[Federal Register Volume 59, Number 19 (Friday, January 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1812]
[Federal Register: January 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33501; File No. SR-Amex-93-42]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
American Stock Exchange, Inc. Relating to Disciplinary Rules
January 21, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December
23, 1993, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the self-regulatory organization. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The American Stock Exchange is proposing to amend its disciplinary
rules relating to the retention of disciplinary jurisdiction and the
settlement of disciplinary actions.
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 self-regulatory organization
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 IV below. The self-regulatory organization
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
Retention of disciplinary jurisdiction. Under the Act, the Exchange
is required to investigate possible wrongdoing by persons and entities
subject to its jurisdiction and, if warranted, initiate appropriate
disciplinary action. The Exchange's disciplinary jurisdiction extends
to its members, member organizations, and their registered employees.
Article V, Section 6 of the Exchange Constitution and Rule 341 permit
the Exchange to retain disciplinary jurisdiction even after the
termination of a person's or an entity's status as a member, member
organization, or registered employee, provided that it gives them
written notice that it is retaining jurisdiction within one year
immediately following its receipt of written notice of their
termination.
Member firms are required to file a termination notice with the
Exchange whenever a registered employee leaves their employ. In most
cases, these reflect voluntary resignations. However, member firms are
also required to file amended termination notices, subsequent to the
registered employee's departure, if they become aware of customer
complaints or other possible wrongdoing by the employee. The Exchange
has always taken the position that the one year period to retain
jurisdiction under its rules begins to run only after it is notified by
the member firm of possible violative conduct by the registered
employee. We believe that this is a logical position since the Exchange
would have no reason to retain jurisdiction and initiate an
investigation unless it had reason to believe a violation may have been
committed.
Recently, in an appeal to the SEC, a respondent in an Exchange
disciplinary proceeding asserted that the Exchange lacked jurisdiction
over him because it failed to notify him within one year from the time
his former firm filed a termination notice reporting his voluntary
resignation.\1\ In that case, the Exchange retained jurisdiction within
one year of receiving an amended termination notice reporting a
customer complaint against the registered representative. The SEC
agreed with the respondent, adopting the more narrow, literal reading
of our jurisdictional provision, requiring the Exchange to retain
jurisdiction within one year of its receipt of a termination notice,
regardless of whether such notice contains any indication of actionable
conduct. However, the Commission in its decision indicated that it was
sensitive to the Exchange's position and would be receptive to the
Exchange amending its rules to expressly provide that the one year time
period begins upon receipt of the original termination notice or any
subsequent amendment of such notice, whichever is later.
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\1\In re Leavitt, Securities Exchange Act Release No. 32441,
1993 Sec Lexis 1427 (June 10, 1993) (Admin. Proc. File No. 3-7836).
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By so amending the applicable Constitutional and rule provisions,
the Exchange will close an existing gap in its disciplinary process
which permits possible wrongdoers to escape investigation by the
Exchange into potentially serious misconduct. It should be noted that
the CBOE and the NASD have rule provisions relating to retention of
discipolinary jurisdiction comparable to the changes we are proposing.
Settlement of disciplinary actions. The Exchange's Enforcement
Department is charged with the responsibility of issuing disciplinary
charges if, following an investigation, it is determined that persons
or entities within the Exchange's jurisdiction committed serious
infractions of the exchange's rules or the Federal securities laws. The
issuance of formal charges begins a rather lengthy process involving
the filing of an answer to the charges, the exchange of documents, and
the scheduling of a disciplinary hearing. Very often, however, persons
who are the subject of Exchange investigations wish to settle the
matter before formal charges are issued by stipulating to certain facts
and consenting to a penalty. At present, Article V, section 1(b)(4) of
the Constitution and Rule 345(c) require the issuance of formal charges
before a disciplinary matter can be settled. In contrast, the
comparable rules at the NYSE, NASD, and CBOE permit potential
respondents to settle disciplinary proceedings without the service of
formal charges.
It is proposed that the Exchange conform its procedures for
settling disciplinary actions to those now in effect at all the other
major self-regulatory organizations. There would be several advantages
to amending the procedures in the manner proposed. First, it would save
the substantial time and expense that is now devoted to the formal
charging process in settled cases. Second, it would give the Exchange
more flexibility in negotiating the resolution of enforcement actions.
Third, conforming the Exchange's settlement procedures to those in
place at the other principal self-regulatory organizations would serve
the interests of regulatory uniformity and simplicity. Finally,
potential respondents would still retain the option of following the
current disciplinary procedures if they are so inclined.
2. Statutory Basis
The proposed rule change is consistent with section 6(b) of the Act
in general and furthers the objectives of section 6(b)(6) in particular
in that it is intended to assure that members, member firms, and member
firm employees are disciplined for rule violations.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such other period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 at the
Commission's Public Reference Station, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the Amex. All
submissions should refer to File No. SR-Amex-93-42 and should be
submitted by February 18, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1812 Filed 1-27-94; 8:45 am]
BILLING CODE 8010-01-M
