[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 40056-40058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19466]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37476; File No. SR-NYSE-95-43]
Self-Regulatory Organizations; the New York Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to Amendments
to Exchange Rules 27, 476(a)(11), and 477
July 24, 1996.
On January 5, 1996, 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 amend Exchange Rules 27,
476(a)(11), and 477 to require persons under Exchange jurisdiction to
comply with information requests from commodities markets and
associations and foreign self-regulatory organizations and
associations.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on February 16, 1996.\3\ No comments were received on the
proposal.
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\3\ See Securities Exchange Act Release No. 36831 (Feb. 12,
1996), 61 FR 6279 (Feb. 16, 1996) (notice of File No. SR-NYSE-95-
43).
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Currently, Rule 27 authorizes the Exchange to enter into
information sharing agreements with domestic and foreign self-
regulatory organizations or associations,\4\ but does not provide for
such agreements with commodities regulatory organizations such as
contract markets and registered futures associations.
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\4\ The Act defines the term ``self regulatory organization'' as
any national securities exchange, registered securities association,
or registered clearing agency, or (solely for purposes of sections
19(b), 19(c), and 23(b) of the Act) the Municipal Securities
Rulemaking Board established by section 15B of the Act. 15 U.S.C.
Sec. 78c(a)(26). Although the Act does not define the term ``foreign
self-regulatory organization,'' the NYSE interprets it to include
non-U.S. commodities markets. Letter, infra note 5.
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Rule 476(a)(11) permits the Exchange to initiate a disciplinary
proceeding against a member, member organization, allied member,
approved person, registered or non-registered employee of a member
organization or a person otherwise subject to the jurisdiction of the
Exchange, for failure to furnish information to, or appear or testify
before the Exchange or another domestic self-regulatory organization.
The rule
[[Page 40057]]
does not authorize the Exchange to initiate such a proceeding when
someone under Exchange jurisdiction fails to cooperate with a
commodities market or association or a foreign self-regulatory
organization or association.
Rule 477 permits the Exchange to require a member, member
organization, allied member, approved person or registered or non-
registered employee of a member organization that is terminating his or
her status as such to comply with a request to appear, testify, submit
books, records, papers, or objects and to respond to written requests
and attend hearings in the same manner and to the same extent as if
such person had maintained his or her status, if, prior to such
termination, or during the period of one year immediately following the
receipt by the Exchange of written notice of the termination, the
Exchange makes such a request in writing. The rule does not require the
above parties to comply with such requests from commodities markets or
associations or from foreign self-regulatory organizations or
associations.
The Exchange is proposing to amend Rule 27 to add contract markets
and registered futures associations, as referenced in Rule 476(a)(11),
to the list of entities with which the Exchange is authorized to enter
into information sharing agreements.\5\ The extent to which those under
the Exchange's jurisdiction would be required to cooperate would be
predicated on the subject matter or scope of the relevant information
sharing agreement. Rule 476(a)(11) would be amended to require that
those under its jurisdiction cooperate with information requests from
domestic commodities markets and associations and foreign self-
regulatory organizations and associations as well as from domestic
securities markets.\6\ Rule 477 would be amended to require compliance
with information requests submitted by the organizations specified in
Rule 476(a)(11).\7\
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\5\ NYSE Rule 476(a)(11) defines the terms ``contract market''
and ``registered futures association'' by reference to Sections 6(a)
and 17 of the Commodity Exchange Act, respectively. See 7 U.S.C.
Secs. 7-8. Under Section 6(a), the term contract market refers to a
board of trade that the Commodity Futures Trading Commission
(``CFTC'') has designated as such. Id. Under Section 17, the term
registered futures association refers to an association of persons
registered as such with the CFTC. Id.
The Exchange has interpreted the term ``foreign self-regulatory
organization or association'' to include entities which are non-U.S.
commodities markets and has relied on this interpretation to enter
into agreements with foreign self-regulators that are organized as
commodities markets such as the London International Financial
Futures and Options Exchange. See Letter from James E. Buck, Senior
Vice President and Secretary, NYSE, to Ivette Lopez, Assistant
Director, Division of Market Regulation, SEC dated July 19, 1996.
\6\ In lieu of commencing disciplinary proceedings pursuant to
NYSE Rule 476(a)(11), the Exchange could impose a fine not to exceed
$5,000 pursuant to the terms of its minor rule violation plan as set
forth in NYSE Rule 476A. See Securities Exchange Act Release No.
25862 (Jun. 28, 1988), 53 FR 25400 (Jul. 6, 1988) (order approving
File No. SR-4-284).
\7\ The NYSE has stated that, in connection with Rules 27,
476(a)(11), and 477, it is its policy to afford NYSE members the
same rights and procedural protections that such person or entities
would have if the Exchange had initiated the request for information
or testimony. Telephone conversation on February 2, 1996 between
Donald Siemer, Director, Market Surveillance, NYSE and George A.
Villasana, Attorney, Division of Market Regulation, SEC. In
furtherance of this policy, the Exchange will always act as an
intermediary between another SRO, a contract market or a registered
futures association and the exchange member, member organization, or
other designated person under Rule 476(a)(11) from whom information
or testimony is being sought for any inquiry made pursuant to an
agreement under Rule 27. Id.
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The Exchange believes that it is appropriate to expand the scope of
its disciplinary proceedings to include a failure to cooperate with
contract markets and registered futures associations and foreign self-
regulatory organizations and associations because of its continued
commitment to the enhancement of its regulatory efforts and the
regulatory efforts of other market centers with which the Exchange has
agreed to share information.
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) 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.\9\
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\8\ 15 U.S.C. Sec. 78f(b).
\9\ 15 U.S.C. Sec. 78f(b)(5).
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The Commission believes that the amendment to Rule 27, adding
contract markets and registered futures associations as referenced in
Rule 476(a)(11) to the list of entities with which the NYSE may enter
into information sharing agreements, is appropriate.\10\ As previously
in effect, Rule 27 limited the NYSE by not providing for such
agreements with contract markets and registered futures associations.
By adding these entities as referenced in Rule 476(a)(11), the
amendment furthers the interest of the public and provides for the
protection of investors by allowing the Exchange to assist other
domestic markets to conduct prompt inquiries into possible trading
violations and other possible misconduct. The Commission believes that
the exercise of this authority will enhance the NYSE's surveillance
program and provide the Exchange with sufficient information necessary
for it to carry out its oversight responsibilities with respect to
enforcement-related matters in an efficient and expeditious manner.
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\10\ The Commission understands NYSE Rule 476(a)(11), as
amended, to encompass contract markets only to the extent that they
have been designated as such by the CFTC and futures associations
only to the extent that they have been registered with the CFTC. See
Release No. 34-36831, supra note 3 (stating that NYSE Rule 27, as in
effect prior to this amendment, does not authorize the Exchange to
enter into information sharing agreements with commodities
regulatory organizations such as contract markets and registered
futures associations).
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The Commission also believes that the amendment to Rule 476(a)(11),
authorizing the Exchange to initiate a disciplinary proceeding when
those under its jurisdiction fail to cooperate with information
requests from contract markets as referenced in Section 6(a) of the
Commodity Exchange Act,\11\ any registered futures association as
referenced in Section 17 of the Commodity Exchange Act,\12\ or any
foreign self-regulatory organization or association with which the
Exchange has entered into an agreement, furthers the interest of the
public and provides for the protection of investors by allowing the
Exchange to appropriately discipline those members that are guilty of
misconduct.
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\11\ 7 U.S.C. Sec. 8.
\12\ 7 U.S.C. Sec. 21.
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Finally, the Commission believes that the amendment to Rule 477,
expanding the Exchange's authority to require a member, member
organization, allied member, approved person, or registered or non-
registered employee of a member or member organization to comply with
any requests of an organization or association included in Rule
476(a)(11) to appear, testify, submit books, records, papers, or
tangible objects, respond to written requests, and attend hearings
subject to certain conditions, will further the interest of the public
and provides for the protection of investors by allowing certain
organizations and associations to acquire information necessary to
ensure that Exchange members are conducting business in conformance
with the Constitution and Rules of the Exchange.
The Commission believes that the proposed rule change achieves a
reasonable balance between the need for regulatory cooperation and
protection of
[[Page 40058]]
the procedural rights of Exchange members and others from whom
information or testimony is requested. The rule would provide the
Exchange with the authority to seek cooperation by certain persons with
respect to inquiries and investigations resulting from regulatory
agreements between the Exchange and other self-regulatory organizations
and associations while explicitly providing any person or entity
required to furnish information or testimony pursuant to the rule with
the same procedural rights that they would have if the request was
pursuant to an Exchange initiated inquiry or investigation.\13\
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\13\ Telephone conversation, supra note 7.
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-NYSE-95-43) is approved.
\14\ 15 U.S.C. Sec. 78s(b)(2).
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For the Commission, by the Division of Market Relation, pursuant
to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 96-19466 Filed 7-30-96; 8:45 am]
BILLING CODE 8010-01-M
