[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15043]
[[Page Unknown]]
[Federal Register: June 21, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34215; File No. SR-CSE-94-04]
Self-Regulatory Organizations; Cincinnati Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change Concerning Chinese Wall
Procedures for Designated Dealers
June 15, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on March 17,
1994, the Cincinnati Stock Exchange, Incorporated (``CSE 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 CSE. 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 Cincinnati Stock Exchange, Inc. proposes to adopt Chinese Wall
procedures relating to the activity of the Exchange's Designated
Dealers (``specialists''). The text of the proposal follows; the
proposed additions are italicized.
The Cincinnati Stock Exchange, Incorporated
Chapter V
Supervision
Rule 5.5. Chinese Wall Procedures
(a) An Exchange Designated Dealer (``specialist'') must establish a
functional separation (``Chinese Wall'') between the specialist
operation and any associated or affiliated persons 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, memorialization and documentation of procedures, substantive
supervision of inter-departmental 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 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 Surveillance Department.
(b) The following are the minimum procedural and maintenance
requirements:
(1) The associate or affiliated person can have no influence on
specific specialist trading decisions.
(2) Material, non-public corporate or market information obtained
by the associated or affiliated person from the issuer may not be made
available to the specialist.
(3) 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
or associated persons and specialist entities.
(c) Information that may be made available to others:
(1) A broker affiliated with an associated or affiliated person may
make available to the specialist only the market information that he
would make available to an unaffiliated specialist in the normal course
of his trading and ``market probing'' activity.
(2) A specialist may make known to a broker affiliated with an
affiliated or associated person only the information about market
conditions in specialty stocks that he 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.
(3) An affiliated or associated person 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 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.
(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 or
associate person and its affiliated or associated specialist
(``designated dealer'') firm.
Accordingly, the Exchange will conduct periodic examinations of the
specialist firm's Chinese Wall procedures to ensure that a functional
separation between the associated or affiliated person and the
specialist has been created and thereafter maintained. The Exchange
will also monitor the trading activities of affiliated or associated
persons and affiliated or associated specialists in the specialist
firms' specialty stocks 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 CSE 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 CSE has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant parts 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 new rule is to require specialists to
establish the appropriate functional separation to their operations
while maintaining and enforcing written procedures reasonably designed
to prevent the misuse of material, non-public information by employee,
affiliated individual and proprietary accounts. 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 designated dealers to follow in adopting, maintaining and enforcing
Chinese Wall procedures.
(2) Basis
The proposed rule change is consistent with section 6(b) of the Act
in general and furthers the objectives of section 6(b)(5) in particular
in that it promotes just and equitable principals of trade and protects
investors and the public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The CSE does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of 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 such 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 in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the principal office of the
CSE. All submissions should refer to File No. SR-CSE-94-04 and should
be submitted by July 12, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to the delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15043 Filed 6-20-94; 8:45 am]
BILLING CODE 8010-01-M
