UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40506 / September 30, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9361 ______________________________ : In the Matter of : : AMENDED ORDER INSTITUTING WILLIAM N. BRIGGS, : PROCEEDINGS PURSUANT TO : SECTIONS 19(h)(4) AND 21C OF THE : SECURITIES EXCHANGE ACT OF : 1934, MAKING FINDINGS AND Respondent. : IMPOSING REMEDIAL SANCTIONS ______________________________: . On August 11, 1997, the Securities and Exchange Commission ("Commission") issued an Order Instituting Proceedings ("OIP") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against William N. Briggs ("Briggs").[1] The Commission now deems it appropriate and in the public interest to issue an amended OIP against Briggs, pursuant to Sections 19(h)(4) and 21C of the Exchange Act. In anticipation of the issuance of the amended OIP, Briggs has submitted an Offer of Settlement ("Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings contained herein, except for those set forth below in Section II., paragraph 1., which is admitted, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. 201.1 et seq., Briggs, by his Offer, consents to the entry of the findings and the imposition of the sanctions set forth below. Accordingly, IT IS ORDERED that proceedings pursuant to Sections19(h)(4) and 21C be, and hereby are, instituted. II. On the basis of this Amended Order Instituting Public Proceedings Pursuant to Sections 19(h)(4) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions ("Order"), and the Offer submitted by Briggs, the Commission finds that: **FOOTNOTES** [1]: In the Matter of William N. Briggs, AP File No. 3-9361. 1. Respondent William N. Briggs, age 49, resides in Somerdale, New Jersey. Briggs first became employed with the Stock Clearing Corporation of Philadelphia ("SCCP") and the Philadelphia Depository Trust Company ("Philadep") in 1983 when he was named Senior Vice President for Operations. In June 1992, Briggs became SCCP's and Philadep's Chief Financial Officer ("CFO"). In May 1995, Briggs was named the CFO of the Philadelphia Stock Exchange ("PHLX"). Briggs is also a certified public accountant whose certification was on inactive status with New Jersey during the relevant time period. 2. Related Entities The Philadelphia Stock Exchange is a securities exchange and self-regulatory organization responsible for the regulation of the marketplace. The Exchange was officially founded in 1790. SCCP and Philadep are wholly- owned integrated subsidiaries of the PHLX. During the relevant time period, SCCP provided clearing and settlement services to approximately 100 participants. Philadep provided facilities for safekeeping of participants' securities, offered automated dividend accounting, withdrawal by transfer or by certificate, and automated receipt and delivery by book entry. As of July 1996, there were approximately 286,900 issues eligible for deposit at Philadep. Almost seventy-five percent of these were municipal bonds, with the balance made up of equities, corporate bonds, and unit investment trusts. Philadep also received bearer bonds which it maintained at DTC. Stock Clearing Corporation of Philadelphia is a wholly- owned subsidiary of the PHLX. Since 1983, SCCP has been registered with the Commission as a clearing agency pursuant to Section 17A of the Exchange Act. Pursuant to Sections 3(a)(26), 17A(a)(2) and 19 of the Exchange Act, SCCP is a self regulatory organization ("SRO"). SCCP offered a wide range of clearing services, including trade recording, trade comparison, continuous net settlement ("CNS") and trade-for- trade settlement, margin financing, stock borrowing and lending, money settlement, and clearance and settlement with other clearing agencies through the Regional Interface Organization ("RIO"). Philadelphia Depository Trust Company is also a wholly-owned subsidiary of the PHLX. Since 1983, Philadep has been registered with the Commission as a clearing agency pursuant to Section 17A of the Exchange Act. Pursuant to Sections 3(a)(26), 17A(a)(2) and 19 of the Exchange Act, Philadep is an SRO that offered its participants a wide range of depository services, including custodial services, deposit and transfer services, confirmation, affirmation, book-entry settlement, and settlement with other clearing agencies through inter-depository interfaces. 3. Background As SROs, SCCP and Philadep are rule-based organizations that are required to operate by and enforce their own rules and procedures, as approved by the Commission, and the federal securities laws. Pursuant to Section 19(g)(1) of the Exchange Act, both SCCP and Philadep are obligated to comply with the provisions of the Exchange Act, and the rules and regulations thereunder. SCCP and Philadep are also obligated under Section 19(g)(1) to comply with their own rules and to enforce compliance with those rules by their respective participants. Section 19(b) of the Exchange Act sets forth the procedure by which an SRO shall make a proposed rule change. Filings with respect to proposed rule changes by an SRO are to be made on Form 19b-4. Once filed, Form 19b-4 may be amended by an SRO by letter, based upon comments made by Commission staff. Ultimately, a final Form 19b-4 filing is made publicly available and reviewed by the Commission. The final filing forms the basis for a Commission approval order, issued pursuant to Section 19(b)(2). While the approval order does not typically recite all of the conditions and procedures that are set forth in the final filing by the SRO, the order approves the proposed rule change, as described in the final filing, including all of the material procedures and requirements set forth therein. Once approved, the proposed rule change described in a final 19b-4 filing, as amended, is a rule of the SRO within the meaning of Section 3(a)(27) and (28), for the purpose of Section 19(g)(1) of the Exchange Act. In those instances, described below, where SCCP and/or Philadep (i) failed to make a required fee filing with the Commission, (ii) established a new category of participants and a new service, or (iii) filed a proposed rule change that was not accurate, SCCP and/or Philadep violated Section 19(b)(1) of the Exchange Act and Rule 19b-4 thereunder. 4. SCCP's and Philadep's Failure to Safeguard Participants' Funds Both SCCP's and Philadep's Rules 4 require that their respective participants' funds be safeguarded. The Rules provide, in pertinent part: The Participants Fund deposit shall be held by the Corporation and shall be applied as provided in these Rules and as specified in the Procedures . . . The Participants Fund may from time to time be partially or wholly invested by the Corporation for its account in United States government obligations or any other investments which provide safety and liquidity of the principal invested . . . The Participants Fund shall be used for the protection of the Corporation against loss in the performance of its clearance and settlement functions . . . The Corporation shall maintain . . . appropriate liquidity at all times in the Participants Fund to meet short-term emergency needs, by holding cash balances or investments readily convertible to cash . . . . Rules 4, Sections 1 and 2. During the period from February 1996 through June 16, 1996, in order to alleviate the PHLX's short term cash deficits, funds were transferred to the PHLX from a SCCP operating account containing SCCP's and Philadep's participants' funds, general corporate funds and other funds. As SCCP's and Philadep's corporate parent, the PHLX routinely incurred costs on their behalf for which the PHLX would be repaid, generally through wire disbursements from the SCCP operating account. During the above-referenced time period, however, at least eleven wire disbursements were made from the SCCP operating account to the PHLX for amounts in excess of actual costs incurred by the PHLX on SCCP's and Philadep's behalf. The total funds transferred through these eleven disbursements ranged from $650,000 in one month to slightly over $2 million in the highest month. Of these funds, amounts transferred to the PHLX in excess of actual costs incurred ranged, on a monthly basis, from approximately $54,000 to approximately $1.3 million. These monies were routinely paid back to SCCP when the PHLX's short term cash flow permitted such payments. SCCP and Philadep did not safeguard participants' funds. Although funds were routinely disbursed from the SCCP operating account to the PHLX, SCCP did not monitor whether participants' funds were being used to, among other things, alleviate the PHLX's short term cash deficits. Consequently, SCCP and Philadep were unable to determine effectively, at any time during the day, whether participants' funds were used for this purpose. As a result of those matters set forth above, SCCP and Philadep failed to comply with their respective Rules 4, in violation of Section 19(g)(1) of the Exchange Act. In particular, SCCP and Philadep failed to hold and apply the participants' funds as specified under their respective Rules 4, and may have used the participants' funds other than for the protection of SCCP and Philadep against loss in the performance of their clearance and settlement functions. During the period in question (February 1996 through June 1996), Briggs was ultimately responsible for SCCP's and Philadep's cash flow and all accounting issues pertaining to the PHLX, SCCP and Philadep. Briggs served as the CFO of SCCP and Philadep from June 1992 until May 1995, when he was named the CFO for the PHLX. When he ascended to that position, however, the position of CFO for SCCP and Philadep was left vacant. As a result, when Briggs became the PHLX's CFO, he also maintained overall responsibility for SCCP's and Philadep's financial accounting until June 1996, when a new CFO was appointed for SCCP and Philadep. As the individual with overall responsibility for SCCP's and Philadep's financial accounting, Briggs was in a position to ensure that the participants' fund deposits were in fact being applied as required by SCCP's Rule 4. Briggs knew or should have known that the SCCP operating account was a commingled account containing participants' funds. He also knew or should have known that SCCP routinely transferred funds from this account to the PHLX to reimburse the PHLX for costs incurred on behalf of SCCP and Philadep, which practice violated SCCP's Rule 4. Briggs knew or should have known that SCCP and Philadep had no procedures to monitor and guard against the potential use of participants' funds for the PHLX's short term cash deficits. Nonetheless, Briggs failed to implement any such procedures. As a result, Briggs willfully violated SCCP's Rule 4 and was a cause of both SCCP's and Philadep's failure to comply with their respective Rules 4, in violation of Section 19(g)(1) of the Exchange Act. 5. SCCP's Use of Inaccurate Pricing to Determine Mark-to-Market Pursuant to SCCP's Rule 15, all valued positions of participants settling in continuous net settlement ("CNS") must be marked to the market using the "current market price." The Rule requires that: [SCCP] may at any time demand that a clearing member mark to the prevailing market price, any security due [SCCP] from such clearing member of any security due such clearing member from [SCCP]. All valued positions of clearing members settling in CNS will be automatically marked to the market [using] . . . the current market price. During the period from at least early 1991 until April 26, 1996, SCCP failed to use the current market price when marking-to-the-market certain of its participants' valued positions consisting of certain over-the-counter securities. During this time period, with respect to certain securities, SCCP operated its clearance and settlement system with the use of two-day old, rather than current market (during this time period, one-day old) pricing information. As a result, during this period, SCCP did not pay or collect correct mark-to-market payments to/from certain of its participants. As a result, during the period from approximately early 1991 to April 26, 1996, SCCP failed to comply with its Rule 15 by failing to mark-to-market utilizing current market prices for certain securities, in violation of Section 19(g)(1) of the Exchange Act. Briggs was a cause of SCCP's failure to comply with its Rule 15, in violation of Section 19(g)(1) of the Exchange Act. Briggs knew or should have known that in 1991, and again in 1993, the PHLX internal audit department concluded that SCCP was using two-day old pricing information in calculating its settlement with two participants. Briggs also knew or should have known that SCCP developed internal procedures to manage settlement differences with two participants, generated because of SCCP's use of two-day old pricing information. In addition, Briggs knew or should have known that the two-day old pricing information was being used to calculate the mark-to-market payments due to/from participants. From approximately 1991 until approximately March 1995, Briggs was the senior SCCP officer responsible for correcting SCCP's use of two-day old pricing information to calculate mark-to-market payments. 6. SCCP's Application of an Unapproved $75,000 Cap on Participants' Fund Formula Industry conversion to same day funds settlement ("SDFS") occurred on February 22, 1996. SDFS refers to payment in funds that are immediately available and generally are transferred by electronic means. In order to implement SDFS, SCCP and Philadep filed proposed rule changes with the Commission pursuant to Section 19(b) and Rule 19b-4 ("SDFS filings"). SCCP's initial SDFS filing with the Commission proposed a $1 million cap and a $75,000 cap on its two-pronged activity-based participants' fund formula. In December 1995, SCCP received a letter from Market Regulation which discussed the fact that its participants' fund formulas could not be limited by any maximum deposit requirements. On January 24, 1996, SCCP filed an amendment to its SDFS filing stating that it was removing the cap on full service CNS activity. As a result, SCCP's final SDFS filing, which was approved by the Commission on February 22, 1996, did not contain any caps, except for RIO accounts, on participants' fund formula calculations. Nevertheless, SCCP began applying the $75,000 cap on February 22, 1996, the effective date of SCCP's SDFS order. As a result, during the period from approximately February 22, 1996 to the present, SCCP has failed to comply with its own procedures set forth in its final SDFS filing, in violation of Section 19(g)(1) of the Exchange Act. Briggs was a cause of SCCP's failure to comply with its own procedures set forth in its final SDFS filing, in violation of Section 19(g)(1) of the Exchange Act. Briggs developed the participants' fund formula and the caps on it, and was one of those primarily responsible for resolving issues concerning the formula raised by the Commission staff. Despite the January 24, 1996 amendment in which SCCP agreed to remove the cap , Briggs caused SCCP to apply the $75,000 cap on one prong of its participants' fund formula. 7. Philadep's Application of a Volume Discount Fee Without Obtaining Board Approval Pursuant to Philadep Rule 19: "Each Participant shall pay such fees and charges to the Corporation as shall be specified in the Procedures and approved by the Board of Directors . . .." Pursuant to the provisions of Section 19(b) of the Exchange Act, fee changes must be filed with the Commission and become effective upon filing. In or about June 1992, Philadep implemented a volume discount fee charged to a participant that had not been approved by the Philadep Board of Directors or filed with the Commission. This discounted fee was finally approved by the Philadep Board in June 1995 and filed with the Commission in July 1995. As a result, from approximately June 1992 to June 1995, Philadep failed to comply with its Rule 19, in violation of Section 19(g)(1) of the Exchange Act. In addition, when Philadep altered its approved fee schedules by implementing the volume discount, it was required to file a proposed rule change with the Commission. Philadep's failure to do so violated Section 19(b)(1) of the Exchange Act and Rule 19b-4 thereunder. Briggs was a cause of Philadep's failure to comply with its Rule 19, in violation of Section 19(g)(1) of the Exchange Act. Briggs instructed the Philadep billing department to implement the discounted fee knowing that the fee had not been approved by the Philadep Board and filed with the Commission. Briggs knew or should have known that, pursuant to Philadep's Rule 19, such Board approval and Commission filing were required before the fee could be implemented. I. In his Offer, Briggs has acknowledged that if he fails to comply with the undertakings ordered below, the Commission has reserved its rights to enforce this Order against him or to rescind its acceptance of Briggs' Offer and institute appropriate proceedings against him. For the purpose of any such proceedings, Briggs has waived any defenses based upon a statute of limitations resulting from the lapse of time between the date of this Order and the institution of any such proceedings. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in the Offer submitted by Briggs. Accordingly, IT IS ORDERED, pursuant to Sections 19(h)(4) and 21C of the Exchange Act, that Briggs: 1. is censured; and 2. is ordered to comply with the following undertaking: for a period of two years from the date of the Order, Briggs shall not act as chief financial officer within the PHLX complex[2] or its successor(s); and shall not be employed by the PHLX complex or its successor(s) in any position unless he is subject to the direct supervision of an officer of the PHLX complex or its successor(s), who possesses the requisite expertise to provide meaningful supervision over all tasks delegated to Briggs. By the Commission. Jonathan G. Katz Secretary **FOOTNOTES** [2]: For the purpose of this Order, "the PHLX complex" shall be defined to include the PHLX, SCCP, Philadep or any other PHLX subsidiary currently in existence or which may be created at some future date.