prescribed by Phlx Rule 640(a).
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Phlx believes that the proposed rule
change, as amended, does not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. 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. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Phlx–2005–23 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR-Phlx-2005-23. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 the filing also will be
available for inspection and copying at
the principal offices of Phlx. All
comments received will be posted
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Federal Register / Vol. 70, No. 118 / Tuesday, June 21, 2005 / Notices
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Phlx–2005–23 and should
be submitted on or before July 12, 2005.
IV. Commission’s Finding and Order
Granting Accelerated Approval of
Proposed Rule Change
The Commission find good cause
pursuant to Section 19(b)(2) of the Act 15
for approving the proposed rule change
and Amendment No. 1 prior to the
thirtieth day after publication in the
Federal Register. The Commission finds
that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to Phlx and, in
particular, the requirements of Section
6(c)(3)(B) and the rules and regulations
thereunder.16 After review the
Commission finds that the proposed
rule change is consistent with the
requirements of Section 6(c)(3)(B) of the
Act17 because under this section the
Exchange must prescribe standards of
training, experience and competence for
persons associated with Exchange
members and member organizations.18
Specifically, the Commission believes
that the proposed rule change should
help to ensure that all registered persons
are kept up-to-date on regulatory,
compliance, and sales practice-related
industry issues. The Commission also
believes that the proposed rule change,
as amended, will reinforce the
importance of compliance with just and
equitable principles of trade by
exposing all registered industry
participants to the full benefits of the
Regulatory Element programs, which
include a new Regulatory Element
module that focuses specifically on
ethics.
The Commission further believes that
accelerating the approval of the
proposed rule change and allowing for
retroactive effectiveness of the
Exchange’s proposed rule change to
April 4, 2005 is necessary to make Phlx
rules consistent with respect to
elimination of exemptions from the
continuing education requirement and
to have a consistent implementation
date.19
15 15
16 15
U.S.C. 78s(b)(2).
U.S.C. 78f(b)(3)(B).
17 Id.
18 In approving this proposed rule change, as
amended, the Commission notes that it has
considered the proposed rule’s impact on
efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
19 See infra, note 6.
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22:07 Jun 20, 2005
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Based on the above, the Commission
believes that there is good cause,
consistent with Section 19(b)(2) of the
Act 20 to approve the proposal, as
amended, on an accelerated basis.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,21 that the
proposed rule change (SR–Phlx–2005–
23) is hereby approved on an
accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.22
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–3191 Filed 6–20–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51820; File No. SR–Phlx–
2005–28]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change and Amendment No. 1 Thereto
Relating to Split Price Priority
June 10, 2005.
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 April 28,
2005, 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 and II, below, which Items have
been prepared by the Phlx. On May 23,
2005, the Exchange amended the
proposed rule change (‘‘Amendment No.
1’’).3 The Exchange filed the proposal
pursuant to Section 19(b)(3)(A) of the
Act,4 and Rule 19b–4(f)(6) thereunder,5
which renders the proposal effective
upon filing with the Commission.6 The
Commission is publishing this notice to
U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
22 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 In Amendment No. 1, the Exchange made a few
technical corrections to the purpose section and the
rule text of the proposed rule change and marked
the box on the cover page of Form 19b–4 to indicate
that the proposed rule change is subject to a pilot
program.
4 15 U.S.C. 78s(b)(3)(A).
5 17 CFR 240.19b–4(f)(6).
6 The Exchange requested the Commission to
waive the five-day pre-filing notice requirement and
the 30-day operative delay, as specified in Rule
19b–4(f)(6)(iii). 17 CFR 240.19b–4(f)(6)(iii).
PO 00000
20 15
21 15
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35759
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Phlx proposes to adopt new Phlx
Rule 1014(g)(i)(C) governing purchase or
sale priority for orders of 100 option
contracts or more. The proposed rule
would afford priority to members that
purchase (sell) fifty or more contracts at
a particular price at the next lower
(higher) price in purchasing (selling) the
equivalent number of contracts in the
same series. Such priority would only
apply to orders that represent the same
transaction or order as the previous
purchase (sale), and would only apply
to transactions in equity options and
options overlying Exchange Traded
Fund Shares (‘‘ETFs’’) that are effected
in open outcry. The proposal is subject
to a pilot program until December 31,
2005.
The text of the proposed rule change,
as amended, is set forth below.
Proposed new language is in italics.
*
*
*
*
*
Obligations and Restrictions Applicable
to Specialists and Registered Options
Traders
Rule 1014. (a)–(f) No change.
(g) Equity Option and Index Option
Priority and Parity
(i) (A)–(B) No change.
(C) Purchase or sale priority for orders
of 100 contracts or more. If a member
purchases (sells) 50 or more option
contracts of a particular series at a
particular price or prices, he shall, at
the next lower (higher) price have
priority in purchasing (selling) up to the
equivalent number of option contracts
of the same series that he purchased
(sold) at the higher (lower) price or
prices, but only if his bid (offer) is made
promptly and the purchase (sale) so
effected represents the opposite side of
a transaction with the same order or
offer (bid) as the earlier purchase or
purchases (sale or sales). The Options
Committee may increase the ‘‘minimum
qualifying order size’’ above 100
contracts for all products under its
jurisdiction. Announcements regarding
changes to the minimum qualifying
order size shall be made via an
Exchange circular. This paragraph shall
only apply to transactions in equity
options and options overlying Exchange
Traded Fund Shares (‘‘ETFs’’) and only
to such transactions that are effected in
open outcry.
(ii)–(vii) No change.
(h) No change.
Commentary: .01–.18 No change.
E:\FR\FM\21JNN1.SGM
21JNN1
]]>Agencies
[Federal Register Volume 70, Number 118 (Tuesday, June 21, 2005)]
[Notices]
[Pages 35756-35759]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3191]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51816; File No. SR-Phlx-2005-23]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing and Order Granting Accelerated Approval of Proposed
Rule Change and Amendment No. 1 Thereto Relating to the Retroactive
Amendment of Exchange Rule 640(a) Pertaining to the Continuing
Education Regulatory Element Requirement
June 9, 2005.
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 April 15, 2005 the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by Phlx. On May
10, 2005, the Exchange filed Amendment No. 1 to the proposed rule
change to make the effective date of the proposed rule change April 4,
2005. The Commission is publishing this notice to solicit comments on
the proposed rule change, as amended from interested persons, and is
approving the proposed rule change, as amended, on an accelerated
basis.
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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 Phlx proposes to amend Phlx Rule 640(a) to eliminate all
exemptions from the requirement to complete the Regulatory Element of
the Continuing Education Program. Below is the text of the proposed
rule change. Proposed new language is in italics. Proposed deletions
are in [brackets].
Continuing Education for Registered Persons
Rule 640. (a) Regulatory Element [--]
(1) Requirements--No member or participant organization shall
permit any registered person to continue to, and no registered person
shall continue to, perform duties as a registered person, unless such
person has complied with the continuing education requirements of
paragraph (a) of this Rule.
Each registered person shall complete the Regulatory Element of the
continuing education program on the occurrence of their second
registration anniversary date(s), and every three years thereafter or
as otherwise prescribed by the Exchange. On each occasion[s], the
Regulatory Element must be completed within 120 days after the person's
registration anniversary date. A person's initial registration date,
also known as the ``base date,'' shall establish the cycle of
anniversary dates for purposes of this Rule. The content of the
Regulatory Element of the program shall be determined by the Exchange
for each registration category of persons subject to the rule.
[(1) Persons who have been continuously registered for more than
ten years as of the effective date of this Rule are exempt from the
requirements of this rule relative to participation in the Regulatory
Element of the continuing education program, provided such persons have
not been subject to any disciplinary action within the last ten years
as enumerated in subparagraph (a)(3)(i) and (ii) of this Rule. However,
persons delegated supervisory responsibility or authority pursuant to
PHLX Rule 748 and registered in such supervisory capacity are exempt
from participation in the Regulatory Element under this provision only
if they have been continuously registered in a supervisory capacity for
more than ten years as of the effective date of this rule and provided
such supervisory person has not been subject to any disciplinary action
under paragraphs (a)(3)(i) and (ii) of this Rule.]
[In the event that a registered person who is exempt from
participation in the Regulatory Element subsequently becomes the
subject of a disciplinary action as enumerated in subsection (a)(3)(i)
and (ii), such person shall be required to satisfy the requirements of
the Regulatory Element as if the date the disciplinary action becomes
final is the person's initial registration anniversary date.]
(2) No change.
(3) Disciplinary Actions [Re-entry into program]--Unless otherwise
determined by the Exchange, a registered person will be required to re-
take [re-enter] the Regulatory Element of the program and satisfy the
program's requirements in their entirety in the event such person:
(i) Becomes subject to any statutory disqualification as defined in
Section 3(a)(39) of the Securities Exchange Act of 1934;
(ii) Becomes subject to suspension or to the imposition of a fine
of $5,000 or more for violation of any provision of any securities law
or regulation, or any agreement with or rule or standard of conduct of
any securities governmental agency, securities self-regulatory
[[Page 35757]]
organization, or as imposed by any such regulatory or self-regulatory
organization in connection with a disciplinary proceeding; or
(iii) Is ordered as a sanction in a disciplinary action to re-take
[re-enter] the Regulatory Element [continuing education program] by any
securities governmental agency or securities self-regulatory
organization.
The retaking of the Regulatory Element [Re-entry] shall commence
with [initial] participation within 120 days of the registered person
becoming subject to the statutory disqualification, in the case of (i)
above, or the disciplinary action becoming final, in the case of (ii)
or (iii) above. The date that the disciplinary action becomes final
will be deemed the person's new base date [of initial registration
anniversary date] for purposes of this Rule.
(4) No change.
(b) No change.
Commentary
.01 No change.
.02 No change.
.03 Any registered person who has terminated association with a
registered broker or dealer and who has, within two years of the date
of termination, become reassociated in a registered capacity with a
registered broker or dealer shall participate in the Regulatory Element
at such intervals that may apply (second registration anniversary and
every three years thereafter) based on the initial registration also
known as the ``base date'', anniversary date, rather than based on the
date of reassociation in a registered capacity.
Any former registered person who becomes reassociated in a
registered capacity with a registered broker or dealer more than two
years after termination as such will be required to satisfy the
program's requirements in their entirety, (second registration
anniversary and every three years thereafter) based on the most recent
registration date.
.04 No change.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, Phlx included statements
concerning the purpose of, and basis for the proposed rule change, as
amended and discussed any comments it had received on the proposed rule
change as amended. The text of these statements may be examined at the
places specified in Item III below. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Phlx represents that the purpose of the proposed rule change is
to eliminate all exemptions from the Continuing Education Regulatory
Element Program for registered representatives and, as such, to make
Phlx Rule 640(a) consistent with applicable rules of other self-
regulatory organizations (``SROs'').\3\
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\3\ See Securities Exchange Act Release Nos. 50404 (September
16, 2004), 69 FR 57126 (September 23, 2004); 50456 (September 27,
2004), 69 FR 59285 (October 4, 2004); 50557 (October 18 2004), 69 FR
62311 (October 25, 2004); and 50651 (November 10, 2004) 69 FR 67374
(November 17, 2004).
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Currently, Phlx Rule 640(a) sets forth the rules governing the
requirements for registered representatives to participate in the
Continuing Education Regulatory Element Program (the ``Regulatory
Element'').\4\ The Regulatory Element is a computer-based education
program administered by the National Association of Securities Dealers
(``NASD'') to help ensure that registered persons are kept up-to-date
on regulatory, compliance, and sales practice matters in the
industry.\5\ Unless exempt, each registered person is required to
complete the Regulatory Element initially within 120 days after the
person's second registration anniversary date and, thereafter, within
120 days after every third registration anniversary date.\6\ There are
three Regulatory Element programs: the S201 Supervisor Program for
registered principals and supervisors, the S106 Series 6 Program for
Series 6 representatives, and the S101 General Program for Series 7 and
all other registrations.
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\4\ The Continuing Education Program also has a ``Firm
Element.'' See Phlx Rule 640(b). The Firm Element of the Continuing
Education Program applies to any person registered with an NASD
member firm who has direct contact with customers in the conduct of
the member's securities sales, trading and investment banking
activities, any person registered as a research analyst pursuant to
NASD Rule 1050, and to the immediate supervisors of such persons
(collectively called ``covered registered persons''). The
requirement stipulates that each member firm must maintain a
continuing and current education program for its covered registered
persons to enhance their securities knowledge, skill and
professionalism. Each firm has the requirement to annually conduct a
training needs analysis, develop a written training plan, and
implement the plan.
\5\ Phlx Rule 640(a)(4) permits a member firm to deliver the
Regulatory Element to registered persons on firm premises (``In-Firm
Delivery'') as an alternative to having persons take the training at
a designated center provided that firms comply with specific
requirements relating to supervision, delivery site(s), technology,
administration, and proctoring. In addition, Phlx Rule
640(a)(4)(E)(iii) requires that persons serving as proctors for the
purposes of In-Firm Delivery must be registered.
\6\ This is the current Regulatory Element schedule, as amended
in 1998.
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According to the NASD, approximately 135,000 registered persons are
exempt from the Regulatory Element. These include registered persons
who, when the Continuing Education Program was adopted in 1995, had
been registered for at least ten years and who did not have a
significant disciplinary action \7\ in their CRD record for the
previous ten years (so-called ``grandfathered'' persons). These also
include those persons who had ``graduated'' from the Regulatory Element
by satisfying their tenth anniversary requirement before July 1998,
when Phlx Rule 640 was amended and the graduation provision eliminated,
and who did not have a significant disciplinary action in their CRD
record for the previous ten years.\8\
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\7\ For purposes of Phlx Rule 640(a), a significant disciplinary
action generally means a statutory disqualification, a suspension or
imposition of a fine of $5,000 or more, or being subject to an order
from a securities regulator to re-take the Regulatory Element. See
Phlx Rule 640(a)(3).
\8\ When Phlx Rule 640 was first adopted in 1995, the Regulatory
Element required registered persons to satisfy the Regulatory
Element on the second, fifth, and tenth anniversary of their initial
securities registration. After satisfying the tenth anniversary
requirement, a person was ``graduated'' from the Regulatory Element.
A graduated principal re-entered the Regulatory Element if he or she
incurred a significant disciplinary action. A graduated person who
was not a principal re-entered if he or she acquired a principal
registration or incurred a significant disciplinary action.
---------------------------------------------------------------------------
At its December 2003 meeting, the Securities Industry/Regulatory
Council on Continuing Education (``Council'') \9\ discussed the current
exemptions from the Regulatory Element and agreed unanimously to
recommend that the SROs repeal the exemptions and require all
registered persons to participate in the Regulatory Element. In
reaching this conclusion, the Council was of the view that there is
great value in exposing all industry participants to the benefits of
the Regulatory Element, in part because of the significant regulatory
issues that
[[Page 35758]]
have emerged over the past few years. The Regulatory Element programs
include teaching and training content that is continuously updated to
address current regulatory concerns as well as new products and trading
strategies. Exempt persons currently do not have the benefit of this
material.
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\9\ As of the date of this filing, the Council consists of 17
individuals, six representing SROs, and 11 representing the
industry. The Council was organized in 1995 to facilitate
cooperative industry/regulatory coordination of the Continuing
Education Program in keeping with applicable industry regulations
and changing industry needs. Its roles include recommending and
helping to develop specific content and questions for the Regulatory
Element, defining minimum core curricula for the Firm Element,
developing and updating information about the program for industry-
wide dissemination, and maintaining the program on a revenue-neutral
basis while assuring adequate financial reserves.
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In addition, the Council introduced a new content module to the
Regulatory Element programs that specifically addresses ethics and
requires participants to recognize ethical issues in given situations.
Participants are required to make decisions in the context of, for
example, peer pressure, the temptation to rationalize, or a lack of
clear-cut guidance from existing rules or regulations. The Council
strongly believes that all registered persons, regardless of their
years of experience in the industry, should have the benefit of this
training.
Consistent with the Council's recommendation, the proposed rule
change to Phlx Rule 640(a) would eliminate the current Regulatory
Element exemptions. The other SRO members of the Council also supported
eliminating the exemptions and are pursuing amendments to their
respective rules.
Phlx will announce the April 4, 2005 effective date of the proposed
rule change in a notice to membership to be published upon approval of
the proposed rule change by the Commission.\10\ Following approval of
the proposed rule change, implementation will be based on the
application of the existing requirements of the Regulatory Element
(Phlx Rule 640(a)(1)) to all registered persons. The way in which CRD
applies these requirements is as follows. CRD establishes a ``base
date'' for each registered person and calculates anniversaries from
that date. Usually, the base date is the person's initial securities
registration. However, the base date may be revised to be the effective
date of a significant disciplinary action in accordance with Phlx Rule
640(a)(3) or the date on which a formerly registered person re-
qualifies for association with an NASD member by qualification exam.
Using the base date, CRD creates a Regulatory Element requirement on
the second anniversary of the base date and then every three years
thereafter. Beginning on or after the effective date of the proposed
rule change, registered persons formerly exempt from the Regulatory
Element requirement must satisfy such requirement on the occurrence of
a Regulatory Element base date anniversary (i.e., the second
anniversary of the base date and every three years thereafter). (see
examples in the Table below)
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\10\ Telephone conversation between Edith H. Hallahan, Senior
Vice President and Deputy General Counsel and Mia C. Zur, Attorney,
Division of Market Regulation, Commission (June 7, 2005).
------------------------------------------------------------------------
First
regulatory
element
requirement of
a registered
person
Initial formerly
Registered person registration exempt from
date the regulatory
element
(assuming an
effective date
of April 4,
2005)
------------------------------------------------------------------------
A....................................... \11\ 4/4/85 4/4/05
B....................................... 7/1/83 7/1/06
C....................................... 8/1/84 8/1/07
D....................................... 4/3/85 4/3/08
------------------------------------------------------------------------
In addition, the proposed rule amendment would replace references
in Phlx Rule 640(a)(3) to ``re-entry'' in the Regulatory Element with a
requirement to ``re-take'' the Regulatory Element to clarify that the
significant disciplinary action provisions apply to all registered
persons and not only to currently exempt persons. A person's base date
may also be revised to be the date on which a formerly registered
person re-qualifies for association with a member or member firm.
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\11\ A registered person with an initial registration date of
April 4, 1985 will have a Regulatory Element anniversary date on
April 4 of 1987, 1990, 1993, 1996, 1999, 2002 and 2005.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
the provisions of Section 6(c) of the Act,\12\ in general and furthers
the objectives of Section 6(c)(3)(B) of the Act,\13\ in particular,
since under that section, it is the Exchange's responsibility to
prescribe standards of training, experience and competence for persons
associated with Exchange members and member organizations.
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\12\ 15 U.S.C. 78f(c).
\13\ 15 U.S.C. 78f(c)(3)(B).
---------------------------------------------------------------------------
Additionally, under Section 6(c)(3)(B) of the Act,\14\ the Exchange
may bar a natural person from becoming a member or person associated
with a member, if such natural person does not meet such standards of
training, experience and competence as are prescribed by the rules of
the Exchange. Pursuant to this statutory obligation, the Exchange is
rescinding all currently effective exemptions from required
participation in the Regulatory Element programs, as prescribed by Phlx
Rule 640(a).
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\14\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
Phlx believes that the proposed rule change, as amended, does not
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. 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. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Phlx-2005-23 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-Phlx-2005-23. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). 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 the
filing also will be available for inspection and copying at the
principal offices of Phlx. All comments received will be posted
[[Page 35759]]
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-Phlx-2005-23 and should be submitted on or before July
12, 2005.
IV. Commission's Finding and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission find good cause pursuant to Section 19(b)(2) of the
Act \15\ for approving the proposed rule change and Amendment No. 1
prior to the thirtieth day after publication in the Federal Register.
The Commission finds that the proposed rule change is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to Phlx and, in particular, the requirements of Section
6(c)(3)(B) and the rules and regulations thereunder.\16\ After review
the Commission finds that the proposed rule change is consistent with
the requirements of Section 6(c)(3)(B) of the Act\17\ because under
this section the Exchange must prescribe standards of training,
experience and competence for persons associated with Exchange members
and member organizations.\18\ Specifically, the Commission believes
that the proposed rule change should help to ensure that all registered
persons are kept up-to-date on regulatory, compliance, and sales
practice-related industry issues. The Commission also believes that the
proposed rule change, as amended, will reinforce the importance of
compliance with just and equitable principles of trade by exposing all
registered industry participants to the full benefits of the Regulatory
Element programs, which include a new Regulatory Element module that
focuses specifically on ethics.
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\15\ 15 U.S.C. 78s(b)(2).
\16\ 15 U.S.C. 78f(b)(3)(B).
\17\ Id.
\18\ In approving this proposed rule change, as amended, the
Commission notes that it has considered the proposed rule's impact
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
---------------------------------------------------------------------------
The Commission further believes that accelerating the approval of
the proposed rule change and allowing for retroactive effectiveness of
the Exchange's proposed rule change to April 4, 2005 is necessary to
make Phlx rules consistent with respect to elimination of exemptions
from the continuing education requirement and to have a consistent
implementation date.\19\
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\19\ See infra, note 6.
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Based on the above, the Commission believes that there is good
cause, consistent with Section 19(b)(2) of the Act \20\ to approve the
proposal, as amended, on an accelerated basis.
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\20\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-Phlx-2005-23) is hereby
approved on an accelerated basis.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3191 Filed 6-20-05; 8:45 am]
BILLING CODE 8010-01-P
