Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change and Amendment No. 1 Thereto Relating to Offers of Settlement, 65950-65953 [E5-6026]
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Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices
disciplinary cases when an uncontested
offer of settlement is made before the
commencement of a hearing on the
merits without the involvement of the
EBCC, while providing for review and
consideration of possible violations. In
particular, the Commission believes that
the involvement of the Department of
Enforcement and General Counsel in
considering and rendering decisions on
uncontested offers of settlement before
the commencement of a hearing on the
merits is appropriate, given the
Respondent’s choice to propose
settlement terms that the Exchange’s
Department of Enforcement considers
acceptable.
Additionally, the proposal allows a
Respondent, after a complaint has been
issued, to submit an offer of settlement
for consideration that is otherwise
opposed on its terms, i.e., contested, by
the Exchange’s Department of
Enforcement. If submitted before a
hearing on the merits, a contested offer
of settlement would be considered by
the EBCC. If a Respondent submits a
contested offer of settlement after a
hearing on the merits has begun, the
offer would be considered by the
Conduct Panel. The Commission
believes that this process is reasonably
designed to allow Respondents to have
their contested offers of settlement
considered by the EBCC or the Conduct
Panel when the offer would otherwise
be opposed by the Exchange’s
Department of Enforcement. In addition,
the Commission believes that this
process balances the Exchange’s
interests in achieving efficient
resolutions of disciplinary matters with
its members’ interests in having a
process through which they can submit
contested offers of settlement for
consideration by the EBCC or the
Conduct Panel. The Commission notes
that under current PCX Rule 10, all
offers of settlement are considered by
the EBCC.
In particular, the Commission notes
that contested offers of settlement
submitted after the issuance of a
complaint but before the
commencement of a hearing on the
merits would be considered by the
EBCC, and contested offers of settlement
submitted after the issuance of a
complaint and after the commencement
of a hearing on the merits would be
considered by the Conduct Panel. The
Commission believes that this
procedure provides a fair process by
which the Exchange’s members may
take their contested offers of settlement
before the EBCC or Conduct Panel, both
of which are comprised primarily of the
OTP Holders or allied persons of OTP
Firms.
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Moreover, the proposed rule change
sets forth in detail provisions relating to
the content and signature requirements
for offers of settlement, as well as
waivers of certain rights upon
submission of an offer of settlement.
Additionally, the proposal provides for
quarterly review by the EBCC and the
Board Appeals Committee of final
disciplinary actions in order to provide
the Department of Enforcement and
General Counsel with guidance on
future settlement practices and
settlement amounts. The Commission
believes that this provision is
reasonably designed to provide for
EBCC and Board input, albeit on a
prospective basis only, on the
Exchange’s disciplinary program,
thereby providing a mechanism for the
Board to comply with the self-regulatory
organization’s responsibility to maintain
an adequate and effective disciplinary
system.
The Commission finds good cause for
approving this proposal before the
thirtieth day after the publication of
notice thereof in the Federal Register.
Accelerating approval of the proposal
will allow the Exchange to implement,
without undue delay, a more efficient
process for reviewing and deciding
upon offers of settlement, while
maintaining OTP Holder and OTP Firm
involvement in the settlement process.
In addition, the Commission notes that
the NASD has a substantially similar
rule with respect to offers of settlement.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,23 that the
proposed rule change, as amended (SR–
PCX–2005–75), is hereby approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.24
Jonathan G. Katz,
Secretary.
[FR Doc. 05–21716 Filed 10–31–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52676; File No. SR–PCX–
2005–76]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Order Granting Accelerated Approval
to a Proposed Rule Change and
Amendment No. 1 Thereto Relating to
Offers of Settlement
October 25, 2005.
Pursuant to section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (‘‘Act’’)
and Rule 19b–4 2 thereunder, notice is
hereby given that on June 13, 2005, the
Pacific Exchange, Inc. (‘‘PCX’’ 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 Exchange. On September 21,
2005, PCX submitted Amendment No. 1
to the proposed rule change.3 The
Commission is publishing this notice
and order to solicit comments on the
proposed rule change, as amended, from
interested persons and simultaneously
is approving the proposal, as amended,
on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
PCX is proposing to amend PCX
Equities, Inc. (‘‘PCXE’’) Rule 10.6
pertaining to offers of settlement. The
text of the proposed rule change, as
amended, is available on PCX’s Web site
(https://www.pacificex.com), at the PCX’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of 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 III below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
1 15
23 15
U.S.C. 78s(b)(2).
24 17 CFR 200.30–3(a)(12).
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U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Amendment No. 1.
2 17
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Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange states that the purpose
of the proposed rule change is to revise
the procedures for offers of settlement
submitted in Exchange enforcement
actions against Equity Trading Permit
(‘‘ETP’’) Holders in order to make the
disciplinary process more efficient and
effective while maintaining appropriate
ETP Holder involvement in the
oversight of the settlement process.
Currently, all offers of settlement,
whether contested or uncontested by the
Exchange’s Department of Enforcement,
are considered by the Business Conduct
Committee (‘‘BCC’’) for acceptance or
rejection. If an offer of settlement is
accepted by the BCC, the BCC issues a
decision, and the Respondent 4 cannot
seek review of the decision. BCC
decisions are then submitted to the PCX
Board of Directors (the ‘‘Board’’) in
order to provide the Board with an
opportunity to accept or reject the offer
of settlement. This process is subject to
the delays occurring between the time
when the BCC accepts an offer of
settlement and the time when the Board
subsequently reviews the accepted offer
of settlement. Consequently, the
imposition of disciplinary measures
intended to prevent misconduct and
maintain the integrity of the
marketplace are also delayed.
Under the proposed rule change, an
offer of settlement would be
‘‘uncontested’’ when a Respondent
makes an offer and the Department of
Enforcement does not oppose it.5 In
cases of uncontested offers of settlement
made before a complaint has been
issued, the General Counsel of the
Exchange would have the authority to
accept or reject the offers and
decisions.6 Similarly, in cases of
uncontested offers of settlement made
after a complaint has been issued but
before the hearing on the merits, the
General Counsel of the Exchange would
have the authority to accept or reject the
4 See
PCXE Rule 10.4 (defining ‘‘Respondent’’).
proposed PCXE Rule 10(e)(1). The
Commission notes that the Exchange’s Department
of Enforcement would transmit the Respondent’s
uncontested offer of settlement, along with a
proposed decision, to either the Exchange’s General
Counsel or the Conduct Panel, as appropriate.
6 See proposed PCXE Rule 10(e)(2). When a
Respondent submits an offer of settlement, the
Department of Enforcement drafts a decision
accepting the offer and submits both documents to
the appropriate body. See Letter from Alden
Adkins, Chief Regulatory Officer, PCX, to Katherine
A. England, Assistant Director, Division of Market
Regulation, Commission, dated October 6, 2005.
5 See
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offers and decisions.7 Finally, in cases
of uncontested offers of settlement made
after a hearing on the merits has begun,
the Conduct Panel for the hearing would
have the authority to accept or reject
offers and decisions.8
Any offer of settlement opposed by
the Department of Enforcement would
be ‘‘contested.’’ 9 Under the proposal,
Respondents would not be permitted to
submit contested offers of settlement for
consideration by the BCC or the
Conduct Panel before a complaint has
been issued.10 In cases of contested
offers of settlement made after a
complaint has been issued but before a
hearing on the merits has begun, the
BCC would have the authority to accept
or reject the offers and decisions,11
which is consistent with current PCXE
practices. In cases of contested offers of
settlement made after a hearing on the
merits has begun, the Conduct Panel
would have the authority to accept or
reject the offers and decisions.12 Any
offer of settlement submitted by a
Respondent to the Conduct Panel after
a hearing on the merits has begun would
not stay the proceedings, unless the
Conduct Panel decides to stay the
proceedings.13
All offers of settlement would become
final upon acceptance by the General
Counsel of the Exchange, the BCC, or
the Conduct Panel, as appropriate, and
thus Board approval of offers of
settlement would no longer be required.
Under the proposal, the Board and the
BCC would review on a quarterly basis
all offers of settlement after-the-fact to
provide guidance and feedback to the
Department of Enforcement and the
General Counsel of the Exchange
concerning appropriate settlement
practices and amounts.14
In addition, the proposed rule change
sets forth certain requirements with
which offers of settlement must
comply.15 These requirements include
that the offer be in writing and signed
by the person making the offer, and that
the offer set forth certain details stating
the statutory provisions or rules alleged
to have been violated, the acts or
7 See
proposed PCXE Rule 10(e)(3).
8 See proposed PCXE Rule 10(e)(4).
9 See proposed PCXE Rule 10(f)(1). The
Commission notes that the Exchange’s Department
of Enforcement would transmit the Respondent’s
contested offer of settlement, along with a proposed
decision, to either the BCC or the Conduct Panel,
as appropriate.
10 See proposed PCXE Rule 10(f)(2).
11 See proposed PCXE Rule 10(f)(3).
12 See proposed PCXE Rule 10(f)(4).
13 See proposed PCXE Rule 10(a)(2).
14 See proposed PCXE Rule 10(k). Neither the
Board’s nor the BCC’s action will affect any issued
decisions.
15 See proposed PCXE Rule 10(c).
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65951
practices that the ETP Holder is alleged
to have engaged in or omitted, findings
of fact, proposed sanctions, and the
effective date of such proposed
sanctions.
Finally, the proposed rule change sets
forth certain rights that a Respondent
waives upon submission of an offer of
settlement to the PCX. In particular, a
Respondent waives his right to: (1)
Claim bias or prejudgment by certain
individuals; (2) appeal before PCX
committees, the Commission, and
Federal, State, and local courts; and (3)
claim violations of the ex parte
prohibitions of PCXE Rule 10.3.16 The
Exchange believes that waiver of such
rights is appropriate in light of the
proposed rule’s intent, which is to
create a more efficient and effective
disciplinary process.17
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
section 6(b) of the Act 18 in general, and
furthers the objectives of section 6(b)(5)
of the Act 19 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities,
and to remove impediments to and
perfect the mechanism of a free and
open market and a national market
system.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will 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 on the proposed
rule change 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:
16 See
proposed PCXE Rule 10(d).
(j) of the proposed rule change
provides that a Respondent shall not be prejudiced
by an offer of settlement that is rejected.
18 15 U.S.C. 78f(b).
19 15 U.S.C. 78f(b)(5).
17 Paragraph
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Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices
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–PCX–2005–76 on the
subject line.
an exchange provide a fair procedure for
the discipline of its members and
persons associated with its members.
The Commission also believes that the
proposal is reasonably designed to
provide a more efficient disciplinary
process to address violations of the
Exchange’s rules and the federal
securities laws by the Exchange’s
Paper Comments
members.
Under the Exchange’s proposal, a
• Send paper comments in triplicate
Respondent may propose an
to Jonathan G. Katz, Secretary,
uncontested offer of settlement to the
Securities and Exchange Commission,
Exchange’s Department of Enforcement
100 F Street, NE., Washington, DC
in response to the initiation of a
20549–9303. All submissions should
disciplinary inquiry by the Department
refer to File Number SR–PCX–2005–76.
22
This file number should be included on of Enforcement. If the Respondent
submits an uncontested offer of
the subject line if e-mail is used. To help
settlement before a hearing on the
the Commission process and review
merits has begun, then the Department
your comments more efficiently, please
of Enforcement would transmit the
use only one method. The Commission
uncontested offer, along with a
will post all comments on the
proposed decision, to the Exchange’s
Commission’s Internet Web site (https://
www.sec.gov/rules/sro.shtml). Copies of General Counsel for consideration.
Specifically, if a Respondent submits an
the submission, all subsequent
uncontested offer of settlement before
amendments, all written statements
the issuance of a complaint, and the
with respect to the proposed rule
General Counsel accepts it, then the
change that are filed with the
Department of Enforcement would issue
Commission, and all written
the decision and notify the parties. If a
communications relating to the
Respondent submits an uncontested
proposed rule change between the
offer of settlement after the Department
Commission and any person, other than
of Enforcement has already issued a
those that may be withheld from the
complaint, and the General Counsel
public in accordance with the
accepts it, then the General Counsel
provisions of 5 U.S.C. 552, will be
would issue the decision and notify the
available for inspection and copying in
parties. Finally, if the Respondent
the Commission’s Public Reference
submits an uncontested offer of
Room. Copies of the filing also will be
settlement after a hearing on the merits
available for inspection and copying at
has begun, then the Department of
the principal office of the PCX. All
Enforcement would transmit the
comments received will be posted
uncontested offer, along with a
without change; the Commission does
proposed decision, to the Conduct Panel
not edit personal identifying
for consideration. If the Conduct Panel
information from submissions. You
accepts the decision, then the General
should submit only information that
Counsel would issue the decision and
you wish to make available publicly. All notify the parties.
submissions should refer to File
The Commission believes that the
Number SR–PCX–2005–76 and should
involvement of the Exchange’s General
be submitted on or before November 22, Counsel in considering uncontested
2005.
offers of settlement submitted before a
hearing on the merits has begun should
IV. Commission’s Findings and Order
be an appropriate safeguard and
Granting Accelerated Approval of
provides for an appropriate separation
Proposed Rule Change
of functions at the Exchange. Further,
The Commission finds that the
the Commission believes that the
proposed rule change, as amended, is
proposal is reasonably designed to
consistent with the requirements of the
advance the interests of the Exchange’s
Act and the rules and regulations
Department of Enforcement in
thereunder applicable to a national
efficiently and expeditiously resolving
20 Specifically, the
securities exchange.
disciplinary cases when an uncontested
Commission believes that the proposal
offer of settlement is made before the
is consistent with section 6(b)(7) of the
Act,21 which requires that the rules of
22 The Exchange represents that it contacts a
20 In
approving this proposed rule change, as
amended, the Commission has considered its
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
21 15 U.S.C. 78f(b)(7).
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Respondent before any complaint is issued, such
that the Respondent would be in a position to
ascertain whether the terms of any contemplated
offer of settlement would be ‘‘uncontested’’ or
‘‘contested’’ by the Exchange’s Department of
Enforcement.
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commencement of a hearing on the
merits without the involvement of the
BCC, while providing for review and
consideration of possible violations. In
particular, the Commission believes that
the involvement of the Department of
Enforcement and General Counsel in
considering and rendering decisions on
uncontested offers of settlement before
the commencement of a hearing on the
merits is appropriate, given the
Respondent’s choice to propose
settlement terms that the Exchange’s
Department of Enforcement considers
acceptable.
Additionally, the proposal allows a
Respondent, after a complaint has been
issued, to submit an offer of settlement
for consideration that is otherwise
opposed on its terms, i.e., contested, by
the Exchange’s Department of
Enforcement. If submitted before a
hearing on the merits, a contested offer
of settlement would be considered by
the BCC. If a Respondent submits a
contested offer of settlement after a
hearing on the merits has begun, the
offer would be considered by the
Conduct Panel. The Commission
believes that this process is reasonably
designed to allow Respondents to have
their contested offers of settlement
considered by the BCC or the Conduct
Panel when the offer would otherwise
be opposed by the Exchange’s
Department of Enforcement. In addition,
the Commission believes that this
process balances the Exchange’s
interests in achieving efficient
resolutions of disciplinary matters with
its members’ interests in having a
process through which they can submit
contested offers of settlement for
consideration by the BCC or the
Conduct Panel. The Commission notes
that under current PCXE Rule 10, all
offers of settlement are considered by
the BCC.
In particular, the Commission notes
that contested offers of settlement
submitted after the issuance of a
complaint but before the
commencement of a hearing on the
merits would be considered by the BCC,
and contested offers of settlement
submitted after the issuance of a
complaint and after the commencement
of a hearing on the merits would be
considered by the Conduct Panel. The
Commission believes that this
procedure provides a fair process by
which the Exchange’s members may
take their contested offers of settlement
before the BCC or Conduct Panel.23
23 Pursuant to PCXE Rule 3.2(b)(1)(A), the BCC
shall be composed of, in addition to any members
of the public, a minimum of one ETP Holder or
allied person of an ETP Holder.
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Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices
Moreover, the proposed rule change
sets forth in detail provisions relating to
the content and signature requirements
for offers of settlement, as well as
waivers of certain rights upon
submission of an offer of settlement.
Additionally, the proposal provides for
quarterly review by the BCC and the
Board Appeals Committee of final
disciplinary actions in order to provide
the Department of Enforcement and
General Counsel with guidance on
future settlement practices and
settlement amounts. The Commission
believes that this provision is
reasonably designed to provide for BCC
and Board input, albeit on a prospective
basis only, on the Exchange’s
disciplinary program, thereby providing
a mechanism for the Board to comply
with the self-regulatory organization’s
responsibility to maintain an adequate
and effective disciplinary system.
The Commission finds good cause for
approving this proposal before the
thirtieth day after the publication of
notice thereof in the Federal Register.
Accelerating approval of the proposal
will allow the Exchange to implement,
without undue delay, a more efficient
process for reviewing and deciding
upon offers of settlement, while
maintaining ETP Holder involvement in
the settlement process. In addition, the
Commission notes that the NASD has a
substantially similar rule with respect to
offers of settlement.
V. Conclusion
It is therefore ordered, pursuant to
section 19(b)(2) of the Act,24 that the
proposed rule change, as amended (SR–
PCX–2005–76), is hereby approved on
an accelerated basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.25
Jonathan G. Katz,
Secretary.
[FR Doc. E5–6026 Filed 10–31–05; 8:45 am]
BILLING CODE 8010–01–P
24 15
25 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52667; File No. SR-Phlx2005–25]
Self-Regulatory Organizations;
Philadelphia Stock Exchange, Inc.;
Order Granting Approval to a
Proposed Rule Change and
Amendments No. 2, 3, and 5 Thereto
Relating to the Adoption of New Rules
That Would Establish an Automated
Opening System on the Exchange
October 25, 2005.
I. Introduction
On April 21, 2005, the Philadelphia
Stock Exchange, Inc. (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1, and Rule 19b–4 2
thereunder, a proposed rule change that
would establish an automated opening
system on the Exchange. The Exchange
submitted Amendments No. 1,3 2,4 and
3 5 to its proposal on June 1, 2005,
September 1, 2005, and September 14,
2005, respectively. The proposed rule
change, as amended, was published for
comment in the Federal Register on
September 22, 2005.6 No comments
were received on the proposal. The Phlx
submitted Amendment No. 4 7 on
September 23, 2005, and Amendment
No. 5 8 on September 26, 2005. This
order approves the proposed rule
change, as amended.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Form 19b–4, dated June 1, 2005
(‘‘Amendment No. 1’’). Amendment No. 1 replaced
the original filing in its entirety.
4 See Form 19b–4, dated September 1, 2005
(‘‘Amendment No. 2’’). Amendment No. 2 replaced
Amendment No. 1 in its entirety.
5 See Form 19b–4, dated September 14, 2005
(‘‘Amendment No. 3’’). In Amendment No. 3, Phlx,
in part, deleted proposed rule text to clarify that
during a manual opening all market orders are to
be executed at one price.
6 See Securities Exchange Act Release No. 52448
(September 15, 2005), 70 FR 55650.
7 See Form 19b–4, dated September 23, 2005. The
Exchange subsequently submitted Amendment No.
5, which was intended to supercede and replace
Amendment No. 4. As a result, the Exchange
withdrew Amendment No. 4 on October 19, 2005.
See Form 19b–4, dated October 19, 2005.
8 See Form 19b–4, dated September 26, 2005. In
Amendment No. 5, the Exchange made technical
changes to accurately reflect the differences
between proposed rule language and current rule
text, as well as made technical changes to better
conform Exhibits 4 and 5 to each other. The Act
does not require notice and comment for technical
amendments.
2 17
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65953
II. Description of the Proposed Rule
Change
In July 2004, the Exchange began
trading options on its new electronic
options trading platform, Phlx XL.9
Because Phlx XL does not currently
include an automated opening
functionality, specialists are currently
required to open option series manually.
The proposed rule change would
establish a fully automated opening
system for options traded on Phlx XL as
part of the Phlx XL system.
Pre-Opening
For a period of time before the
scheduled opening in the underlying
security (and not less than one hour as
determined by the Options Committee
with notice to the membership via
Exchange circular), Phlx XL will accept
orders and quotes during the ‘‘PreOpening Phase.’’ The Phlx XL system
will disseminate to specialists,
Streaming Quote Traders (‘‘SQTs’’),
Remote Streaming Quote Traders
(‘‘RSQTs’’), and non-SQT ROTs who are
required to submit continuous twosided electronic quotations pursuant to
Exchange Rule 1014(b)(ii)(E) 10
(collectively, for purposes of proposed
Phlx Rule 1017, ‘‘Phlx XL participants’’)
information about resting orders on the
book that remain from the previous
trading session and orders submitted
prior to the opening.
Calculation of Opening Price
The system will calculate an
Anticipated Opening Price (‘‘AOP’’) and
Anticipated Opening Size (‘‘AOS’’)
when a quote or trade has been
disseminated by the primary market for
the underlying security, under the
conditions set forth below. The
specialist assigned in the particular
option must enter opening quotes not
later than one minute following the
dissemination of a quote or trade by the
primary market for the underlying
security.
An AOP may be calculated only if: (i)
The Exchange has received market
orders, or the book is crossed (highest
bid is higher than the lowest offer) or
locked (highest bid equals the lowest
offer); and (ii) either (A) the specialist’s
9 See Securities Exchange Act Release No. 50100
(July 27, 2004), 69 FR 44612 (August 3, 2004) (SR–
Phlx–2003–59).
10 Exchange Rule 1014(b)(ii)(E) requires non-SQT
ROTs who transact more than 20% of their contract
volume in an option electronically versus in open
outcry during a particular calendar quarter to
submit proprietary electronic quotations in such an
option during the subsequent calendar quarter for
a certain number of series in such option,
depending on the percent of total volume transacted
electronically versus in open outcry on the
Exchange in such option.
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]]>Agencies
[Federal Register Volume 70, Number 210 (Tuesday, November 1, 2005)]
[Notices]
[Pages 65950-65953]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6026]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52676; File No. SR-PCX-2005-76]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval to a Proposed Rule
Change and Amendment No. 1 Thereto Relating to Offers of Settlement
October 25, 2005.
Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 \2\ thereunder, notice is hereby given
that on June 13, 2005, the Pacific Exchange, Inc. (``PCX'' 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 Exchange. On September
21, 2005, PCX submitted Amendment No. 1 to the proposed rule change.\3\
The Commission is publishing this notice and order to solicit comments
on the proposed rule change, as amended, from interested persons and
simultaneously is approving the proposal, as amended, on an accelerated
basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Amendment No. 1.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
PCX is proposing to amend PCX Equities, Inc. (``PCXE'') Rule 10.6
pertaining to offers of settlement. The text of the proposed rule
change, as amended, is available on PCX's Web site (https://
www.pacificex.com), at the PCX's principal office, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of 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 III below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
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A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange states that the purpose of the proposed rule change is
to revise the procedures for offers of settlement submitted in Exchange
enforcement actions against Equity Trading Permit (``ETP'') Holders in
order to make the disciplinary process more efficient and effective
while maintaining appropriate ETP Holder involvement in the oversight
of the settlement process.
Currently, all offers of settlement, whether contested or
uncontested by the Exchange's Department of Enforcement, are considered
by the Business Conduct Committee (``BCC'') for acceptance or
rejection. If an offer of settlement is accepted by the BCC, the BCC
issues a decision, and the Respondent \4\ cannot seek review of the
decision. BCC decisions are then submitted to the PCX Board of
Directors (the ``Board'') in order to provide the Board with an
opportunity to accept or reject the offer of settlement. This process
is subject to the delays occurring between the time when the BCC
accepts an offer of settlement and the time when the Board subsequently
reviews the accepted offer of settlement. Consequently, the imposition
of disciplinary measures intended to prevent misconduct and maintain
the integrity of the marketplace are also delayed.
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\4\ See PCXE Rule 10.4 (defining ``Respondent'').
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Under the proposed rule change, an offer of settlement would be
``uncontested'' when a Respondent makes an offer and the Department of
Enforcement does not oppose it.\5\ In cases of uncontested offers of
settlement made before a complaint has been issued, the General Counsel
of the Exchange would have the authority to accept or reject the offers
and decisions.\6\ Similarly, in cases of uncontested offers of
settlement made after a complaint has been issued but before the
hearing on the merits, the General Counsel of the Exchange would have
the authority to accept or reject the offers and decisions.\7\ Finally,
in cases of uncontested offers of settlement made after a hearing on
the merits has begun, the Conduct Panel for the hearing would have the
authority to accept or reject offers and decisions.\8\
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\5\ See proposed PCXE Rule 10(e)(1). The Commission notes that
the Exchange's Department of Enforcement would transmit the
Respondent's uncontested offer of settlement, along with a proposed
decision, to either the Exchange's General Counsel or the Conduct
Panel, as appropriate.
\6\ See proposed PCXE Rule 10(e)(2). When a Respondent submits
an offer of settlement, the Department of Enforcement drafts a
decision accepting the offer and submits both documents to the
appropriate body. See Letter from Alden Adkins, Chief Regulatory
Officer, PCX, to Katherine A. England, Assistant Director, Division
of Market Regulation, Commission, dated October 6, 2005.
\7\ See proposed PCXE Rule 10(e)(3).
\8\ See proposed PCXE Rule 10(e)(4).
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Any offer of settlement opposed by the Department of Enforcement
would be ``contested.'' \9\ Under the proposal, Respondents would not
be permitted to submit contested offers of settlement for consideration
by the BCC or the Conduct Panel before a complaint has been issued.\10\
In cases of contested offers of settlement made after a complaint has
been issued but before a hearing on the merits has begun, the BCC would
have the authority to accept or reject the offers and decisions,\11\
which is consistent with current PCXE practices. In cases of contested
offers of settlement made after a hearing on the merits has begun, the
Conduct Panel would have the authority to accept or reject the offers
and decisions.\12\ Any offer of settlement submitted by a Respondent to
the Conduct Panel after a hearing on the merits has begun would not
stay the proceedings, unless the Conduct Panel decides to stay the
proceedings.\13\
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\9\ See proposed PCXE Rule 10(f)(1). The Commission notes that
the Exchange's Department of Enforcement would transmit the
Respondent's contested offer of settlement, along with a proposed
decision, to either the BCC or the Conduct Panel, as appropriate.
\10\ See proposed PCXE Rule 10(f)(2).
\11\ See proposed PCXE Rule 10(f)(3).
\12\ See proposed PCXE Rule 10(f)(4).
\13\ See proposed PCXE Rule 10(a)(2).
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All offers of settlement would become final upon acceptance by the
General Counsel of the Exchange, the BCC, or the Conduct Panel, as
appropriate, and thus Board approval of offers of settlement would no
longer be required. Under the proposal, the Board and the BCC would
review on a quarterly basis all offers of settlement after-the-fact to
provide guidance and feedback to the Department of Enforcement and the
General Counsel of the Exchange concerning appropriate settlement
practices and amounts.\14\
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\14\ See proposed PCXE Rule 10(k). Neither the Board's nor the
BCC's action will affect any issued decisions.
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In addition, the proposed rule change sets forth certain
requirements with which offers of settlement must comply.\15\ These
requirements include that the offer be in writing and signed by the
person making the offer, and that the offer set forth certain details
stating the statutory provisions or rules alleged to have been
violated, the acts or practices that the ETP Holder is alleged to have
engaged in or omitted, findings of fact, proposed sanctions, and the
effective date of such proposed sanctions.
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\15\ See proposed PCXE Rule 10(c).
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Finally, the proposed rule change sets forth certain rights that a
Respondent waives upon submission of an offer of settlement to the PCX.
In particular, a Respondent waives his right to: (1) Claim bias or
prejudgment by certain individuals; (2) appeal before PCX committees,
the Commission, and Federal, State, and local courts; and (3) claim
violations of the ex parte prohibitions of PCXE Rule 10.3.\16\ The
Exchange believes that waiver of such rights is appropriate in light of
the proposed rule's intent, which is to create a more efficient and
effective disciplinary process.\17\
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\16\ See proposed PCXE Rule 10(d).
\17\ Paragraph (j) of the proposed rule change provides that a
Respondent shall not be prejudiced by an offer of settlement that is
rejected.
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2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act \18\ in general, and furthers the
objectives of section 6(b)(5) of the Act \19\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, and to remove impediments to and perfect
the mechanism of a free and open market and a national market system.
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\18\ 15 U.S.C. 78f(b).
\19\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
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 on the proposed rule change 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:
[[Page 65952]]
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-PCX-2005-76 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-PCX-2005-76. 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 office of the PCX. All comments
received will be posted 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-PCX-2005-76 and should be
submitted on or before November 22, 2005.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\20\ Specifically, the Commission believes that the proposal
is consistent with section 6(b)(7) of the Act,\21\ which requires that
the rules of an exchange provide a fair procedure for the discipline of
its members and persons associated with its members. The Commission
also believes that the proposal is reasonably designed to provide a
more efficient disciplinary process to address violations of the
Exchange's rules and the federal securities laws by the Exchange's
members.
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\20\ In approving this proposed rule change, as amended, the
Commission has considered its impact on efficiency, competition, and
capital formation. See 15 U.S.C. 78c(f).
\21\ 15 U.S.C. 78f(b)(7).
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Under the Exchange's proposal, a Respondent may propose an
uncontested offer of settlement to the Exchange's Department of
Enforcement in response to the initiation of a disciplinary inquiry by
the Department of Enforcement.\22\ If the Respondent submits an
uncontested offer of settlement before a hearing on the merits has
begun, then the Department of Enforcement would transmit the
uncontested offer, along with a proposed decision, to the Exchange's
General Counsel for consideration. Specifically, if a Respondent
submits an uncontested offer of settlement before the issuance of a
complaint, and the General Counsel accepts it, then the Department of
Enforcement would issue the decision and notify the parties. If a
Respondent submits an uncontested offer of settlement after the
Department of Enforcement has already issued a complaint, and the
General Counsel accepts it, then the General Counsel would issue the
decision and notify the parties. Finally, if the Respondent submits an
uncontested offer of settlement after a hearing on the merits has
begun, then the Department of Enforcement would transmit the
uncontested offer, along with a proposed decision, to the Conduct Panel
for consideration. If the Conduct Panel accepts the decision, then the
General Counsel would issue the decision and notify the parties.
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\22\ The Exchange represents that it contacts a Respondent
before any complaint is issued, such that the Respondent would be in
a position to ascertain whether the terms of any contemplated offer
of settlement would be ``uncontested'' or ``contested'' by the
Exchange's Department of Enforcement.
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The Commission believes that the involvement of the Exchange's
General Counsel in considering uncontested offers of settlement
submitted before a hearing on the merits has begun should be an
appropriate safeguard and provides for an appropriate separation of
functions at the Exchange. Further, the Commission believes that the
proposal is reasonably designed to advance the interests of the
Exchange's Department of Enforcement in efficiently and expeditiously
resolving disciplinary cases when an uncontested offer of settlement is
made before the commencement of a hearing on the merits without the
involvement of the BCC, while providing for review and consideration of
possible violations. In particular, the Commission believes that the
involvement of the Department of Enforcement and General Counsel in
considering and rendering decisions on uncontested offers of settlement
before the commencement of a hearing on the merits is appropriate,
given the Respondent's choice to propose settlement terms that the
Exchange's Department of Enforcement considers acceptable.
Additionally, the proposal allows a Respondent, after a complaint
has been issued, to submit an offer of settlement for consideration
that is otherwise opposed on its terms, i.e., contested, by the
Exchange's Department of Enforcement. If submitted before a hearing on
the merits, a contested offer of settlement would be considered by the
BCC. If a Respondent submits a contested offer of settlement after a
hearing on the merits has begun, the offer would be considered by the
Conduct Panel. The Commission believes that this process is reasonably
designed to allow Respondents to have their contested offers of
settlement considered by the BCC or the Conduct Panel when the offer
would otherwise be opposed by the Exchange's Department of Enforcement.
In addition, the Commission believes that this process balances the
Exchange's interests in achieving efficient resolutions of disciplinary
matters with its members' interests in having a process through which
they can submit contested offers of settlement for consideration by the
BCC or the Conduct Panel. The Commission notes that under current PCXE
Rule 10, all offers of settlement are considered by the BCC.
In particular, the Commission notes that contested offers of
settlement submitted after the issuance of a complaint but before the
commencement of a hearing on the merits would be considered by the BCC,
and contested offers of settlement submitted after the issuance of a
complaint and after the commencement of a hearing on the merits would
be considered by the Conduct Panel. The Commission believes that this
procedure provides a fair process by which the Exchange's members may
take their contested offers of settlement before the BCC or Conduct
Panel.\23\
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\23\ Pursuant to PCXE Rule 3.2(b)(1)(A), the BCC shall be
composed of, in addition to any members of the public, a minimum of
one ETP Holder or allied person of an ETP Holder.
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[[Page 65953]]
Moreover, the proposed rule change sets forth in detail provisions
relating to the content and signature requirements for offers of
settlement, as well as waivers of certain rights upon submission of an
offer of settlement. Additionally, the proposal provides for quarterly
review by the BCC and the Board Appeals Committee of final disciplinary
actions in order to provide the Department of Enforcement and General
Counsel with guidance on future settlement practices and settlement
amounts. The Commission believes that this provision is reasonably
designed to provide for BCC and Board input, albeit on a prospective
basis only, on the Exchange's disciplinary program, thereby providing a
mechanism for the Board to comply with the self-regulatory
organization's responsibility to maintain an adequate and effective
disciplinary system.
The Commission finds good cause for approving this proposal before
the thirtieth day after the publication of notice thereof in the
Federal Register. Accelerating approval of the proposal will allow the
Exchange to implement, without undue delay, a more efficient process
for reviewing and deciding upon offers of settlement, while maintaining
ETP Holder involvement in the settlement process. In addition, the
Commission notes that the NASD has a substantially similar rule with
respect to offers of settlement.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\24\ that the proposed rule change, as amended (SR-PCX-2005-76), is
hereby approved on an accelerated basis.
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\24\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-6026 Filed 10-31-05; 8:45 am]
BILLING CODE 8010-01-P
