[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 641-642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-146]
[[Page Unknown]]
[Federal Register: January 5, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33403; File No. SR-NYSE-93-35]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Granting Approval of Proposed Rule Change Relating to Additions
of Market-at-the-Close Orders to the ``List of Exchange Rule Violations
and Fines Applicable Thereto Pursuant to Rule 476A'' and Amending Minor
Rule Violation Enforcement and Reporting Plan
December 28, 1993.
On October 7, 1993 the New York Stock Exchange, Inc. (``NYSE'' 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 revise the Rule 476A
Violations List for imposition of fines for minor violations of rules
and/or policies by adding to the list Exchange procedures with respect
to entry and cancellation of market-at-the-close (``MOC'') orders on
expiration days (i.e., expiration Fridays or the day on which Quarterly
Index options expire). The NYSE also requested approval, under Rule
19d-1(c)(2), to amend its Rule 19d-1 Minor Rule Violation Enforcement
and Reporting Plan to include the MOC procedures.\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 James E. Buck, Senior Vice President and
Secretary, NYSE, to Sharon Lawson, Assistant Director, Exchange and
Options Regulation, Division of Market Regulation, Commission, dated
October 5, 1993.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 33161 (November 5, 1993), 58 FR 60078
(November 12, 1993). No comments were received on the proposal.
Description and Background
In 1984, the Commission adopted amendments to paragraph (c) of
Securities Exchange Act Rule 19d-1 to allow SROs to submit, for
Commission approval, plans for the abbreviated reporting of minor rule
violations.\4\ Subsequently, in 1985, the Commission approved an NYSE
Plan for the abbreviated reporting of minor rule violations pursuant to
Rule 19d-1(c) under the Act. The Plan relieves the NYSE of the current
reporting requirements imposed under section 19(d)(1) of the Act for
violations listed in NYSE Rule 476A. The NYSE Plan, as embodied in NYSE
Rule 476A, provides that the Exchange may designate violations of
certain rules as minor rule violations. The Exchange may impose a fine,
not to exceed $5,000, on any member, member organization, allied
member, approved person, or registered or non-registered employee of a
member or member organization for a violation of the delineated rules
by issuing a citation with a specific penalty.\5\ Such person can
either accept the penalty, or opt for a full disciplinary hearing on
the matter. Fines assessed pursuant to NYSE Rule 476A in excess of
$2,500 are not considered pursuant to the Plan and must be reported in
a manner consistent with the current reporting requirement of section
19(d)(1) of the Act. The Exchange also retains the option of bringing
violations of rules included under NYSE Rule 476A to full disciplinary
proceedings, and the Commission expects the Exchange to do so for
egregious or repeat violations.
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\4\See Securities Exchange Act Release No. 21013 (June 1, 1984),
49 FR 23828 (June 8, 1984). Pursuant to paragraph (c)(1) of Rule
19d-1, an SRO is required to file promptly with the Commission
notice of any ``final'' disciplinary action taken by the SRO.
Pursuant to paragraph (c)(2) of Rule 19d-1, any disciplinary action
taken by an SRO for a violation of an SRO rule that has been
designated a minor rule violation pursuant to the Plan shall not be
considered ``final'' for purposes of section 19(d)(1) of the Act if
the sanction imposed consists of a fine not exceeding $2,500 and the
sanctioned person has not sought an adjudication, including a
hearing, or otherwise exhausted his or her administrative remedies.
By deeming unadjudicated minor violations as not final, the
Commission permits the SRO to report violations on a periodic, as
opposed to immediate, basis.
\5\The List if contained under Supplementary Material to
Exchange Rule 476A. As discussed in note 4 supra, only those fines
imposed that are not in excess of $2,500 are subject to periodic
reporting. Fines imposed pursuant to Rule 476A in excess of $2,500
are deemed final and therefore are subject to immediate reporting to
the Commission.
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In adopting Rule 19d-1, the Commission noted that the Rule was an
attempt to balance the informational needs of the Commission against
the reporting burdens of the SROs.\6\ In promulgating paragraph (c) of
the Rule, the Commission was attempting further to reduce those
reporting burdens by permitting, where immediate reporting was
unnecessary, quarterly reporting of minor rule violations. The Rule is
intended to be limited to rules which can be adjudicated quickly and
objectively.
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\6\See Securities Exchange Act Release No. 13762 (July 8, 1977),
42 FR 35411 (July 14, 1977).
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The NYSE currently is adding its procedures with respect to entry
and cancellation of MOC orders on expiration days to the list of minor
rule violations subject to the Rule 476A minor rule violation plan. The
MOC order entry and cancellation procedures require, for example, that
MOC orders be entered on the Exchange by 3:40 p.m. on expiration days
if they are related to a strategy including any stock index future,
stock index option or option on stock index future in expiring
contracts, and that no cancellations of such orders be effected after
3:40 p.m. Violations of these policies could include late entry of MOC
orders, entry of MOC orders which do not offset a published imbalance
of 50,000 shares or more in a pilot stock or an improper cancellation
of an MOC order. These procedures are announced to members and member
organizations through an Information Memo issued approximately one week
before each expiration day.
Discussion
The Commission finds that the proposed rule change is 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)(1), (6) and (7),
6(d)(1) and 19(d) of the Act.\7\ The proposal is consistent with the
section 6(b)(6) requirement that the rules of an exchange provide that
its members and persons associated with its members shall be
appropriately disciplined for violations of rules of the exchange. In
this regard, the proposal provides an efficient procedure for
appropriate disciplining of members for a rule violation that is
technical and objective in nature. Moreover, because the Plan provides
procedural rights to the person fined and permits a disciplined person
to request a full hearing on the matter, the proposal provides a fair
procedure for the disciplining of members and persons associated with
members, consistent with sections 6(b)(7) and 6(d)(1) of the Act.
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\7\15 U.S.C. 78f(b)(1), (6) and (7), 78f(d)(1) and 78s(d)
(1988).
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The Commission also believes that the proposal provides an
alternate means by which to deter violations of the NYSE rules included
in the Plan, thus furthering the purposes of section 6(b)(1) of the
Act. An exchange's ability to effectively enforce compliance by its
members and member organizations with Commission and Exchange rules is
central to its self-regulatory functions. Inclusion of a rule in an
exchange's minor rule violation plan should not be interpreted to mean
it is an unimportant rule. On the contrary, the Commission recognizes
that inclusion of rules under a minor rule violation plan may not only
reduce reporting burdens on an SRO but also may make its disciplinary
system more efficient in prosecuting violations of these rules.
In addition, because the NYSE retains the discretion to bring a
full disciplinary proceeding for any violation included on the List,
the Commission believes that adding the procedures for entry and
cancellation of MOC orders on expiration days to the List will enhance,
rather than reduce, the NYSE's enforcement capabilities of these
Exchange procedures.
As described above, MOC procedures are subject to change on a
monthly basis and are outlined in an Information Memo disseminated to
the members and member organizations prior to each expiration day. The
Commission believes that whether a member or member organization has
followed such specifically outlined procedures is amenable to quick,
objective determinations of compliance with respect to activity on each
expiration day. The quick and efficient resolution of questions of
compliance with such procedures would facilitate the Exchange's ability
to induce continued compliance without being hindered by the additional
time and cost associated with more sophisticated Exchange disciplinary
actions.
Finally, the Commission believes that the inclusion of the MOC
procedural rules will prove to be an effective alternate response to a
violation when the initiation of a full disciplinary proceeding is
unsuitable because such a proceeding may be more costly and time-
consuming in view of the minor nature of the particular violation. This
is further reinforced by the nature of the monthly dissemination of
these procedures to the members and their potential for change each
month in response to the instruments affected on the expiration day and
the surrounding circumstances at that time. By including the MOC
procedures in the Rule 476A Minor Rule Violation List, the NYSE can
quickly respond to violations, thereby deterring similar infractions
the following month.
It is therefore ordered, Pursuant to section 19(b)(2) and Rule 19d-
1(c)(2) under the Act,\8\ that the proposed rule change (SR-NYSE-93-35)
is approved.
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\8\15 U.S.C. 78s(b)(2) (1988) and 17 CFR 240.19d-1(c)(2) (1991).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-146 Filed 1-4-94; 8:45 am]
BILLING CODE 8010-01-M
