[Federal Register Volume 60, Number 250 (Friday, December 29, 1995)]
[Notices]
[Pages 67384-67385]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-31507]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36622; File No. SR-PSE-95-27]
Self-Regulatory Organizations; Pacific Stock Exchange,
Incorporated; Order Granting Approval to Proposed Rule Change Relating
to the Amendment of Its Minor Rule Plan To Include Certain Rules on
Financial Reporting and Cooperation in Exchange Investigations and the
Establishment of a Charge for the Late Filing of Periodic FOCUS Reports
December 21, 1995.
On October 17, 1995, the Pacific Stock Exchange, Incorporated
(``PSE'' or ``Exchange'') submitted to the Securities and Exchange
Commission (``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 Minor Rule Plan to
include certain rules on financial reporting and cooperation in
Exchange investigations and to establish an administrative charge for
the late filing of quarterly FOCUS Reports.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 36474 (November 9, 1995), 60 FR 57611
(November 16, 1995). No comments were received on the proposal.
The Exchange's Minor Rule Plan (``MRP''), set forth in PSE Rule
10.13, provides that the Exchange may impose a fine not to exceed
$5,000 on any member, member organization, or person associated 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. PSE Rule 10.13, subsections (h)-
(j), sets forth the specific Exchange rules deemed to be minor in
nature.
The Exchange is proposing to add the following provision to the MRP
as PSE Rule 10.13(j)(5): ``Failure to file a financial report or
financial information in the type, form, manner and time prescribed by
the Exchange. (Rule 2.12(a)).'' \3\ The Exchange is also proposing to
amend its Recommended Fine Schedule for rules listed in the MRP to
establish the following recommended fines for violations of PSE Rule
2.12(a): $100 for a first-time violation; $250 for a second-time
violation; and $500 for a third-time violation.\4\
\3\ PSE Rule 2.12(a) states: ``Every member organization which
is not a member of another national securities exchange or
registered national securities association which is the Designated
Examining Authority for that member organization shall file with the
Exchange answers to Financial Questionnaires, Reports of Income and
Expenses and additional financial information in the type, form,
manner and time prescribed by the Exchange.''
The Exchange stated that Rule 2.12(a) does not encompass the
filing with the Exchange of either periodic or annual FOCUS Reports
required by SEC Rules 17a-5 or 17a-10. Telephone conversation
between Michael D. Pierson, Senior Attorney, PSE, and Jon Kroeper,
Attorney, SEC, on December 19, 1995.
\4\ For a discussion of the Exchange's Recommended Fine
Schedule, see Securities Exchange Act Release No. 34322 (July 6,
1994), 59 FR 35958 (July 14, 1994).
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The Exchange is also proposing to add the following provision to
the MRP as PSE Rule 10.13(j)(6): ``Delaying, impeding or failing to
cooperate in an Exchange investigation. (Rule 10.2(b)).'' The Exchange
is also proposing to amend its Recommended Fine Schedule for rules
listed in the MRP to establish the following recommended fines for
violations of PSE Rule 10.2(b): $100 for a first-time violation; $250
for a second-time violation; and $500 for a third-time violation.
In addition, the Exchange is proposing to amend PSE Rule 2.12(b)(1)
to establish an administrative charge for member organizations that are
late in filing their periodic FOCUS Reports with the Exchange.\5\ The
proposed rule change would add a reference to Rule 17a-5 to the text of
PSE Rule 2.12(b)(1), making the late filing of periodic FOCUS Reports
subject to the same ``late charge'' schedule that currently applies to
the late filing of annual FOCUS Reports required by Rule 17a-10 under
the Act.\6\
\5\ The Exchange's Plan filed pursuant to Rule 17a-5(a)(4) under
the Act requires PSE member organizations that are not exempt from
Rule 15c3-1 under the Act (``Net Capital Rule'') to file periodic
FOCUS Reports with the Exchange if the PSE is their designated
examining authority (``DEA''). See 17 CFR 240.17a-5(a)(4);
Securities Exchange Act Release No. 11935 (December 17, 1975), 40 FR
59706 (December 30, 1975) (order approving the PSE's Plan pursuant
to Rule 17a-5). In 1993, the SEC approved certain changes to the Net
Capital Rule, including the elimination of an exemption for certain
equity exchange specialists, effective as of April 1, 1994. See
Securities Exchange Act Release No. 32737 (August 11, 1993), 58 FR
43555 (August 17, 1993). Consequently, as of April 1, 1994, a number
of Exchange specialists became obligated to file FOCUS reports with
the Exchange. Prior to April 1994, no PSE member organizations were
required to file such reports with the Exchange.
\6\ 17 CFR 240.17a-10. The current ``late charge'' schedule
found in PSE Rule 2.12(b)(1) is as follows: 1-30 days later--$200;
31-60 days late--$400; 61-90 days late--$800. Any failure to file an
annual FOCUS Report longer than 90 days is referred to the Ethics
and Business Conduct Committee for appropriate disciplinary action.
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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).\7\ 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 be appropriately disciplined for
violations of an exchange's rules and the Act.
\7\ 15 U.S.C. 78f(b).
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Specifically, the Commission believes that adding the above-listed
provisions to the Exchange's MRP is consistent with Sections 6(b)(5)
and 6(b)(6) in that the purpose of the Exchange's MRP is to provide for
a response to a violation of Exchange rules when a meaningful sanction
is needed, but when initiation of a formal disciplinary proceeding
pursuant to PSE Rule 10.3 \8\ is not suitable because such a proceeding
would be more costly and time-consuming than would be warranted
[[Page 67385]]
given the nature of the violation. \9\ PSE 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. \10\
\8\ PSE Rule 10.3 governs the initiation of formal disciplinary
proceedings by the Exchange for violations within the disciplinary
jurisdiction of the Exchange
\9\ The inclusion of a rule in an exchange's minor rule plan
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.
\10\ The MRP permits any person to contest the Exchange's
imposition of a fine through submission of a written answer, at
which time the matter will become a formal disciplinary proceeding.
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Moreover, the Commission finds that violations of the provisions
being added to the MRP are objective and technical in nature, and
easily verifiable, thereby lending themselves to the use of expedited
proceedings. Noncompliance with the provisions may be determined
objectively and adjudicated quickly without the complicated factual and
interpretive inquiries associated with more sophisticated Exchange
disciplinary proceedings. If, however, 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 Exchange Rule 10.3.
The Commission also believes that the establishment of an
administrative charge for the late filing of periodic FOCUS Reports is
consistent with Section 6(b)(1) of the Act in that it will enhance the
Exchange's ability to enforce compliance with Rule 17a-5 under the Act
and the rules of the Exchange by providing the PSE with a standardized
response to such instances and members with a clear incentive to file
their periodic FOCUS Reports on a timely basis.
Finally, the Commission finds that, consistent with Section
6(b)(6), the imposition of both the recommended fines for the above-
listed additions to the MRP and an administrative charge for the late
filing of periodic FOCUS Reports should result in appropriate
discipline of members, in a manner that is proportionate to the nature
of such violations. The Commission, however, expects the PSE to bring
full disciplinary proceedings in appropriate cases involving the
additions to the MRP and the late filing of periodic FOCUS Reports
(e.g., in cases where the violation is egregious or where there is a
history or pattern of repeated violations).
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (SR-PSE-95-27) is approved.
\11\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority. \12\
\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-31507 Filed 12-28-95;8:45 am]
BILLING CODE 8010-01-M
