[Federal Register Volume 59, Number 63 (Friday, April 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7764]
[[Page Unknown]]
[Federal Register: April 1, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33816; File No. SR-NYSE-93-27]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Approving Proposed Rule Change and Notice of Filing and Order
Granting Accelerated Approval to Amendment No. 3 to Proposed Rule
Change Relating to the Addition of Rules 72(b) and 410A to the ``List
of Exchange Rule Violations and Fines Applicable Thereto Pursuant to
Rule 476A'' and Amending Minor Rule Violation Enforcement and Reporting
Plan
March 25, 1994.
I. Introduction
On May 27, 1993, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``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 revise the List of Exchange
Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A by
adding to the list violations of the agency provisions of Rule 72(b)
and Rule 410A.\3\ On June 9, 1993, the NYSE submitted to the Commission
Amendment No. 1 to the proposed rule change.\4\ On January 3, 1994, the
Commission received from the NYSE Amendment No. 2 to the proposed rule
change.\5\ On February 18, 1994, the NYSE submitted to the Commission
Amendment No. 3 to the proposed rule change.\6\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1992).
\3\The NYSE also has requested approval, under Rule 19d-1(c)(2),
17 CFR 240.19d-1(c)(2), to amend its Rule 19d-1 Minor Rule Violation
Enforcement and Reporting Plan (``Plan'') to include Rules 72(b),
401 and 410A. See letter from James E. Buck, Senior Vice President
and Secretary, NYSE, to Sharon Lawson, Assistant Director, Exchange
and Options Regulation, Division of Market Regulation, Commission,
dated May 26, 1993. Subsequent to this request, the Exchange amended
the proposal to withdraw Rule 401 from the list of minor rule
violations and to clarify that violations of Rule 72(b) involving
instances of proprietary participation with the cross would be added
to the list of minor rules. See Amendment No. 2, infra note 5.
\4\See letter from Donald Siemer, Director, Market Surveillance,
NYSE, to Diana Luka-Hopson, Branch Chief, Commission, submitted on
June 9, 1993, by which the NYSE made corrections to its current Rule
476A Violation List.
\5\See letter from Robert J. McSweeney, Senior Vice President,
Market Surveillance, to Sandra Sciole, Special Counsel, Commission,
dated December 23, 1993. Amendment No. 2 withdrew Rule 401 from the
list of proposed additions to the Rule 476A list of minor rule
violations and limited the violations of Rule 72(b) that would be
eligible to be fined under Rule 476A to instances of proprietary
participation with the cross.
\6\See letter from Brian M. McNamara, Managing Director, Market
Surveillance, NYSE, to Sandra Sciole, Special Counsel, Commission,
dated February 11, 1994. Amendment No. 3 amended the text of the
List of Exchange Rule Violations and Fines Applicable Thereto
Pursuant To Rule 476A to replace the words ``Rule 72(b)'' with
``violation of the agency provisions of Rule 72(b).''
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The proposed rule change, together with Amendment Nos. 1 and 2, was
noticed in Securities Exchange Act Release No. 33564 (February 1,
1994), 59 FR 5793 (February 8, 1994). No comments were received on the
proposal. This order approves the proposed rule change, including
Amendment No. 3 on an accelerated basis.
II. Description of the Proposal
In 1984, the Commission adopted amendments to paragraph (c) of
Securities Exchange Act Rule 19d-1 to allow SROs to submit, for
Commission approval, plans for the abbreviated reporting of minor rule
violations.\7\ Subsequently, in 1985, the Commission approved an NYSE
Plan (``Plan'') for the abbreviated reporting of minor rule violations
pursuant to Rule 19d-1(c) under the Act. The Plan relieves the NYSE of
the current reporting requirements imposed under section 19(d)(1) for
violations listed in NYSE Rule 476A. The NYSE Plan, as embodied in NYSE
Rule 476A, provides that the Exchange may designate violations of
certain rules as minor rule violations. The Exchange may impose a fine,
not to exceed $5,000, on any member, member organization, allied
member, approved person, or registered or non-registered employee of a
member or member organization for a violation of the delineated rules
by issuing a citation with a specific penalty.\8\ Such person can
either accept the penalty, or opt for a full disciplinary hearing on
the matter. Fines assessed pursuant to NYSE Rule 476A in excess of
$2,500 are not considered pursuant to the Plan and must be reported in
a manner consistent with the current reporting requirement of section
19(d)(1) of the Act. The Exchange also retains the option of bringing
violations of rules included under NYSE Rule 476A to full disciplinary
proceedings, and the Commission expects the Exchange to do so for
egregious repeat violations.
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\7\See Securities Exchange Act Release No. 21013 (June 1, 1984),
49 FR 23838 (June 8, 1984). Pursuant to paragraph (c)(1) of Rule
19d-1, an SRO is required to file promptly with the Commission
notice of any ``final'' disciplinary action taken by the SRO.
Pursuant to paragraph (c)(2) of Rule 19d-1, any disciplinary action
taken by an SRO for a violation of an SRO rule that has been
designated a minor rule violation pursuant to the Plan shall not be
considered ``final'' for purposes of Section 19(d)(1) of the Act if
the sanction imposed consists of a fine not exceeding $2,500 and the
sanctioned person has not sought an adjudication, including a
hearing, or otherwise exhausted his or her administrative remedies.
By deeming unadjudicated minor violations as not final, the
Commission permits the SRO to report violations on a periodic, as
opposed to immediate, basis.
\8\The List is contained under Supplementary Material to
Exchange Rule 476A. As discussed in note 7, supra, only those fines
imposed that are not in excess of $2,500 are subject to periodic
reporting. Fines imposed pursuant to Rule 476A in excess of $2,500
are deemed final and therefore are subject to immediate reporting to
the Commission.
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In adopting Rule 19d-1, the Commission noted that the Rule was an
attempt to balance the informational needs of the Commission against
the reporting burdens of the SROs.\9\ In promulgating paragraph (c) of
the Rule, the Commission was attempting further to reduce those
reporting burdens by permitting, where immediate reporting was
unnecessary, quarterly reporting of minor rule violations. The Rule is
intended to be limited to rules which can be adjudicated quickly and
objectively.
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\9\See Securities Exchange Act Release No. 13762 (July 8, 1977),
42 FR 35411 (July 14, 1977).
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The NYSE currently is adding violations of Rule 410A and the agency
provisions of Rule 72(b) to the list of minor rule violations subject
to the Rule 476A minor rule violation plan. As amended, the minor rule
list includes only violations of the agency provisions of Rule
72(b).\10\ In addition, the list includes the Rule 410A requirements
for automated submission of trading data.\11\
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\10\NYSE Rule 72(b) states that when a member has an order to
buy and an order to sell an equivalent amount of the same security,
and both orders are for 25,000 shares or more and are for the
accounts of persons who are not members or member organizations, the
member may ``cross'' those orders at a price at or within the
prevailing quotation. The member's bid or offer shall be entitled to
priority at such cross price, irrespective of pre-existing bids or
offers at that price. The member shall follow the crossing
procedures of Rule 76, and another member may trade with either the
bid or offer side of the cross transaction only to provide a price
which is better than the cross price as to all or part of such bid
or offer. A member who is providing a better price to one side of
the cross transaction must trade with all other market interest
having priority at that price before trading with any part of the
cross transaction. No member may break up the proposed cross
transaction, in whole or in part, at the cross price.
\11\NYSE Rule 410A requires members and member organizations to
submit certain information concerning transactions in an automated
format as requested by the Exchange. See NYSE Rule 410A for the list
of trade data elements required to be submitted to the NYSE under
this Rule.
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The Exchange states that the purpose of the proposed rule change is
to facilitate the Exchange's ability to induce compliance with all
aspects of the above-name Rules. Additionally, the NYSE states that the
proposed rule change is consistent with section 6(b)(6) of the Act in
that it will provide a procedure whereby member organizations can be
``appropriately disciplined'' in those instances when a rule violation
is minor in nature, but a sanction more serious than a warning or
cautionary letter is appropriate. In addition, the Exchange states that
the proposed rule change provides a fair procedure for imposing such
sanctions, in accordance with the requirements of sections 6(b)(7) and
6(d)(1) of the Act.
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, with the requirements of section 6(b)(1), (6) and (7),
6(d)(1) and 19(d).\12\ The proposal is consistent with the section
6(b)(6) requirement that the rules of an exchange provide that its
members and persons associated with its members shall be appropriately
disciplined for violations of rules of the exchange. In this regard,
the proposal provides an efficient procedure for appropriate
disciplining of members for a rule violation that is technical and
objective in nature. Moreover, because the Plan provides procedural
rights to the person fined and permits a disciplined person to request
a full hearing on the matter, the proposal provides a fair procedure
for the disciplining of members and persons associated with members
which is consistent with section 6(b)(7) and 6(d)(1) of the Act.
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\12\15 U.S.C. 78f(b)(1), (6) and (7), 78f(d)(1) and 78s(d)
(1988).
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The Commission also believes that the proposal provides an
alternate means by which to deter violations of the requirements of
Rules 410A and 72(b),\13\ thus furthering the purposes of section
6(b)(1) of the Act. An exchange's ability to effectively enforce
compliance by its members and member organizations with Commission and
Exchange rules is central to its self-regulatory functions. Inclusion
of a rule in an exchange's minor rule violation plan should not be
interpreted to mean it is an unimportant rule. On the contrary, the
Commission recognizes that inclusion of rules under a minor rule
violation plan may not only reduce reporting burdens on an SRO but also
may make its disciplinary system more efficient in prosecuting
violations of these rules.
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\13\As noted above, the minor rule list would include only the
section of Rule 72(b) which prohibits instances of proprietary
participation with the cross transaction. See Amendment No. 2, supra
note 5.
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In addition, because the NYSE retains the discretion to bring a
full disciplinary proceeding for any violation included on the List,
the Commission believes that adding Rule 410A and the proprietary
participation prohibition in Rule 72(b) to the List will enhance,
rather than reduce, the NYSE's enforcement capabilities regarding this
Exchange Rule. Indeed, the Commission expects the NYSE to bring full
disciplinary proceedings for violations of Rule 410A or 72(b) where the
violation is egregious or where there is a history or pattern of repeat
violations.
Finally, the Commission believes that the inclusion of Rules 410A
and 72(b) on the List will prove to be an effective alternate response
to a violation when the initiation of a full disciplinary proceeding is
unsuitable because such a proceeding may be more costly and time-
consuming in view of the minor nature of the particular violation.
The Commission finds good cause for accelerated approval of
Amendment No. 3 to the proposed rule change prior to the thirtieth day
after publication of notice of filing thereof. The NYSE's proposed rule
change was published in the Federal Register for the full statutory
period and no comments were received.\14\ Amendment No. 3 merely amends
the list of minor rule violations to indicate that the list would
include only the section of Rule 72(b) which prohibits instances of
proprietary participation with the cross transaction. The Commission
finds that accelerated approval of Amendment No. 3 is necessary in
order for the NYSE to be able to effectuate its new amendments to Rule
476A in a timely manner upon approval.
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\14\See Securities Exchange Act Release No. 33564 (February 1,
1994), 59 FR 5793 (February 8, 1994).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 3. 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 Room, 450 Fifth Street
NW., Washington, DC 20549. Copies of the 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-93-27 and should be
submitted by April 22, 1994.
It is therefore ordered, pursuant to section 19(b)(2) and Rule 19d-
1(c)(2) under the Act,\15\ that the proposed rule change (SR-NYSE-93-
27) is approved, including Amendment No. 3 on an accelerated basis.
\15\15 U.S.C. 78s(b)(2) (1988) and 17 CFR 240.19d-1(c)(2)
(1991).
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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. 94-7764 Filed 3-31-94; 8:45 am]
BILLING CODE 8010-01-M
