[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8280]
[[Page Unknown]]
[Federal Register: April 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33844; File No. SR-NYSE-94-11]
Self-Regulatory Organizations; Filing and Order Granting
Accelerated Approval to Proposed Rule Change by New York Stock
Exchange, Inc., Relating to Resolutions of the Exchange Board of
Directors Authorizing the Exchange To Provide Information Concerning
Pending Formal Exchange Disciplinary Proceedings to the Central
Registration Depository for Disclosure to the Public
March 31, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 17, 1994, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the self-
regulatory organization. The NYSE has requested accelerated approval of
the proposal. 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) (1988).
\2\17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange Board of Directors (``Board'') has adopted the two
resolutions shown below:
Resolved That each pending formal disciplinary proceeding initiated
by the Division of Enforcement of the Exchange shall be reported to the
Central Registration Depository system (``CRD'') operated by the
National Association of Securities Dealers, Inc. (``NASD''); and it is
Further resolved That significant changes in the status of a pending
formal disciplinary proceeding shall also be reported to the CRD during
the pendency of such a proceeding including the issuance of a decision
by an Exchange hearing panel, the filing of an appeal to the Exchange
Board of Directors, and the issuance of a decision by the Exchange
Board of Directors.
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 III 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
1. Purpose
The proposed rule change authorizes the Exchange to provide
information to the CRD\3\ concerning pending formal NYSE disciplinary
proceedings, for disclosure to the public. A formal disciplinary
proceeding is considered to be pending from the time an executed
stipulation is filed\4\ or charges are issued\5\ until the proceeding
is completed. Currently, the NYSE discloses information only on final
NYSE disciplinary actions to the CRD.
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\3\The CRD is an automated industry database containing
employment and disciplinary history of members and associated
persons registered with self-regulatory organizations (``SROs'') and
state securities agencies. The CRD is operated by the NASD with
input on policy and other matters from federal and state agencies
and other SROs, including the NYSE.
\4\See NYSE Rule 476(g).
\5\See NYSE Rule 476(d).
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Information concerning final disciplinary actions taken by the
NYSE, NASD and other self-regulatory and regulatory organizations, as
well as information concerning certain criminal convictions contained
in the CRD, has been disclosed to the public pursuant to the NASD's 800
number service since October 1991.\6\
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\6\The Commission subsequently approved the NASD's procedures
for operating its 800 number service in Securities Exchange Act
Release No. 30629 (April 23, 1992), 57 FR 18535 (April 30, 1992)
(File No. SR-NASD-91-39) (``800 Number Service Plan Approval
Order'').
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On July 1, 1993, the SEC approved an NASD rule change to make more
information available to the general public regarding pending
disciplinary proceedings or actions taken by federal or state
securities agencies and SROs that relate to securities or commodities
transactions, and regarding criminal indictments and information.\7\
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\7\See Securities Exchange Act Release No. 32568 (July 1, 1993),
58 FR 36723 (July 8, 1993) (File No. SR-NASD-93-26) (``Pending Event
Disclosure Approval Order'').
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Information on pending formal SRO disciplinary proceedings, among
other events, is currently in the CRD, to the extent that reports are
made by members, member organizations and associated persons pursuant
to their reporting obligations on the Uniform Application for
Securities Industry Registration or Transfer (Form U-4) and Form BD,
the uniform application form for broker-dealer registration. However,
the NYSE does not currently report such pending events to the CRD.
The submission of information concerning pending formal
disciplinary proceedings directly by the NYSE would enhance the CRD
database, since the CRD would not have to rely solely on reports from
members, member organizations and associated persons.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b)(5) in that it will protect investors and the public
interest as the increased disclosure will enhance the access of members
of the public to information regarding NYSE members, member
organizations or any associated persons thereof.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will impose no
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 not solicited, and does not intend to solicit,
comments regarding the proposed rule change. The Exchange has not
received any unsolicited written comments from members or other
interested parties.
III. 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 NYSE. All
submissions should refer to File No. SR-NYSE-94-11 and should be
submitted by April 28, 1994.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
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).\8\ In particular,
the Commission believes the proposal is consistent with the section
6(b)(5)\9\ 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 interest.
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\8\15 U.S.C. 78f (1988).
\9\15 U.S.C. 78f(b)(5) (1988).
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In the Securities Enforcement Remedies and Penny Stock Reform Act
of 1990 (``Penny Stock Reform Act''), Congress mandated that the NASD
establish a toll-free telephone number (``800 number service'') for the
purpose of receiving and responding to inquiries from the public
regarding the background of NASD members and their associated persons.
The NASD began operating its 800 number service on October 1, 1991.
Upon the request of a caller, the NASD may disclose, in the form of a
written report, the following information contained in the CRD:\10\
past and present employment history of NASD members and their
associated persons; all final disciplinary actions,\11\ taken by
federal and state regulatory agencies and SROs, that relate to
securities or commodities transactions; and all criminal convictions
reported on Form BD or Form U-4.
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\10\Under NASD procedures, the 800 number service operator does
not provide any information over the telephone. Instead, a written
copy of the information requested is sent to the caller and to the
NASD member and/or associated person who is the subject of the
inquiry. The identity of the caller remains confidential. See 800
Number Service Plan Approval Order, supra, note 6.
\11\The NASD's 800 number service plan does not define the term
``disciplinary action.'' According to the NASD, however, the term
includes, but is not limited to, information provided in response to
question 7 on Form BD and question 22 on Form U-4. See Pending Event
Disclosure Approval Order, supra, note 7.
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In 1993, the Commission approved a rule change by the NASD to
expand the scope of information that is reportable through its 800
number service.\12\ Thus, in addition to the information set forth
above, the NASD may disclose to the public such events as pending
formal disciplinary actions initiated by federal and state regulatory
agencies and SROs; criminal indictments or informations; civil
judgments; and certain arbitration awards in securities and commodities
disputes involving public customers. Currently, the NASD relies on
members and associated persons to report these events to the CRD on
Form BD or Form U-4, respectively.\13\ Because this represents the only
means by which the NASD can obtain data about pending disciplinary
actions (other than its own), the quality of the CRD database, and thus
of the 800 number service, depends on complete and timely reporting by
members and associated persons.
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\12\See Pending Event Disclosure Approval Order, supra, note 7.
The Commission notes that, in 1992, Congress requested that the
General Accounting Office (``GAO'') conduct a review of various
aspects of the Penny Stock Reform Act, including the NASD's 800
number service. Among other things, the GAO recommended that
information about final arbitration awards be reported. Accordingly,
the NASD submitted, and the Commission approved, a rule change
authorizing the NASD to disclose certain arbitration awards, as well
as pending formal disciplinary actions, through its 800 number
service. In this context, the Commission notes that it ah requested
all SROs to coordinate with the NASD the transfer of information
about awards rendered in each exchange's arbitration program.
\13\See supra, note 11.
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In the Commission's opinion, the resolutions adopted by the Board
should help fill a potential gap in the NASD's 800 number service, by
authorizing the Exchange to report the initiation of a formal NYSE
disciplinary proceeding\14\ involving an Exchange member, member
organization or associated person, and significant changes in the
status thereof,\15\ directly to the CRD. As a result, that information
will be available to the public whether or not it is voluntarily
reported by the member or associated person. The Commission therefore
finds that the proposed rule change should enhance the fairness and
accuracy of the CRD database and, accordingly, of information released
to the public through the 800 number service.
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\14\For purposes of reporting to the CRD, the NYSE considers a
formal disciplinary proceeding to be pending if an executed
stipulation has been filed or charges have been issued. See supra,
notes 4-5 and accompanying text.
\15\The NYSE provides the following examples of reportable
changes in the status of a pending formal disciplinary proceeding:
The issuance of a decision by a hearing panel; the filing of an
appeal to the Board; and the issuance of a decision by the Board.
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The Commission has long believed that investors need access to
reliable information in order to protect themselves against potential
fraud and abuse. In this respect, the NYSE proposal should help
customers make an informed decision about whether they should conduct
or continue to conduct business with particular securities
professionals. In sum, the Commission has concluded that the proposed
rule change should increase the flow of information to the public and
thus should ultimately strengthen investor protection.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register. The NYSE proposal
will enable the Exchange to report and the NASD to disclose certain
information about the disciplinary history of securities professionals
that currently may not be available to the public. Accelerated approval
thereof will allow investors to benefit from the implementation of
these procedures as soon as possible. Further, the substance of the
proposed resolutions is similar to an NASD proposal that was published
in the Federal Register for the full comment period and was approved by
the Commission.\16\
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\16\No comments were received in connection with the proposed
rule change which expanded the scope of the 800 number service to
include pending formal disciplinary actions. See Pending Event
Disclosure Approval Order, supra, note 7.
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It is therefore ordered, Pursuant to section 19(b)(2)\17\ that the
proposed rule change (SR-NYSE-94-11) is hereby approved.
\17\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.\18\
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\18\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8280 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M
