[Federal Register Volume 60, Number 199 (Monday, October 16, 1995)]
[Notices]
[Pages 53655-53656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25553]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36351; File No. SR-Phlx-95-49]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Personnel
Fingerprinting Requirements
October 6, 1995.
On July 3, 1995, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``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 incorporate the requirements of section
17(f)(2) of the Act,\3\ and Rule 17f-2 \4\ thereunder into the Phlx's
rules. On July 25, 1995, the Exchange filed Amendment No. 1 to request
that its Minor Rule Plan (``MRP'') be amended to incorporate the rule
proposed herein.\5\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78q(f)(2).
\4\ 17 CFR 240.17f-2.
\5\ See Letter from Gerald O'Connell, First Vice President,
Phlx, to Glen Barrentine, Team Leader, Division of Market
Regulations, SEC (July 24, 1995).
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The proposed rule change, together with Amendment No. 1, was
published for comment in the Federal Register on August 22, 1995.\6\ No
comments were received on the proposal. On October 3, 1995, the
Exchange filed a technical amendment to correct a cross-reference in
the text of the proposed rule.\7\ This order approves the proposal, as
amended.
\6\ Securities Exchange Act Release No. 36108 (Aug. 16, 1995),
60 FR 43630.
\7\ This technical amendment removes an incorrect reference to
Rule 17f-1 from the proposal and substitutes the correct reference
to Rule 17f-2. See Letter from Edith Hallahan, Special Counsel,
Phlx, to Glen Barrentine, Team Leader, SEC (Oct. 3, 1995).
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The Exchange proposes to adopt Phlx Rule 623, which would require
members and participant organizations \8\ to comply with the
requirements of Section 17(f)(2) of the Act concerning the
fingerprinting of required employees.\9\ It also would require
applicants for membership to be fingerprinted as part of the Phlx's
membership application process. Finally, Phlx Rule 623 would require
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member organizations to submit such fingerprints to the Exchange for
processing prior to any employee performing functions that are not
exempted by Rule 17f-2.\10\ The Exchange maintains that incorporating
the fingerprinting requirement into the Phlx's rules should facilitate
compliance with Section 17(f)(2) of the Act and Rule 17f-2 thereunder
by providing Exchange members with a ready reference to these
requirements.
\8\ A participant organization refers to a foreign currency
options participant organization.
\9\ 15 U.S.C. 78q(f)(2) (requiring every member of a national
securities exchange, broker, dealer, registered transfer agent, and
registered clearing agency to fingerprint each of its partners,
directors, officers, and employees and submit such fingerprints to
the Attorney General of the United States or its designee for
identification and appropriate processing).
\10\ 17 CFR 240.17f-2 (exempting, for example, employees who do
not sell securities; do not have regular access to the keeping,
handling, or processing of securities, monies, or their original
books and records; or do not have direct supervisory responsibility
over persons engaged in the above mentioned activities).
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The Exchange also proposes to incorporate the provisions of Phlx
Rule 623 into Floor Procedure Advice F-25. This would have the effect
of adding these provisions to the Exchange's MRP.\11\ The Exchange
would impose the following fines for violations of the personnel
fingerprinting rules and regulations; $50 for a first-time violation;
$100 for a second-time violation; $250 for a third-time violation; and,
for every violation thereafter, the sanction would be within the
discretion of the Business Conduct Committee.
\11\ The Exchange's MRP, set forth in Phlx Rule 970, provides
that the Exchange may impose a fine not to exceed $2,500 on any
member, member organization, or person associated with or employed
by a member or member organization, for any violation of an Exchange
rule that has been deemed to be minor in nature and approved by the
Commission for inclusion in the MRP. In addition, Phlx Rule 970
incorporates the Exchange's Floor Procedure Advice memoranda into
the MRP. These memoranda, with accompanying fine schedules, describe
which rule violations are eligible for the expedited disciplinary
procedure under the MRP.
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The Commission finds that the proposal 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).\12\ Specifically, the Commission
believes the proposal is consistent with the Section 6(b)(5) \13\
requirements that the rules of an exchange be designed to promote just
and equitable principles of trade, to prevent fraudulent and
manipulative acts, and, in general, to protect investors and the
public. The Commission also believes the proposal is consistent with
the Section 6(b)(6) \14\ requirement that the rules of an exchange
provide that its members be disciplined appropriately for violations of
an exchange's rules and the Act.
\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
\14\ 15 U.S.C. 78f(b)(6).
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The Commission agrees with the Exchange and believes that including
the Commission's fingerprinting requirements in the Phlx's rules should
facilitate compliance by providing Exchange members with the
Commission's fingerprinting requirements also should assist in the
accurate verification of the identity and background of the Exchange's
members and their employees.
The Commission also believes that it is appropriate to add these
requirements to the Exchange's MRP. The purpose of the Exchange's MRP
is to provide a response to a violation of Exchange rules when a
meaningful sanction is needed, but initiation of a disciplinary
proceeding pursuant to Phlx Rule 960.2 \15\ is not suitable because
such a proceeding would be more costly and time-consuming than would be
warranted given the nature of the violation.\16\
\15\ Phlx Rule 960.2 governs the initiation of disciplinary
proceedings by the Exchange for violations within the disciplinary
jurisdiction of the Exchange.
\16\ Phlx Rule 970 is designed to provide an appropriate
response to violations of certain Exchange rules, while preserving
the due process rights of the accused party through specified
required procedures. For example, the MRP permits any person to
contest the Exchange's imposition of the fine through submission of
a written answer, at which time the matter will become a formal
disciplinary action.
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The inclusion of a rule in an exchange's minor rule violation plan,
however, should not be interpreted to mean that it is not an important
rule. On the contrary, the Commission recognizes that the inclusion of
violations of particular rules under a minor rule violation plan may
make the exchange's disciplinary system more efficient in prosecuting
more egregious or repeated violations of these rules, thereby
furthering its mandates to protect investors and the public interest.
The Commission believes that violations of the personnel
fingerprinting requirements lend themselves to the use of expedited
proceedings because such violations are technical in nature and easily
verifiable. Moreover, noncompliance with these provisions may be
determined objectively and adjudicated quickly without the complicated
factual and interpretive inquiries associated with more sophisticated
Exchange disciplinary proceedings. Accordingly, the addition of the
personnel fingerprinting requirements to the Exchange's MRP should
provide an efficient and appropriate procedure for disciplining members
who violate these requirements. This, in turn, should further the
Exchange's ability to effectively enforce compliance by its members and
member organizations with both the Commission's and the Exchange's
rules.
If, however, the Exchange determines that a violation of one of
these rules is not minor in nature, the Exchange retains the discretion
to initiate full disciplinary proceedings in accordance with Phlx Rule
960.2. In fact, the Commission expects the Phlx to bring full
disciplinary proceedings in appropriate cases (e.g., in cases where the
violation is egregious or where there is a history or pattern of
repeated violations).
Finally, the Commission finds that the imposition of the
recommended fines for violations of the personnel fingerprinting rules
and regulations should result in appropriate discipline of members in a
manner that is proportionate to the nature of such violations.
It therefore is ordered, pursuant to Section 19(b)(2) of the Act,
\17\ that the proposed rule change (SR-Phlx-95-49) is approved.
\17\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
\18\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-25553 Filed 10-13-95; 8:45 am]
BILLING CODE 8010-01-M
