[Federal Register Volume 59, Number 52 (Thursday, March 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-6245]
[[Page Unknown]]
[Federal Register: March 17, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33751; File No. SR-PSE-93-36]
Self-Regulatory Organizations; Pacific Stock Exchange; Notice of
Proposed Rule Change Relating to Chinese Wall Procedures for
Specialists and Specialist Firms
March 10, 1994.
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 December
29, 1993, the Pacific Stock Exchange, Inc. (``PSE'' 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. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The PSE is proposing to adopt a set of Chinese Wall procedures
relating to Exchange specialists and specialist firms. The test of the
proposed rule change is as follows:
Rule 4.19(a). A functional separation must be established (1)
between a specialist firm and any associated approved person; and
(2) between a specialist and any associated integrated member
organization. The approved person or integrated member organization
(collectively referred to as an ``affiliated upstairs firm'') must
establish functional separation (a ``Chinese Wall'') as appropriate
to its operation and further establish, maintain and enforce written
procedures reasonably designed to prevent the misuse of material,
non-public information, which includes review of employee and
proprietary trading, memorization and documentation of procedures,
substantive supervision of interdepartmental communications by the
Exchange specialist firm's Compliance Department and procedures
concerning proprietary trading when the firm is in possession of
material, non-public information. The Exchange specialist firm or
associated integrated member organization must obtain the prior
written approval of the Exchange that it has complied with the
requirements above in establishing functional separation as
appropriate to the operation and that it has established proper
compliance and audit procedures to ensure the maintenance of the
functional separation. A copy of these Chinese Wall procedures, and
any amendments thereto, must be filed with the Exchange's Financial
Compliance Department.
(b) The following are the minimum procedural and maintenance
requirements:
(1) The specialist's book must be kept confidential in
accordance with Rule 5.29(d).
(2) The affiliated upstairs firm can have no influence on
specific specialist trading decisions.
(3) Material, non-public corporate or market information
obtained by the affiliated upstairs firm from the issuer may not be
made available to the specialist.
(4) Clearing and margin financing information regarding the
specialist may be routed only to employees engaged in such work and
managerial employees engaged in overseeing operations of the
affiliated upstairs firm and specialist entities.
(c) Information that may be made available to others.
(1) A broker associated with an affiliated upstairs firm may
make available to the specialist only the market information that he
or she would make available to an unaffiliated specialist in the
normal course of his or her trading and ``market probing'' activity.
(2) A specialist may make known to a broker associated with an
affiliated upstairs firm only has the information about market
conditions in specialty stocks that he or she would make available
in the normal course of specializing to any other broker and in the
same manner as it would make such information available to any other
broker. The specialist may make such market information available
only upon request of the broker of the affiliated upstairs firm and
may not provide such information on its own initiative.
(3) An affiliated upstairs firm can popularize a specialty stock
provided it makes adequate disclosure about the existence of
possible conflicts of interest.
(d) A specialist who becomes privy to material, non-public
information must communicate that fact promptly to his or her firm's
compliance officer or other designated official. The specialist
shall seek guidance from the compliance officer or other designated
official as to what procedures the specialist should follow after
receipt of such information or such other action that should be
taken. Appropriate records shall be maintained by the compliance
officer or other designated official. The record should include a
summary of the information received by the specialist and a
description of the action taken by the compliance officer or other
designated official. If the ``book'' is given up to another member
of the specialist firm who is not in possession of the information
or an independent specialist firm, the book must be transferred in a
neutral fashion to ensure that the transfer itself does not disclose
the material, non-public information and the Exchange must be
immediately informed and a record kept of the time the specialist
reacquired the book reflecting acknowledgement by the compliance
officer that the reacquisition was appropriate.
(e) The Exchange has established the following procedures to
monitor compliance with this rule:
(1) Examination of the Chinese Wall procedures established by
Exchange specialist firms.
(2) Surveillance of proprietary trades effected by an affiliated
upstairs firm and its affiliated specialist or specialist firm.
Accordingly, the Exchange will conduct periodic examinations of
the specialist firm's Chinese Wall procedures to ensure that a
functional separation between the affiliated upstairs firm and the
specialist or specialist firm has been created and thereafter
maintained. The Exchange will also monitor the trading activities of
affiliated upstairs firms and affiliated specialists in the firms'
specialty stock in order to monitor the possible trading while in
possession of material, non-public information through the periodic
review of trade and comparison reports generated by the Exchange,
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 is 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
The purpose of the proposed rule change is to require approved
persons or integrated member organizations to establish functional
separation as appropriate to their operations and further establish,
maintain and enforce written procedures reasonably designed to prevent
the misuse of material, non-public information. The proposed rule
further requires that a copy of such procedures be provided to the
Exchange for review and approval, and sets forth specific guidelines
for member firms to follow in adopting, maintaining and enforcing
Chinese Wall procedures.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act, in general, and Section 6(b)(5), in particular, in that it is
designed to promote just and equitable principles of trade and to
protect investors and the public interest.
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
Written comments on the proposed rule change were neither solicited
nor received.
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 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 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 PSE. All
submissions should refer to File No. SR-PSE-93-36 and should be
submitted by April 7, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-6245 Filed 3-16-94; 8:45 am]
BILLING CODE 8010-01-M
