[Federal Register Volume 64, Number 243 (Monday, December 20, 1999)]
[Notices]
[Pages 71162-71164]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32820]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42225; File No. SR-NYSE-99-38]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the New York
Stock Exchange, Inc. to Amend its Minor Rule Violation Plan
December 13, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 2, 1999, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange
[[Page 71163]]
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the NYSE. On November 12, 1999 the Exchange submitted Amendment No.
1 to the proposed rule change.\3\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as amended,
from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange made technical changes to
the proposal. See letter from James E. Buck, Senior Vice President
and Secretary, NYSE, to Richard C. Strasser, Assistant Director,
Division of Market Regulation, Commission, dated November 10, 1999
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The proposed rule change would revise the ``List of Exchange Rule
Violations and Fines Applicable Thereto Pursuant to NYSE Rule 476A''
for imposition of fines for minor violations of rules by adding to the
List failure to comply with the provisions of NYSE Rules 35, 345A and
440A.\4\ In addition, it proposes to clarify that paragraph (c) of
currently listed NYSE Rule 472 encompasses telemarketing scripts. The
Exchange believes it is appropriate to make the failure to comply with
the provisions of the above-named rules subject to the possible
imposition of a fine under NYSE Rule 476A procedures.
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\4\ In 1984, the Commission adopted amendments to Rule 19d-1(c)
under the Act to allow self-regulatory organizations to submit, for
Commission approval, plans for the abbreviated reporting of minor
rule violations. See Securities Exchange Act Release No. 21013 (June
1, 1984), 49 FR 23828 (June 8, 1984).
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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 NYSE 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 NYSE 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
NYSE Rule 476A provides that the Exchange may impose a fine
(ranging from $500 to $2,500 for individuals and $1,000 to $5,000 for
member organizations) on any member, member organization, allied
member, approved person, or registered or non-registered employee of a
member or member organization for a minor violation of certain
specified Exchange rules.
The purpose of the NYSE Rule 476A procedure is to provide for a
meaningful sanction for a rule violation when the initiation of a
disciplinary proceeding under NYSE Rule 476 would be more costly and
time-consuming than would be warranted given the nature of the
violation, or when the violation calls for a stronger regulatory
response than a cautionary letter would convey. NYSE Rule 476A
preserves due process rights, identifies those rule violations which
may be the subject of summary fines, and includes a schedule of fines.
The Exchange wishes to emphasize the importance it places upon
compliance with the rules addressed in this filing. Accordingly, the
Exchange may, upon investigation, determination that a violation of any
of these rules is of a minor nature and thus properly addressed by the
procedures adopted under NYSE Rule 476A. However, in those instances
where investigation reveals a more serious violation of these rules,
the Exchange is prepared to provide an appropriate regulatory response
which may include full disciplinary procedures available under NYSE
Rule 476.
In SR-NYSE-84-27,\5\ which initially set forth the provisions and
procedures of NYSE Rule 476A, the Exchange indicated it would amend the
list of rules from time to time, as it considered appropriate, in order
to phase-in the implementation of NYSE Rule 476A as experience with it
was gained.
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\5\ See Securities Exchange Act Release No. 21688 (January 25,
1985), 50 FR 5025 (February 5, 1985).
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The Exchange is seeking approval to add to the List of Rules
subject to possible imposition of fines under NYSE Rule476A procdures
failure by members or member organizations to comply with the
provisions of: NYSE Rule 35 which requires that employees of members
and member organizations be registered with, qualified by, and approved
by the Exchange before being admitted to the Exchange Floor; NYSE Rule
345A which requires ongoing compliance with Continuing Education
requirements; and NYSE Rule 440A which outlines certain telemarketing
restrictions. In addition, the Exchange seeks to clarify that currently
listed NYSE Rule 472(c), which addresses record retention requirements
of certain public communications, encompasses telemarketing scripts.
The following outlines the proposed additions to the 476A list and
includes specific examples of NYSE Rule 476A violations;
(i) NYSE Rule 35 (``Floor Employees to be Registered'')
Failure of a Floor employee to take reasonable and
appropriate steps to register with, become qualified by, and approved
by the Exchange.
Failure of a member or member organization to ensure that
an employee admitted to the Floor of the Exchange has been registered
with, qualified by, and approved by the Exchange. Specific violations
may include:
(a) Failure of a member or member organization to submit a Floor
employees' Form U-4 and/or fingerprint card;
(b) Failure of a member or member organization to ensure that a
Floor employee has taken and passed appropriate qualification
examinations and undergone required training.
For example, Trading Assistants (e.g., Post Clerks and Booth
Clerks) are required to undergo 3 months of training and must take and
pass the Trading Assistant Qualification Examination (Series 25) prior
to performing the functions of a Trading Assistant on the Floor of the
Exchange.
(ii) NYSE Rule 345A (``Continuing Education For Registered Persons'')
Regulatory Element--Rule 345A(a)
NYSE Rule 345A(a) addresses a member or member organization's
responsibilities under the Regulatory Element of the Continuing
Education program. The Regulatory Element requires that each registered
person, not otherwise exempt from the rule, complete a prescribed
computer-based training session within 120 days of the second
anniversary of their initial registration date and every three years
thereafter. Noncompliance with Regulatory Element requirements results
in an individual's registration being deemed inactive until the person
fulfills all applicable elements. Members and member organizations must
ensure that such persons are not permitted to engage in, or be
compensated for, activities requiring registration during this inactive
registration period. Specific violations of 345A(a) subject to penalty
under 476A include:
Failure of a registered person to complete the continuing
education requirements prescribed by NYSE Rule 345A(a).\6\
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\6\ See Amendment No. 1, supra note 3.
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Failure of a member or member organization to restrict the
activities of a registered person who fails to comply with the
continuing education
[[Page 71164]]
requirements prescribed by NYSE Rule 345A(a).
Firm Element--NYSE Rule 345A(b)
NYSE Rule 345A(b) addresses a member or member organization's
responsibilities under the Firm Element of the Continuing Education
program. The Firm Element requires that each member or member
organization develop an analysis of their training needs and develop a
written training plan, evaluated and updated annually, designed to
enhance the securities knowledge, skill, and professionalism of certain
``covered registered persons.'' ``Covered registered persons'' include
any registered person who has direct contact with customers in the
conduct of the member's or member organization's securities sale,
trading or investment banking activities, and the immediate supervisors
of such persons. At a minimum, the plan must take into consideration
the member or member organization's size, organizational structure and
scope of business activities, as well as registered persons' Regulatory
Element performance.
Specific violations of NYSE Rule 345A(b) subject to penalty under
NYSE Rule 476A include:
Failure of a ``covered registered person'' to take
appropriate and reasonable steps to participate in a continuing
education program as prescribed by NYSE Rule 345A(b) (Firm Element).
Failure of a member or member organization to adequately
ensure that a ``covered registered person'' participates in a
continuing education program prescribed by NYSE Rule 345A(b).
Failure of a member or member organization to annually
analyze their training needs as prescribed by NYSE Rule 345A(b) and to
update their written training plan accordingly.
Failure of a member or member organization to develop,
administer, and maintain appropriate records for a written training
plan as prescribed by NYSE Rule 345A(b).
(iii) NYSE Rule 440A (``Telephone Solicitation'')
Violations subject to the provisions of 476A would include:
Making a telephone call to the residence of a person for
the purpose of soliciting the purchase of securities or related
services at any time other than between 8 a.m. and 9 p.m. local time.
[NYSE Rule 440A(a)]
Making a telephone call to the residence of a person for
the purpose of soliciting the purchase of securities or related
services but failing to promptly and clearly disclose the identity of
the caller and member organization, the telephone number at which the
caller may be contacted, and the purpose of the call. [NYSE Rule
440A(b)]
Failure of a member or member organization to make and/or
maintain a centralized list of persons who have informed the member,
member organization or any employee thereof, that they do not wish to
receive telephone solicitations. [NYSE Rule 440A(d)]
Failure to obtain a customer's express written
authorization on a negotiable instrument obtained from the customer as
payment for the purchase of securities and/or to maintain such
authorization for a period of three years. [NYSE Rule 440A(e)]
(iv) NYSE Rule 472 (``Communications with the Public'')
NYSE Rule 472(c), which is currently on the NYSE Rule 476A
Violations List, requires that certain communications with customers or
the public be retained in accordance with NYSE Rule 440 (``Books and
Records''). This requirement encompasses telemarketing scripts.
2. Statutory Basis
The Exchange represents that the proposed rule change will advance
the objectives of Section 6(b)(6) of the Act \7\ in that it will
provide a procedure whereby member organizations can be ``appropriately
disciplined'' in those instances where a rule violation is minor in
nature, but a sanction more serious than a warning or a cautionary
letter is appropriate. The proposed rule change provides a fair
procedure for imposing such sanctions, in accordance with the
requirements of Sections 6(b)(7) \8\ and 6(d)(1) \9\ of the Act.
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\7\ 15 U.S.C. 78f(b)(6).
\8\ 15 U.S.C. 78f(b)(7).
\9\ 15 U.S.C. 78f(d)(1).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
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
Within 35 days of the date of 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 reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve 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, 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 20549-0609.
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 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
NYSE. All submissions should refer to File No. SR-NYSE-99-38 and should
be submitted by January 10, 2000.
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. 99-32820 Filed 12-17-99; 8:45 am]
BILLING CODE 8010-01-M
