[Federal Register Volume 59, Number 250 (Friday, December 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32154]
[[Page Unknown]]
[Federal Register: December 30, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35144; File No. SR-PSE-94-29]
Self-Regulatory Organizations; Pacific Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to Amendment of its Minor
Rule Plan and Recommended Fine Schedule With Respect to Options Floor
Decorum and Other Minor Trading Rule Violations
December 23, 1994.
I. Introduction
On October 14, 1994, the Pacific Stock Exchange, Inc. (``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
proposal to amend PSE Rule 10.13(h) of its Minor Rule Plan (``MRP''):
Options Floor Decorum and Other Minor Trading Rule Violations, and to
revise its Recommended Fine Schedule relating to Options Floor Decorum
and Minor Trading Rule Violations.\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.
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The proposed rule change was published for comment in the Federal
Register on November 14, 1994.\4\ No comments were received on the
proposed rule change.
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\4\See Securities Exchange Act Release No. 34944 (November 4,
1994), 59 FR 56563.
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II. Description of the Proposal
The Exchange's proposal effects three changes to the MRP. First,
references in Rules 10.13(h)(10) and (11) to ``ten-up'' and ``Ten-Up
Rule'' are eliminated because such references no longer are applicable
in light of two recently approved rule changes.\5\ Second, the proposal
adds a reference to the MRP that addresses violations of Rule
6.82(c)(2), which requires Lead Market Makers to honor their guaranteed
markets. The Exchange believes that violations of Rule 6.82(c)(2)
already are provided for in the MRP by cross-reference, and this change
merely serves to eliminate any ambiguity. Third, the proposal amends
the MRP to add a reference to new Rule 6.66(c), which provides for the
identification of broker-dealer orders on the Options Floor.\6\ The
Exchange believes that such a disclosure requirement is similar to that
of Rule 6.86, also referred to in the MRP.
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\5\See Securities Exchange Act Release Nos. 34891 (October 25,
1994), 59 FR 54653 (approving 20-up rule); and 34946 (November 7,
1994), 59 FR 59265 (expanding Auto-Ex system capacity to 20
contracts).
\6\See Securities Exchange Act Release No. 34426 (July 21,
1994), 59 FR 38497 (approving Rule 6.66(c)).
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The Exchange's proposal also increases the recommended fines found
in the Recommended Fine Schedule for Option Floor Decorum and Minor
Trading Rule Violations.\7\ These infractions currently are listed in
the Exchange's MRP, codified as PSE Rule 10.13. Specifically, the
Exchange proposes to increase the recommended fines for the violations
specified in the following rules: 10.13(h)(2)--(4), (h)(7)--(9),
(h)(11), (h)(13)--(23), and (h)(26).\8\ The Commission has previously
approved these rules for inclusion in the MRP.\9\
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\7\PSE Rule 10.13(f) states that the Exchange shall maintain a
Recommended Fine Schedule setting forth the recommended fines for
each rule listed in the MRP, and that any changes to the Recommended
Fine Schedule shall be subject to the approval of the Commission.
\8\These rules denote the following Exchange Rule violations
with respect to options trading: failing to properly record the time
of receipt, change in limit, or increase in size of an order
[(h)(2)]; improper execution of a cross transaction [(h)(3)];
violation of procedures concerning a Market Maker's use of a Floor
Broker to effect transactions [(h)(4)]; failure to give up the name
of a clearing member by public outcry when requesting a quote and
size of the market or after effecting a trade [(h)(7)];
inadvertently placing a non-public order in the book [(h)(8)];
failing to remain for a specified amount of time after trade
processing [(h)(9)]; failure to honor a guaranteed market [(h)(10)];
failure to identify an order as for a broker-dealer [(h)[11)];
improper communication by use of hand signals or other means or
devices [(h)(12)]; improper vocalization of a trade [(h)(13)]'
violating a standard of conduct or dress [(h)(14)]; disruptive
action [(h)(15)]; disruptive action involving physical contact
[(h)(16)]; failing to act in a professional manner [(h)(17)]; use of
abusive language [(h)(18)]; time stamping [(h)(19)]; position and
exercise limit violations [(h)(20)-(21)]; acting as both Floor
Broker and Market Maker and trading in excess of 100 contracts per
month as a Market Maker [(h)(22)]; failing to request a market to be
removed from the screen when leaving a trading crowd [(h)(23)]; and
unauthorized use of telephones in trading post areas [(h)(26)].
\9\See Securities Exchange Act Release Nos. 22654 (November 21,
1985), 50 FR 48853; 32510 (June 24, 1993), 58 FR 35491; and 34322
(July 6, 1994), 59 FR 35958.
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The Exchange's proposal also increases the current fine levels for
such violations. Thus, the lowest fine on the schedule is raised from
$50 to $100, while the highest fine remains $2,500.\10\ For most of the
fine increases, the Exchange is increasing the fine levels from $100,
$250, and $500, for first-, second-, and third-time violations,\11\
respectively, to $250, $500, and $750, respectively, for such
violations. In addition, the Exchange is proposing to increase the
minimum fine for position and exercise limit violations as follows: for
between one and three violations (during a running two-year period),
the minimum fine would be increased from $100 to $250;\12\ for between
four and six violations during such a period, the minimum fine would be
increased from $100 to $500; and for seven or more violations during
such a period, the minimum fine would be increased from $100 to $750.
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\10\Pursuant to the MRP, 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. See PSE Rule
10.13(a). In appropriate circumstances (e.g., where aggravating or
mitigating circumstances are present), the Exchange may impose a
higher or lower fine than that set forth in the Recommended Fine
Schedule. In addition, the Exchange may, at its discretion, proceed
with formal disciplinary action if it determines that a given
violation is not minor in nature. See PSE Rule 10.13(f).
\11\Fines for multiple violations of Options Floor Decorum and
Minor Trading Rules are calculated on a running two-year basis.
\12\In addition, the provision for an informal letter of caution
for such violations is being eliminated.
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III. Discussion
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)\13\ 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. In addition, the Commission finds
that the Exchange's proposal is consistent with the requirements of
Section 6(b)(6) of the Act that the rules of an exchange provide that
its members are appropriately disciplined for violations of the Act,
its rules and the rules of the exchange.
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\13\15 U.S.C. 78f(b)(5) (1988).
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The Commission believes that the Exchange's ability to effectively
enforce compliance with Commission and Exchange rules by its members
and member organizations is central to its self-regulatory functions.
The inclusion of a rule in the Exchange's MRP 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 repeated violations of these rules, thereby furthering
its mandates to protect investors and the public interest.
The proposed additions to the MRP are either objective or technical
in nature and are easily verifiable, thereby lending themselves to the
use of expedited proceedings. The fine level increases will enhance the
Exchange's ability to enforce compliance with its rules through the
appropriate discipline of members and member organizations in a manner
that is proportionate to the minor nature of such violations. The
Exchange has represented that its membership will be informed of the
amended Recommended Fine Schedule via a regulatory bulletin. In
addition, the Recommended Fine Schedule will be recirculated
periodically (approximately yearly) pursuant to PSE Rule 10.13(f).\14\
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\14\Telephone conversation between Michael D. Pierson, Senior
Attorney, Market Regulation, PSE, and Francois Mazur, Attorney,
Division of Market Regulation, Commission, on November 15, 1994.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\15\ that the proposed rule change (SR-PSE-94-29) is approved.
\15\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.\16\
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\16\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-32154 Filed 12-29-94; 8:45 am]
BILLING CODE 8010-01-M
