[Federal Register Volume 64, Number 4 (Thursday, January 7, 1999)]
[Notices]
[Pages 1057-1058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-302]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40863; File No. SR-PCX-98-52]
Self-Regulatory Organizations; Pacific Exchange, Inc; Order
Granting Approval to Proposed Rule Change and Amendment No. 1 Thereto
Relating to Amendments to Rule 2.6(e) on the Prevention of the Misuse
of Material, Nonpublic Information
December 30, 1998.
I. Introduction
On October 5, 1998, the Pacific Exchange, Inc. (``PCX'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'') or ``SEC''), 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 PCX Rule 2.6(e) which
relates to guidelines established for the prevention of the misuse of
material, nonpublic information by members and member organizations. On
November 3, 1998, the PCX filed an amendment to the proposed rule
change.\3\ The Commission published the proposed rule change, as
amended, for comment in the Federal Register on November 27, 1998.\4\
No comments were received. This order approves the proposal, as
amended.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Letter from Robert Pacileo, Jr., Staff Attorney, PCX, to
Kathy England, Assistant Director, Division of Market Regulation,
Commission, dated October 29, 1998.
\4\ Securities Exchange Act Release no. 40686 (November 18,
1998), 63 FR 65626.
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II. Description of the Proposal
In 1993, the Commission approved a PCX proposal to adopt Rule
2.6(e) relating to the establishment, maintenance and enforcement of
procedures designed to prevent the misuse of material, nonpublic
information under the Insider Trading and Securities Fraud Enforcement
Act of 1988 (``ITSFEA'').\5\ The Exchange is proposing to amend the
rule in several respects.
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\5\ See Securities Exchange Act Release No. 33171 (November 9,
1993), 58 FR 60892 (November 18, 1993).
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First, the rule currently states: ``Members that are required,
pursuant to Rule 2.6, ti file SEC Form X-17A-5 with the Exchange on an
annual basis shall file contemporaneously with those submissions
attestations signed by such members stating that the procedures
mandated by this Rule have been established, enforced and maintained,''
The proposed rule change would state that only those organizations for
which the exchange is the Designated Examining Authority are required
to file ITSFEA compliance acknowledgments stating that the procedures
mandated by this rule have been established, enforced and
maintained.\6\
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\6\ The Exchange notes that this rule change is a codification
of the existing practices of the Exchange.
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The rule currently defines associated person as ``any partner,
officer, director or branch manager of a member (or any person
occupying a similar status or performing similar functions), any person
directly or indirectly controlling, controlled by or under common
control with a member, or any employee of a member.'' The Exchange is
proposing to change the definition to ``anyone who directly is engaged
in the member or member organization's trading-related activities,
including general partners, officers, directors, managers (or any
person occupying a similar status or performing similar functions), any
person directly or indirectly controlling, controlled by or under
common control with a member,or any employee of the member or member
organization.'' The rule change would exclude limited partners from
this definition, unless the limited partners are directly involved in
the member organization's trading-related activities.
The Exchange further proposes to define ``employee'' as ``every
person who is compensated directly or indirectly by the member or
member organization for the solicitation or handling of business in
securities, including individuals trading securities for the account of
the member or member organization, whether such securities are dealt in
on the exchange or dealt over-the-counter.'' \7\ Thus, independent
contractors \8\ as well as actual employees will be subject to the
requirements of the rule.
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\7\ The Commission approved a similar definition that the
Philadelphia Stock Exchange proposed in 1997. See Securities
Exchange Act Release No. 39178 (October 1, 1997), 62 FR 52804
(October 9, 1997.)
\8\ See, e.g., Letter from Douglas Scarff, Director, Division of
Market Regulation, SEC to Gordon S. Macklin, President, National
Association of Securities Dealers, Inc., dated June 18, 1982
(clarifying the status of independent contractors under the Act).
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The Exchange proposes to delete superfluous language regarding
record keeping in Commentary .03 of Rule 2.6(e). Finally, the Exchange
proposes to clarify that an Exchange member who is a lessor of a
membership, and is not registered and not required to register as a
broker-dealer under Section 15 of the
[[Page 1058]]
Act, is not subject to the requirements of the rule.
III. Discussion
After careful review, the Commission finds that the proposal to
amend PCX Rule 2.6(e) 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 Section
6(b) of the Act.\9\ Specifically, the Commission finds that the
proposed rule change is consistent with the Section 6(b)(5) requirement
that the rules of an exchange be designated, among other things, to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade and, in general, to protect investors
and the public interest.\10\ The Commission also believes that the
proposed rule change is consistent with the Section 6(b)(1) requirement
that an exchange have the capacity to enforce compliance by its members
and persons associated with its members with the Act, the rules
thereunder, and the rules of the exchange.
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\9\ 15 U.S.C. 78f(b).
\10\ In approving this proposed rule change, the Commission
notes that it has also considered the proposed rule's impact on
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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The Commission believes that the proposed rule change is a
reasonable means of streamlining the procedures designed to prevent the
misuse of material, nonpublic information by PCX members. Accordingly,
the proposed rule changes should result in more effective and efficient
monitoring and enforcement of the PCX of compliance with Rule 2.6(e) by
its members without compromising investor protection.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\11\ that the proposed rule change (SR-PCX-98-52) be, and hereby is,
approved.
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\11\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-302 Filed 1-6-99; 8:45 am]
BILLING CODE 8010-01-M
