[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3319]
[[Page Unknown]]
[Federal Register: February 14, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33587; File No. SR-BSE-93-19]
Self-Regulatory Organizations; Filing of Proposed Rule Change by
the Boston Stock Exchange, Inc. Relating to the Insider Trading and
Securities Fraud Enforcement Act of 1988
February 7, 1994
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 8, 1993, the
Boston Stock Exchange, Inc. (``BSE'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I, II and III below, which items have been
prepared by the self-regulatory organization. On January 13, 1994, the
BSE submitted to the Commission Amendment No. 1 to the proposal.\2\ The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\15 U.S.C. 78s(b)(1).
\2\See letter from Karen A. Aluise, Assistant Vice President,
BSE to Sandra Sciole, Branch Chief, Exchange Regulation, Division of
Market Regulation, Commission, dated January 13, 1994. The BSE
submitted a letter to the Commission adding language to the proposal
and its corresponding exhibits which clarifies that the BSE's
insider trading rules are designed to require members and associated
persons to attempt to detect securities transactions which they
reasonably believe may have involved the misuse of material, non-
public information. In this regard, this letter amendment makes nine
changes to the proposal and its exhibits. This letter amendment
deleted the last sentence in paragraph 1 of Exhibit 4 which stated,
``This list shall be updated as associated persons leave or join the
firm.'' It also added ``trade confirmations and'' after the word
``duplicate'' in the first sentence in Exhibit 4, paragraph 1a, and
it changed the date in Exhibit 3, the Sample Membership Bulletin,
from March 31, 1994 to April 30, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The BSE seeks to amend its rules to supplement the provisions of
the Insider Trading and Securities Fraud Enforcement Act of 1988
(``ITSFEA'').
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
The purpose of the proposed rule change is to supplement section
15(f) of the Securities Exchange Act of 1934 (``Act'') and the ITSFEA,
by requiring every member organization of the Exchange to establish
maintain and enforce written policies and procedures reasonably
designed to prevent the misuse of material, non-public information by
such member and any person associated with the member. In addition, it
requires that all members who are required to file SEC Form X-17A-5
(``FOCUS Reports'') with the Exchange on an annual basis must submit
with their FOCUS Reports a signed statement of compliance with this
rule. Finally, it establishes minimum standards for compliance with the
record-keeping requirements of this rule, and requires disclosure by
members and associated persons to the Exchange's Surveillance
Department of any securities transaction that the firm reasonably
believes may have involved the misuse of material, non-public
information.
Supplementary Material .02 defines conduct that would constitute
the misuse of material, non-public information, including, but not
limited to, (1) trading in any securities, or in any related
securities, options or other derivative securities of a corporation
while in possession of material non-public information concerning that
corporation; (2) trading in any underlying security or related options
or other derivative securities concerning imminent transactions in the
underlying security or related securities; and (3) disclosing to
another person or entity information described in (1) or (2) above for
the purpose of facilitating the misuse of such material, non-public
information.
The scope of the aforementioned definition is intended to be
consistent with the goal of section 15(f) of the Act and ITSFEA to
prevent the misuse of material, non-public information. This definition
should be broad enough to encompass frontrunning, trading on the basis
of material corporate inside information, tipping and misappropriating
material corporate inside information.
Supplementary Material .02 defines the term ``associated person''
or ``person associated with a member'' as any partner, officer,
director, or branch manager of a member (or any person occupying a
similar status or performing similar functions), any person directly or
indirectly controlling, controlled by, or under common control with a
member, or any employee of a member.
Supplementary Material .03 requires members to establish, maintain
and enforce certain policies and procedures pursuant to this rule.
Specifically, members would be required to (1) advise all associated
persons in writing of the prohibition against the misuse of material,
non-public information; (2) maintain for at least three years, the
first two years in an easily accessible place, signed statements from
the member and all associated persons of the member, affirming their
awareness of and agreement to abide by the above mentioned
prohibitions; (3) maintain for at least three years, the first two
years in an easily accessible place, account statements of all
brokerage accounts (excluding mutual fund and money market accounts) in
which an associated person either has a direct or indirect interest or
makes investment decisions; (4) periodically review all such brokerage
accounts for the purpose of detecting those securities transactions
that the firm reasonably believes may have involved the misuse of
material, non-public information; and (5) identify and document
business dealings the member may have with publicly traded corporations
that may result in the member receiving material, non-public
information.
The standards contained in .03 are intended to be minimum standards
for compliance with the record-keeping requirements of the Act and this
rule. Adherence to these standards will not necessarily constitute
compliance with the Act and the rule for all members. The adequacy of
any one member's policies and procedures will depend on the nature of
that member's business.
Supplementary Material .04 and the member bulletin (see Exhibit 3)
describe a set of forms, denominated as the ``Sample ITSFEA Compliance
Procedures,'' which may be used by ``eligible members'' to satisfy the
record-keeping and filing requirements of the Act and this rule.
``Eligible members,'' are member organizations and sole Exchange
members that do not carry or introduce customer accounts and for whom
the Exchange is the designated examining authority (``DEA'').
Specifically, the Sample ITSFEA Compliance Procedures require: (1)
All associated persons to disclose each securities account in which
they have a direct or indirect financial interest, or make investment
decisions; (2) all associated persons to disclose whether they are an
officer, director or 10% shareholder in a company whose shares are
publicly traded: (3) acknowledgement by all associated persons that
they understand and will abide by the prohibition against the misuse of
material, non-public information; (4) written statement by a senior
officer, partner or sole proprietor that such person ensures that all
of the ITSFEA compliance procedures are being followed, including the
periodic review of all accounts and trading activities of associated
persons.
The Sample ITSFEA Compliance Procedures are intended to constitute
the minimum policies and procedures required by the Act and this rule;
their use does not ensure compliance with the record-keeping and filing
requirements.
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that it is designed to promote just and equitable principles of
trade through the prevention of fraudulent and manipulative acts and
practices.
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 comments on the
proposed rule.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the publication of this notice in the Federal
Register or within such other 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 the 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, NW., Washington, DC 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, NW.,
Washington, DC 20549. Copies of such filing will also be available for
inspection and copying at the principal office of the BSE. All
submissions should refer to File No. SR-BSE-93-19 and should be
submitted by March 7, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3319 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M
