[Federal Register Volume 61, Number 215 (Tuesday, November 5, 1996)]
[Notices]
[Pages 56981-56983]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28313]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37884; File No. SR-Amex-96-34]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment Nos. 1, 2, and 3 to the Proposed Rule Change by
the American Stock Exchange, Inc., Relating to Independent Contractors
October 29, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on
September 27, 1996, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III below, which Items have been prepared by the self-
regulatory organization.\1\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ On October 2, 1996, the Amex amended its proposal to submit
the proposal pursuant to Section 19(b)(2) under Act. See Letter from
Claudia Crowley, Special Counsel, Legal and Regulatory Policy, Amex,
to Katherine England, Assistant Director, Division of Market
Regulation (``Division''), Commission, dated October 2, 1996
(``Amendment No. 1''). On October 23, 1996, the Amex amended its
proposal to eliminate inconsistencies between Amex Rule 341(a) and
Amex Rule 341, Commentary .01. See Letter from Claudia Crowley,
Special Counsel, Legal and Regulatory Policy, Amex, to Katherine
England, Assistant Director, Division, Commission, dated October 23,
1996 (``Amendment No. 2''). Specifically, Amendment No. 2 deletes
language indicating that only officers of a member must be approved
and provides that registered representatives, securities lending
representatives, securities traders, and direct supervisors of those
persons must be registered and approved. Amendment No. 2 also
includes a technical change which clarifies proposed Amex Rule 341B,
``Independent Contractors.'' On October 24, 1996, the Exchange
replaced an incorrect reference to Amex Rule 342 with a reference to
Amex Rule 320. See Letter from Claudia Crowley, Special Counsel,
Legal and Regulatory Policy, Amex, to Yvonne Fraticelli, Attorney,
Division, Commission, dated October 24, 1996 (``Amendment No. 3'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to adopt Exchange Rule 341B, ``Independent
Contractors,'' which provides that the Amex will not object to the
assertion of ``independent contractor'' status by a natural person who
is a (i) registered representative, (ii) securities lending
representative, or (iii) securities trader if such status will not
preclude his or her characterization and treatment as an ``employee''
for purposes of the Constitution and Rules of the Amex. The Amex also
proposes to amend Amex Rule 341, ``Approval of
[[Page 56982]]
Registered Employees and Officers,'' to prohibit members from allowing
any natural person to perform regularly any of the duties normally
performed by (i) a registered representative, (ii) a securities lending
representative, (iii) a securities trader, or (iv) a direct supervisor
of (i), (ii), or (iii), unless the person has been qualified by, as
well as registered with and approved by the Exchange.\2\
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\2\ Currently, there is no qualification exam for securities
lending representatives.
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The text of the proposal is available at the Office of the
Secretary, Amex, and at the Commission.
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 self-regulatory organization
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 self-regulatory organization
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
(a) Purpose
Amex Rules 340, ``Disapproval of Employees,'' and 341 govern the
requirements applicable to registered personnel of member
organizations. Specifically, Amex Rule 340 establishes the Exchange's
general jurisdiction over all officers and employees of members and
member organizations.\3\ Exchange Rule 341 specifies the requirements
applicable to registered employees and officers of members and member
organizations, including examination and qualification requirements.
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\3\ Amex Rule 340 allows the Amex to disapprove the employment,
remuneration or term of employment of any employee of a member or
member organization or require the termination of employment of any
employee of a member or member organization.
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According to the Amex, in recent years several member organizations
have begun to utilize ``independent contractors'' to perform duties
traditionally performed by registered employees. To date, the Exchange
has required member organizations who utilize independent contractors
to provide a written acknowledgement that the member organization will
supervise and otherwise be responsible for the independent contractor,
in the same manner as if he were an employee. In order to clarify the
Exchange's requirements and to ensure that independent contractors are
appropriately subject to the Exchange's jurisdiction, the Amex proposes
to adopt new Exchange Rule 341B.
Proposed Amex Rule 341B provides that the Amex will not object to
the assertion of ``independent contractor'' status by a natural person
who is a (i) registered representative, (ii) securities lending
representative, or (iii) securities trader if such status will not
preclude his or her characterization and treatment as an ``employee''
for purposes of the Constitution and Rules of the Amex. Under the
proposal, such natural person and the member organization must agree
that the natural person is subject to the organization's direct,
detailed supervision, control and discipline and, if required by Amex
Rule 330, ``Fidelity Bonds,'' is covered by its fidelity bond. Once a
member organization approves a registered person's ``independent
contractor'' status, the following conditions must be satisfied:
The member organization provides written assurances to the
Exchange that it will supervise and control all activities of the
``independent contractor'' effected on its behalf, to the same degree
and extent that it regulates the activities of all other registered
persons and in a manner consistent with Amex Rule 320, ``Offices,
Approval, Supervision, and Control;'' \4\
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\4\ See Amendment No. 3, supra note 1.
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The member organization submits to the Exchange a copy of
a written agreement between the ``independent contractor'' and the
member organization which provides that the ``independent contractor''
will engage in securities related activities solely on behalf of the
member organization (except as otherwise explicitly may be permitted by
the member organization in writing), that such securities related
activities will be subject to the direct detailed supervision, control
and discipline of the member organization, that such person is not
subject to a ``statutory disqualification'' and that nothing therein
will negate any of the foregoing;
The ``independent contractor'' agrees in writing to be
subject to the Exchange's jurisdiction; and
The member organization provides the Exchange with
assurances that, if required by Amex Rule 330, the ``independent
contractor'' is covered by the organization's fidelity insurance and is
in compliance with applicable state Blue Sky provisions.\5\
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\5\ The Amex notes that these requirements do not apply to the
traditional practice of a firm using an independent floor broker to
execute a transaction on the floor of the Amex.
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Written notice of the cessation of ``independent contractor''
status must be given to the Amex. Proposed Rule 341B does not apply to
persons delegated supervisory functions (e.g., branch office manager,
registered representative-in-charge), nor does it permit the
incorporation of registered persons. The Amex notes that the New York
Stock Exchange (``NYSE'') has comparable requirements.\6\
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\6\ See NYSE Interpretations and Guidance Handbook, 345(a)/02.
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The Amex also proposes to amend Definition six, ``Registered
Employee,'' and Exchange Rules 340 and 341 to require that securities
traders and securities lending representatives \7\ (and their direct
supervisors), as well as registered representatives, must be
registered, approved by the Exchange and, as applicable, pass a
qualification examination acceptable to the Exchange. Amex Rule 341,
Commentary .01, as amended, will provide that a natural person who is
an ``independent contractor'' and who performs the duties of a
registered representative, securities lending representative, or
securities trader is subject to Amex Rule 341.
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\7\ Exchange Rule 341, as amended, defines a securities lending
representative as a person who has the discretion to commit a member
or member organization with which he is associated to any contract
or agreement involving securities lending or borrowing activities
with any other person. Amex Rule 341, as amended, defines a
securities trader as any person engaged in the purchase or sale of
securities or other similar instruments for the account of a member
or member organization with which he is associated and who does not
transact any business with the public. The Amex proposes to amend
Definition six, ``Registered Employee,'' to provide that a
``registered person'' will include a securities lending
representative, a securities trader, and a direct supervisor of a
securities lending representative or a securities trader, in
addition to a branch office manager or a registered representative.
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Finally, the Amex proposes to amend Exchange Rule 340, Commentary
.03, to provide that a securities lending representative and his or her
direct supervisor must demonstrate their competency by satisfying any
applicable qualification examination. According to the Amex, the
proposed amendments to Exchange Rules 340 and 341 are consistent with
comparable provisions of the NYSE's rules.
(b) Basis
The Amex believes that the proposed rule change is consistent with
Section 6(b) of the Act, in general, and furthers
[[Page 56983]]
the objectives of Sections 6(b)(5) and 6(b)(6), in particular, in that
it is consistent with the Exchange's regulatory responsibilities and
will promote just and equitable principles of trade and protect
investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Amex does not believe that the proposed rule change will impose
any burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days after the publication of this notice in the Federal
Register or within such longer period: (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reason for so finding; or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order provide such proposed rule change, or
(b) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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 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 at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to file
number SR-Amex-96-34 and should be submitted by November 26, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a) (12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-28313 Filed 11-4-96; 8:45 am]
BILLING CODE 8010-01-M
