[Federal Register Volume 59, Number 18 (Thursday, January 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1674]
[[Page Unknown]]
[Federal Register: January 27, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33490; File No. SR-CHX-93-17]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Amending Its Rules
Relating to Suspension of Registration of Specialists, Odd-Lot Dealers
and Market Makers
January 19, 1994.
I. Introduction
On July 28, 1993, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the suspension of
registration provisions for specialists, odd-lot dealers, and market
makers. On August 19, 1993, the CHX submitted to the Commission
Amendment No. 1 to the proposal.\3\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1991).
\3\See letter from David T. Rusoff, Attorney, Foley & Lardner,
to Cheryl Dunfee, Attorney, Exchange Branch, Division of Market
Regulation, Commission, dated August 18, 1993. Amendment No. 1 made
certain clarifying changes to the proposal.
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The proposed rule change was published for comment in Securities
Exchange Act Release 32888 (September 14, 1993), 58 FR 49341 (September
22, 1993). No comments were received on the proposal. This order
approves the proposal.
II. Description of the Proposal
The CHX proposes to amend four Exchange Rules\4\ thereby making two
primary changes to the rules governing summary suspension of the
registration of specialists, odd-lot dealers and market makers. The
Exchange proposes to add market makers to the list of members who may
have their registration summarily suspended, and it proposes to limit
the authority to summarily suspend the registration of specialists,
odd-lot dealers and market makers to the President of the Exchange.
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\4\The CHX proposes to amend Article XXX, Termination of
Registration, Rule 8; Article XXXI, Termination of Registration,
Rule 14; Article XXXIV, Registration and Application, Rule 13,
Interpretations and Policies .02; and Article XXXIV, Suspension and
Termination, Rule 16.
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Currently, unlike the case of specialists and odd-lot dealers,
there is no authority to summarily suspend the registration of a market
maker. Current Exchange Rules dealing with market maker registration
only provide for the termination or suspension of a market maker
pursuant to Article XVII by the Floor Procedure Committee (or other
committee appointed for the purpose by the Board) upon a finding of
unsatisfactory performance.\5\ The current provisions provide for an
initial meeting with Exchange Officials to encourage and assist the
market maker, and for a hearing prior to the termination of the market
maker's registration.
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\5\The registration of a market maker may be terminated,
pursuant to Article XXXIV Registration and Application, Rule 16,
upon a finding that he violated the Constitution or Rules of the
Exchange or failed adequately to fulfill his responsibilities as a
registered market maker. See also, Article XXXIV, Rule 13,
Interpretations and Policies .02 which provides that the
registration of a market maker may be suspended or terminated by the
Equity Floor Procedure Committee in accordance with the provisions
of Article XVII.
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The Exchange is replacing the current provisions governing the
suspension of market maker registration with new summary procedures for
the termination of market maker registration.\6\ These new summary
procedures provide that whenever it appears to, or is called to the
attention of, the President of the Exchange that a registered market
maker is violating any of the Rules of the Exchange or the federal
securities laws or is conducting market maker business in an unethical
manner, the President shall, without the necessity of previous notice,
suspend the registration of such market maker pending the opportunity
for a prompt hearing on the apparent violation in accordance with
Article XII of the Rules of the Exchange. The procedures further
provide that notwithstanding the opportunity for a hearing, upon
imposition of the summary suspension of registration, the Exchange
shall provide notification thereof to the Commission. The affected
market maker\7\ may immediately file a request with the Commission for
a stay of imposition of the suspension of registration.\8\ The proposed
rule concludes by stating that the Floor Procedure Committee may
suspend or terminate any such registration based upon a finding, after
an opportunity for a hearing, in accordance with Article XVII, that the
market maker has not satisfactorily performed his responsibilities as
defined in the federal securities laws and the rules and policies of
the Exchange.
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\6\In this regard, the Exchange proposes to eliminate the
language in Article XXXIV, Rule 13, Interpretation .02, and Article
XXXIV, Rule 16 and replace it with new summary procedures to be
described in Article XXXIV, Rule 16.
\7\In Amendment No. 1, the CHX replaced ``the affected odd lot
dealer'' with ``the affected market maker.'' See footnote 3.
\8\The proposed rule text provides that this may be done in
accordance with such procedures as the Commission may provide.
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The Exchange states that these changes to the provisions governing
the suspension and termination of market maker registration will serve
to conform the market maker registration suspension and termination
provisions to those of the specialist and odd-lot dealer.
The proposed rule change also changes current Exchange Rules
governing the summary suspension of the registration of specialists and
odd-lot dealers. Currently, the rules allow for summary suspension by
either the Floor Procedure Committee or the President of the Exchange.
Such Rules specify that whenever it shall appear or be called to the
attention of any member of the Committee on Floor Procedure or the
President that a specialist, co-specialist, relief specialist or odd-
lot dealer is violating any of the Rules of the Exchange or the federal
securities laws or is conducting business in an unethical manner, the
member of the Floor Procedure Committee or the President shall, without
the necessity of previous notice, suspend the registration of such
party pending an opportunity for prompt hearing on the apparent
violation in accordance with Article XII of the Rules of the
Exchange.\9\
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\9\Article XXX, Termination of Registration, Rule 8 governs
specialists, co-specialists and relief specialists, and Article
XXXI, Termination of Registration, Rule 14 governs odd-lot dealers.
Both Rule 8 and Rule 14 also provide that, notwithstanding the
opportunity for hearing, upon imposition of the summary suspension
of registration, the Exchange shall provide notification thereof to
the Commission and the affected party may immediately file a request
with the Commission for a stay of imposition of the suspension of
registration in accordance with such procedures as the Commission
may provide. Both Rules 8 and 14 further provide that the Committee
on Specialist Assignment may suspend or terminate any such
registration based upon a finding (after the opportunity for a
hearing in accordance with Article XVII) that the party has not
satisfactorily performed his responsibilities as defined in the
federal securities laws and the rules of the exchange.
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The Exchange is eliminating the language in the suspension of
registration rules governing specialists, co-specialists, relief
specialists and odd-lot dealers which provides that any member of the
Floor Procedure Committee may take action to summarily suspend the
registration of such parties. The amended rule, therefore, permits only
the President of the Exchange to summarily suspend the registration of
specialists, co-specialists, relief specialists and odd-lot dealers.
This corresponds to the new market maker summary suspension provisions
previously discussed. The Exchange believes that due to the serious
nature of summary suspension of registration, this type of authority is
appropriately exercised only by the President of the Exchange.
III. Discussion and Conclusion
The Commission finds the proposed rule change to be consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange, and, in particular, with
the requirements of sections 6(b) (5), (6) and (7) of the Act.\10\
Section 6(b)(5) of the Act, requires inter alia, that, the rules of an
exchange be designed to prevent fraudulent and manipulative acts and
practices and to promote just and equitable principles of trade. The
Commission believes that the addition of market makers to the list of
persons who may have their registration summarily suspended will help
to prevent fraudulent and manipulative acts by allowing the Exchange to
take immediate action against a market maker who is acting unethically
or in violation of Exchange rules or federal securities laws or
regulations.
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\10\15 U.S.C. 78f(b) (5), (6) and (7) (1988).
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Section 6(b)(6) of the Act provides that the rules of the Exchange
should provide that exchange members and persons associated with its
members be appropriately disciplined for violation of the provisions of
the Act or rules and regulations thereunder or the rules of the
exchange by expulsion, suspension, limitation of activities, functions,
and operations, fine, censure, being suspended or barred from being
associated with a member, or any other fitting sanction. The Commission
believes that the summary suspension of market maker registration is an
appropriate disciplinary action in cases where the market maker has
acted unethically, violated Exchange Rules or the federal securities
laws, since specialists and odd-lot dealers are already subject to such
action and there is no reason to distinguish among the three groups. In
addition, recent experience has shown the Exchange that summary
suspension authority is needed for market makers as well as for other
exchange members.
Section 6(b)(7) of the Act provides, inter alia, that the rules of
an exchange must provide a fair procedure for the disciplining of
members and persons associated with members. The Commission believes
that it is fair to limit the power to summarily suspend member
registration to the Exchange President. The Commission agrees that, due
to the serious nature of summary suspension, it is appropriate to limit
summary suspension ability to a senior Exchange official. The rules
also provide adequate due process to persons summarily suspended by
providing the opportunity for a prompt hearing on the matter and the
ability to appeal any action taken to the Commission.\11\
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\11\See note 8 and accompanying text.
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It is therefore ordered, pursuant to section 19(b)(2)\12\ of the
Act, that the proposed rule change (SR-CHX-93-17) be, and hereby is
approved.
\12\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\17 CFR 200.30-3(a)(12) (1992).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1674 Filed 1-26-94; 8:45 am]
BILLING CODE 8010-01-M
