[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24798]
[[Page Unknown]]
[Federal Register: October 6, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34760; File No. SR-PSE-94-13]
Self-Regulatory Organizations; Pacific Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to the Fine
Schedule for the Rule on Dissemination of Quotations in Local Issues
September 30, 1994.
On May 24, 1994, the Pacific Stock Exchange, Inc. (``PSE'' 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 amend its fine schedule
relating to the dissemination of quotations in local issues and to
amend its Minor Rule Plan (``MRP'').\3\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\Rule 19d-1(c)(2) under the Act, 17 CFR 240.19d-1(c)(2),
authorizes national securities exchanges to adopt minor rule
violation plans for the summary discipline and abbreviated reporting
of minor rule violations by exchange members and member
organizations. The Exchange's MRP initially was approved by the
Commission in 1985. See Securities Exchange Act Release No. 22654
(November 21, 1985), 50 FR 48853 (November 27, 1985).
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 34320 (July 6, 1994), 59 FR 35545 (July 12,
1994). No comments were received on the proposal.
Pursuant to Equity Floor Procedure Advice (``EFPA'') 2-B,
specialists are required to disseminate a quote prior to one-half hour
after the PSE opening. If a specialist fails to satisfy this
requirement, he currently is subject to a fine of $25 for each
violation beginning with the sixth violation.\4\ The rule change will
raise the fine for each violation to $100 beginning with the third
violation.
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\4\The number of violations is calculated on a rotating
quarterly basis.
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In addition, the rule change will add violations of EFPA 2-B to
Exchange Rule 10.13 and the Exchange's MRP.\5\ PSE Rule 10.13(a)
authorizes certain PSE Committees to impose a fine not to exceed $5,000
on any member, member organization, or person association with 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. Rule 10.13 includes a list of rule violations
that are eligible for the expedited disciplinary procedure under the
MRP and that may be the subject of fines, in accordance with the
Recommended Fine Schedule.
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\5\This change was included in Exhibit A to the rule filing. See
also letter from Kenneth J. Marcus, Director of Equity Surveillance/
Compliance, PSE, to Katherine Simmons, SEC, dated September 29,
1994.
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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 Section 6(b).\6\ In particular,
the Commission believes the proposal is consistent with the Section
6(b)(5) 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, and with the Section 6(b)(6) requirement that the rules of an
exchange provide that its members are appropriately disciplined for
violations of the exchange's rules and the Act.
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\6\15 U.S.C. 78f(b) (1988).
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Specifically, the Commission believes that an exchange's ability to
effectively enforce compliance by its members and member organization
with Commission and Exchange rules is central to its self-regulatory
functions. The inclusion of a rule in an exchange's minor rule
violation plan, therefore, should not be interpreted to mean that it is
not an important rule. On the contrary, the Commission recognizes that
the inclusion of minor violations of particular rules under a minor
rule violation plan may make the exchange's disciplinary system more
efficient in prosecuting more egregious and/or repeated violations of
these rules, thereby furthering its mandates to protect investors and
the public interest.
The Commission believes that adding EFPA 2-B to PSE Rule 10.13 and
the Exchange's MRP is consistent with Sections 6(b)(5) and 6(b)(6) in
that the purpose of Rule 10.13 is to provide for a response to a rule
violation when a meaningful sanction is needed, but when initiation of
a disciplinary proceeding under PSE Rule 10.3\7\ is not suitable
because such a proceeding would be more costly and time-consuming than
would be warranted given the minor nature of the violation. Rule 10.13
provides for an appropriate response to minor violations of certain
Exchange rules, while preserving the due process rights of the party
accused through specified, required procedures.
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\7\PSE Rule 10.3 governs the initiation of disciplinary
proceedings by the Exchange for violations within the disciplinary
jurisdiction of the Exchange.
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Furthermore, the Commission finds that violations of EFPA 2-B are
objective and technical in nature, and are easily verifiable, thereby
lending themselves to the use of expedited proceedings. Noncompliance
with the requirement to disseminate quotations in local issue prior to
one-half hour after the opening time for trading on the PSE may be
determined objectively and adjudicated quickly without the complicated
factual and interpretive inquiries associated with more sophisticated
Exchange disciplinary proceedings. If 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 PSE Rule 10.3. The Commission expects the PSE 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 repeat violations).
In addition, the Commission finds that the increase in the fine
from $25 per violation starting with the sixth violation, to $100 per
violation starting with the third violation should result in
appropriate discipline of members, in a manner that is proportionate to
the nature of such violations. The Commission believes that calculating
the fines on a rotating quarterly basis is an equitable approach that
accounts for the possibility that a substantial period of time may
elapse between violations.
It Is Therefore Ordered, pursuant to Section 19(b)()2 of the
Act,\8\ that the proposed rule change (SR-PSE-94-13) is approved.
\8\15 U.S.C. 78s(b)(2) (1988).
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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) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24798 Filed 10-5-94; 8:45 am]
BILLING CODE 8010-01-M
