[Federal Register Volume 59, Number 227 (Monday, November 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29211]
[Federal Register: November 28, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34984; File No. SR-CBOE-94-33]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Chicago Board Options Exchange, Inc. Relating to the
Reporting by the Exchange to the Central Registration Depository
(``CRD'') of Information Concerning Pending Formal Exchange
Disciplinary Proceedings
November 18, 1994.
On September 15, 1994, the Chicago Board Options Exchange, Inc.
(``CBOE'' or ``Exchange''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4
thereunder,\2\ filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') a proposed rule change requiring the CBOE
to report information concerning pending formal Exchange disciplinary
proceedings to the Central Registration Depository (``CRD'').\3\ Notice
of the proposal appeared in the Federal Register on October 13,
1994.\4\ No comment letters were received on the proposed rule change.
This order approves the CBOE proposal.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1992).
\3\The CRD is an automated industry database containing
employment and disciplinary history of members and associated
persons registered with self-regulatory organizations (``SROs'') and
state securities agencies. The CRD is operated by the National
Association of Securities Dealers, Inc. (``NASD'') with input on
policy and other matters from federal and state agencies and other
SROs including the Exchange.
\4\See Securities Exchange Act Release No. 34792 (October 5,
1994), 59 FR 52014 (October 13, 1994).
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Currently, the Exchange discloses to the CRD information with
respect to formal Exchange disciplinary proceedings only upon the
conclusion of such proceedings.\5\ Under the proposed rule change, the
amount of information concerning formal Exchange disciplinary
proceedings\6\ reported by the Exchange to the CRD would be expanded to
include the issuance of a statement of charges in such proceedings and
all significant changes\7\ in the status of such proceedings while such
proceedings are pending. For purposes of Rule 17.14, a formal Exchange
disciplinary proceeding would be considered to be pending from the time
that a statement of charges is issued in the proceeding\8\ until the
outcome of the proceeding becomes final.
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\5\Information concerning final disciplinary actions taken by
the Exchange, the NASD, and other SROs, as well as information
concerning certain criminal convictions contained in the CRD, has
been disclosed to the public pursuant to the NASD's 800 number
service (``800 number service'') since October 1991. The Commission
subsequently approved the NASD's procedures for operating its 800
number service in Securities Exchange Act Release No. 30629 (April
23, 1992), 57 FR 18535 (April 30, 1992) (``800 Number Service Plan
Approval Order''). On July 1, 1993, the Commission approved an NASD
rule change to make more information available to the public
regarding pending disciplinary proceedings or actions taken by
federal or state agencies and SROs that relate to securities and
commodities transactions, and regarding criminal indictments and
information. See Securities Exchange Act Release No. 32568 (July 1,
1993), 58 FR 36723 (July 8, 1993) (``Pending Event Disclosure
Approval Order''). In addition, the Commission recently approved
rule changes by both the New York Stock Exchange, Inc. and the
Chicago Stock Exchange, Inc. that are substantively the same as the
CBOE's proposal. See Securities Exchange Act Release Nos. 33844
(March 31, 1994), 59 FR 16669 (April 7, 1994) and 34516 (August 10,
1994), 59 FR 42317 (August 17, 1994) (``NYSE and CHX Approval
Orders'').
\6\For purposes of CBOE Rule 17.14, and Exchange disciplinary
proceeding would be considered to be a formal disciplinary
proceeding if it is initiated by the Exchange pursuant to Exchange
Rule 17.2 et. seq.
\7\Significant changes in the status of a formal Exchange
disciplinary proceeding would be deemed to include, but not be
limited to, the scheduling of a disciplinary hearing, the issuance
of a decision by the CBOE's Business Conduct Committee, the filing
of an appeal to the Exchange's Board of Directors, and the issuance
of a decision by the Exchange's Board of Directors.
\8\See CBOE Rule 17.4(b).
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In addition to the foregoing, the proposed rule change would
renumber the provisions which are currently contained in Rule 17.12
(Miscellaneous Provisions) without affecting the substance of these
provisions. Specifically, under the proposed rule change, the current
provisions of Rule 17.12 would be separated into two rules, Rule 17.12
and Rule 17.13.
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, the requirements of Section 6(b)(5).\9\ Specifically, the
Commission believes the proposal is designed to promote just and
equitable principles of trade, to prevent fraudulent and manipulative
acts and, in general, to protect investors and the public interest.
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\9\15 U.S.C. 78f(b)(5) (1988).
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In the Securities Enforcement Remedies and Penny Stock Reform Act
of 1990 (``Penny Stock Reform Act''), Congress mandated that the NASD
establish its 800 number service for the purpose of receiving and
responding to inquiries from the public regarding the background of
NASD members and their associated persons.\10\ As initially
implemented, a caller using the 800 number service could request a
written report from the NASD with the following information contained
in the CRD:\11\ past and present employment history of NASD members and
their associated persons; all final disciplinary actions,\12\ taken by
federal and state regulatory agencies and SROs, that relate to
securities or commodities transactions; and all criminal convictions
reported on Form BD or Form U-4.
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\10\See supra note 5.
\11\Under NASD procedures, the 800 number service operator does
not provide any information over the telephone. Instead, a written
copy of the information requested is sent to the caller and to the
NASD member and/or associated person who is the subject of the
inquiry. The identity of the caller remains confidential. See 800
Number Service Plan Approval Order, supra, note 5.
\12\The NASD's 800 number service plan does not define the term
``disciplinary action.'' According to the NASD, however, the term
includes, but is not limited to, information provided in response to
question 7 on Form BD and question 22 on Form U-4. See Pending Event
Disclosure Approval Order, supra, note 5.
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In 1993, the Commission approved a rule change by the NASD to
expand the scope of information that is reportable through its 800
number service.\13\ Thus, in addition to the information set forth
above, the NASD may disclose to the public such events as pending
formal disciplinary actions initiated by federal and state regulatory
agencies and SROs; criminal indictments or informations; civil
judgments; and certain arbitration awards in securities and commodities
disputes involving public customers. Currently, the NASD relies on
members and associated persons to report these events to the CRD on
form BD or Form U-4, respectively.\14\ Because this represents the only
means by which the NASD can obtain data about pending disciplinary
actions (other than its own), the quality of the CRD database, and thus
of the 800 number service, depends on complete and timely reporting by
members and associated persons.
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\13\Id. The Commission notes that, in 1992, Congress requested
that the General Accounting Office (``GAO'') conduct a review of
various aspects of the Penny Stock Reform Act, including the NASD's
800 number service. Among other things, the GAO recommended that
information about final arbitration awards be reported. Accordingly,
the NASD submitted, and the Commission approved, a rule change
authorizing the NASD to disclose certain arbitration awards, as well
as pending formal disciplinary actions, through its 800 number
service. In this context, the Commission notes that it has requested
all SROs to coordinate with the NASD the transfer of information
about awards rendered in each exchange's arbitration program.
\14\See supra note 13.
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As stated in the NYSE and CHX Approval Orders,\15\ the proposed
rule change should help fill a potential gap in the NASD's 800 number
service by authorizing the Exchange to report directly to the CRD the
initiation of a formal CBOE disciplinary proceeding and significant
changes in the status thereof. As a result, that information will be
available to the public whether or not it is voluntarily reported by
the member or associated person. The Commission therefore finds that
the proposed rule change should enhance the fairness and accuracy of
the CRD database and, accordingly, of information released to the
public through the 800 number service.
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\15\See supra note 5.
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The Commission has long believed that investors need access to
reliable information in order to protect themselves against potential
fraud and abuse. In this respect, the CBOE proposal should help
customers make an informed decision about whether they should conduct
or continue to conduct business with particular securities
professionals. In sum, the Commission has concluded that the proposed
rule change should increase the flow of information to the public and
thus should ultimately strengthen investor protection.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
\16\ that the proposed rule change (File No. SR-CBOE-94-33) is
approved.
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\16\15 U.S.C. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-29211 Filed 11-25-94; 8:45 am]
BILLING CODE 8010-01-M
