[Federal Register Volume 63, Number 168 (Monday, August 31, 1998)]
[Notices]
[Pages 46259-46261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23315]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40356; File No. SR-CSE-98-02]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto, by The Cincinnati Stock Exchange,
Inc., Relating to Regulatory Jurisdiction and Proceedings
August 24, 1998.
Pursuant to Section 19(b)(1) of the securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on July 7, 1998, The
Cincinnati Stock Exchange, Inc. (``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. On July 31, 1998, the Exchange filed
with the Commission Amendment No. 1 to the proposed rule change.\2\ The
Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ In Amendment No. 1, the Exchange added Section 6(b)(6) of
the Act as a statutory basis for the proposed rule change. The
Exchange also set forth the procedure, under proposed CSE Rule 8.3,
to be utilized upon the rejection of a letter of consent by the
Business Conduct Committee. Finally, the Exchange corrected
grammatical errors in proposed CSE Rule 8.1(a). Letter from Adam
Gurwitz, Vice President Legal, CSE, to Kelly McCormick, Attorney,
Division of Market Regulation Commission, dated July 30, 1998
(``Amendment No. 1'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to update and clarify its rules concerning
disciplinary jurisdiction and practice. The text of the proposed rule
change is available at the Office of the Secretary, CSE and the
Commission.
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 section A,
B, and C below, of the most significant aspects of such statements.
[[Page 46260]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to clarify and codify its disciplinary
jurisdiction and practices by amending and renumbering those rules
found in Chapter VIII of the Exchange Rules. The proposed rule change
codifies existing Exchange practice, and is not intended to expand the
CSE's existing grant of regulatory jurisdiction.
The proposed rule change modifying CSE Rule 8.1 states the general
nature of the Exchange's regulatory jurisdiction and authority and
states that such jurisdiction extends to any violation of the Act, as
amended, the rules and regulations promulgated thereunder, any
provision of the Exchange's Articles of Incorporation, By-Laws or
rules, any interpretation thereof, or any resolution or order of the
Board of Trustees or appropriate Exchange committee. The provision
indicates that any such violation may, after notice and an opportunity
for a hearing, be addressed by expulsion, suspension, limitation of
activities, functions and operations, fine, censure, suspension or bar
from association with a member or any other fitting sanction.
This rule also clarifies that the Exchange's jurisdiction extends
to individual Exchange members as well as member organizations,
responsible parties and persons associated with members. The CSE may
discipline individuals for violations committed by employees under
their supervision or by member organizations. Conversely, a member
organization may be disciplined for violations committed by individuals
associated with such member organizations. These failures to supervise
charges are essential to a self-regulatory organization's ability to
ensure that its member organizations properly supervise individuals and
are common in the industry. The Exchange has always had the ability to
bring such charges under its general regulatory authority, and is now
more clearly expressing that authority.
The Exchange has always had the ability to police abuses in its
marketplace. This includes abuses by persons associated with members
who subsequently leave the employ of those members. Thus, the proposed
CSE Rule 8.1(b) codifies longstanding industry practice in stating that
members and associated persons remain subject to the Exchange's
disciplinary jurisdiction after termination of membership or
association for violations that occurred prior to termination. Thus,
members and associated persons may not avoid regulatory action simply
by terminating their membership or association with a member. Proposed
CSE Rule 8.1(c) notes that a summary suspension or other action taken
under Chapter VII of the CSE's rules (suspension of member for
insolvency or failure to perform on its contracts) shall not be deemed
to be a disciplinary action under Chapter VII and the provisions of
Chapter VIII shall not apply to such action. The proposed CSE Rule
8.2(c) clarifies that entities within the regulatory jurisdiction of
the Exchange are required to furnish information that the Exchange may
request in connection with any investigation, hearing or appeal.
Failure to provide such information shall be considered a rule
violation. Proposed CSE Rule 8.2(c) also states that a member or
associated person is entitled to be represented by counsel, at his/her
own expense, during any Exchange investigation, hearing or appeal.
The CSE has always permitted any member or associated person who is
the subject of an Exchange investigation to submit a statement to the
Exchange's Business Conduct Committee (``BCC'') explaining why no
disciplinary action should be taken--a so-called ``Wells submission.''
Proposed CSE Rule 8.2(d) and CSE Rule 8.2(f) codify this procedural
right and specifically permit a Wells submission to be made on
videotape to facilitate such statements. In addition, proposed CSE Rule
8.3 codifies the Exchange's expedited proceedings procedure, through
which a member or associated person may attempt to resolve a matter by
negotiating a letter of consent with the Exchange staff. In the CSE's
experience, such procedures can, in certain cases, facilitate a fair
and equitable resolution to potential disciplinary matters. Moreover,
proposed CSE Rule 8.8 clarifies additional procedures concerning an
offer of settlement tendered by a respondent in connection with a
statement of charges. Specifically, a respondent may submit a written
statement in support of an offer of settlement and may make an
additional oral presentation to the BCC if the Exchange staff will not
recommend acceptance of such offer or if the BCC initially rejects the
offer. A respondent would be limited to a maximum of 2 offers to
balance a desire to facilitate settlement with a need to bring
disciplinary proceedings to closure within a reasonable timeframe.
Together, these additional procedures should help ensure fair
disciplinary proceedings.
Proposed CSE Rule 8.10(d) would permit the Exchange President or
Chairman to request review by the Exchange's Board of Trustees of any
decision by the BCC not to initiate charges against a member or
associated person. The Board could, at its discretion, order such a
review. In this way, the CSE proposes to institute a system of checks
and balances in the disciplinary process. Finally, the proposed
Interpretation .01 of CSE Rule 8.11 sets forth the Exchange's policy
concerning staff compliance with relevant laws and regulations, as well
as the publication of disciplinary actions. The Exchange does not
routinely release this type of information to the press. If
circumstances warrant, however, the Exchange's Executive Committee may
direct the Exchange staff to issue a press release or other statement
to the press
2. Basis
The proposed rule change is consistent with Section 6(b) of the Act
\3\ in general, and furthers the objectives of Section 6(b)(5) \4\ in
particular in that it is designed to promote just and equitable
principles of trade and to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. In addition,
the proposed rule change furthers the objectives of Section 6(b)(6) \5\
because it provides that members and persons associated with members
shall be appropriately disciplined for violations of the Act, or the
rules or regulations thereunder, or the rules of the Exchange.\6\
Specifically, the proposed rule change will clarify the Exchange's
regulatory jurisdiction and the conduct of disciplinary proceedings,
and will thereby help ensure proper enforcement of its rules.
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\3\ 15 U.S.C. 78f.
\4\ 15 U.S.C. 78f(b)(5).
\5\ 15 U.S.C. 78f(b)(6).
\6\ Amendment No. 1.
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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 comments were solicited or received in connection with the
proposed rule change.
[[Page 46261]]
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 (1) 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 (2) 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, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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, 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of such filings will also be available for
inspection and copying at the principal office of the CSE. All
submissions should refer to File No. SR-CSE-98-02 and should be
submitted by September 21, 1998.
For the Commission, by Division of Market Regulation, pursuant
to the delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 98-23315 Filed 8-28-98; 8:45 am]
BILLING CODE 8010-01-M
