[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56276-56278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28198]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40550; File No. SR-CHX-98-23]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Change by The Chicago Stock Exchange,
Inc. Relating to the Submission of Written Statements by Respondents In
Disciplinary Investigations, or ``Wells Submissions''
October 14, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4(e)(6) thereunder,\2\ notice is hereby
given that on October 7, 1998, the Chicago Stock Exchange, Incorporated
(``CHX'' or the ``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
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b(e)(6).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to add interpretation and policy .01 to Rule
1 of Article XII of the Exchange's Rules to codify the Exchange's
practice of permitting, but not requiring, the Exchange staff to notify
persons that they are the subject of an investigative report and give
those persons the opportunity to submit a written statement prior to
the CHX president's review of the investigative report to determine
whether charges should be brought (a so-called Wells Submission).\3\
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\3\ The CHX notes that its disciplinary procedures are currently
being amended to change the person reviewing the report from the CHX
President to an Initial Determination Panel. See SR-CHX-96-31. Upon
approval by the Commission, this new interpretation will apply to
current procedures, as well as procedures existing after the
approval of SR-CHX-96-31.
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[[Page 56277]]
The text of the proposed rule change is set forth below (additions
are italicized):
ARTICLE XII
Discipline and Trial Proceedings
Rule 1
Interpretations and Policies:
.01 Notice and Statement. Prior to making a report pursuant to
paragraph (a) of this Rule 1, the staff may notify the person(s) who is
(are) the subject of the report (``Subject'') of the general nature of
the allegations and of the specific provisions of the Exchange Act,
rules and regulations promulgated thereunder or constitutional
provisions, by-laws or rules of the Exchange or any interpretation
thereof or any resolution of the board regulating the conduct of
business on the Exchange, that appear to have been violated. The
Subject(s) may, within the time frame set forth in the notice from the
staff, then submit a written statement to the Exchange setting forth
their interests and position in regard to the subject matter of the
investigation. To assist a Subject in preparing such a written
statement he or she shall, upon request, have access to any documents
and other materials in the investigative file of the Exchange that were
furnished by him or her or his or her agents to the Exchange.
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 Exchange 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 Exchange 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
The purpose of the proposed rule change is to codify the Exchange's
practice of permitting Wells Submissions in connection with its
disciplinary process. Prior to submitting any investigative report in
which the staff of the Exchange submits that there is a reasonable
basis to believe a violation within the disciplinary jurisdiction of
the Exchange has occurred, the staff may, but is not required to,
notify the person who is the subject of the report (the ``Subject'') of
the pending investigation. This notice includes the general nature of
the allegations and the specific rule or by-law that appears to have
been violated. If the staff provides such notice, the Subject will
generally then submit a written statement to the staff setting forth
his or her interests and positions regarding the subject matter of the
investigation.\4\ This written statement is usually referred to as a
Wells Submission and is used by the Commission and other self-
regulatory organizations in their enforcement programs. The Exchange
has, in the past, accepted Wells Submissions and is now merely
codifying such practice within its rules.\5\ The current policy, as
codified, gives the Subject notified of a pending disciplinary
investigation a reasonable period of time, depending on the
circumstances of the matter, to comment on the notice and proposed
disciplinary action. The deadline for the responsive Wells Submission
will be included in the notice to the Subject. If such a response is
received within the timeframe set forth in the notice, the staff will
include the Wells Submission with its report to the CHX President (or,
upon approval of SR-CHX-96-31, to the Initial Determination Panel). The
staff, of course, reserves the right to amend its report to respond to
the arguments raised in the Wells Submission.
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\4\ Several additional non-substantive textual changes were also
provided by telephone call on October 8, 1998. Telephone call
between Kirsten M. Carlson, Foley & Lardner, and Anitra T. Cassas,
Division of Market Regulation, Commission.
\5\ See Chicago Board Options Exchange Rule 17.2(d),
Philadelphia Stock Exchange Rule 960.2(e), and proposed Cincinnati
Stock Exchange Rule 8.2(d) which are all similar to this rule,
except that those rules require the staff of those exchanges to
provide notification of pending disciplinary investigations. The
proposed CHX rule permits, but does not require, the staff to
provide such notification. The permissive nature of the proposed CHX
rule is similar to current Commission procedures and is consistent
with the NASD's policy, as addressed in connection with its recently
revised disciplinary procedures. See NASD Notice to Members 97-55.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b) \6\ of the Act, in general, and furthers the objectives of
Section 6(b)(7),\7\ in particular, by providing a fair procedure for
the disciplining of members and persons associated with members by
codifying the existing practice permitting the Exchange to (a) notify
members and associated persons of their involvement in a disciplinary
investigation, and (b) permit members and associated persons an
opportunity to comment upon such notice prior to the commencement of
enforcement proceedings.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Because the foregoing proposed rule change: (1) does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative for 30 days from October 7, 1998, the
date on which it was filed and, since the Exchange provided the
Commission with written notice of its intent to file the proposed rule
change at least five business days prior to the filing date, the
proposed rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \8\ and subparagraph (e)(6) of Rule 19b-4
thereunder.\9\
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(e)(6).
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At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appopriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
IV. Solictation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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
[[Page 56278]]
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 in the Commission's Public Reference Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the CHX. All submissions should refer to the File
No. SR-CHX-98-23 and should be submitted by November 12, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28198 Filed 10-20-98; 8:45 am]
BILLING CODE 8010-01-M
