[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45758-45759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21703]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36158; File No. SR-PSE-95-16]
Self-Regulatory Organizations; Pacific Stock Exchange
Incorporated; Order Granting Approval To Proposed Rule Change and
Amendment No. 1 To Proposed Rule Change Relating to Violations of the
Intermarket Trading System Rules
August 25, 1995.
On June 8, 1995, the Pacific Stock Exchange Incorporated (``PSE''
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 (``the Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend its Minor Rule Violation
Plan (``MRP'') \3\ to include violations of the Intermarket Trading
System (``ITS'') rules. On June 26, 1995, the Exchange submitted to the
Commission Amendment No. 1 to the proposed rule change.\4\
\1\ 15 U.S.C. 78s(b)(1) (1988).
\2\ 17 CFR 240.19b-4 (1994).
\3\ Rule 19d-1(c)(2) under the Act, 17 CFR 240.19d-1(c)(2),
authorizes national securities exchanges to adopt minor rule
violation plans for the summary discipline and abbreviated reporting
of minor rule violations by exchange members and member
organizations. The PSE's Plan was approved by the Commission in
Securities Exchange Act Release No. 22654 (Nov. 21, 1985), 50 FR
48853 (Nov. 27, 1985).
\4\ See letter from Michael Pierson, Senior Attorney, PSE, to
Jennifer S. Choi, Attorney, SEC, dated June 23, 1995. Amendment No.
1 withdrew the proposed changes to the Equity Floor Procedure Advice
2-B because these changes have been approved already by the
Commission. See Securities Exchange Act Release No. 34760 (Sept. 30,
1994), 59 FR 50950 (Oct. 6, 1994) (approving File No. SR-PSE-94-13).
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The proposed rule change and Amendment No. 1 were published for
comment in Securities Exchange Act Release No. 35959 (July 12, 1995),
60 FR 36849 (July 18, 1995). No comments were received on the proposal.
The Exchange's MRP, set forth in PSE Rule 10.13, provides that the
Exchange may impose a fine not to exceed $5,000 on any member, member
organization, or person associated with a member or member
organization, for any violation of an Exchange rule that has been
deemed to be minor in nature and approved by the Commission for
inclusion in the MRP. Rule 10.13 includes a list of rule violations
that are eligible for the expedited disciplinary procedure under the
MRP and that may be the subject of fines in accordance with the
Recommended Fine Schedule.
The Exchange proposes to amend its MRP by adding the following
provision to the MRP as Rule 10.13(i)(9): ``Failure to follow the
provisions of the rules and regulations governing the use of the
Intermarket Trading System (ITS) (PSE Rules 5.20-5.23).'' The Exchange
is also proposing to amend its Recommended Fine Schedule to establish
the following recommended fines (on a running two-year basis) for
violations of the ITS rules and regulations: $500 for a first-time
violation; $1,000 for a second-time violation; and $2,000 for a third-
time violation.\5\
\5\ For a discussion of the Exchange's Recommended Fine
Schedule, see Securities Exchange Act Release No. 34322 (July 6,
1994), 59 FR 35958 (July 14, 1994).
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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).\6\ 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, and with the Section 6(b)(6) requirement that the rules of an
exchange provide that its members be appropriately disciplined for
violations of an exchange's rules and the Act.
\6\ 15 U.S.C. 78f(b) (1988 & Supp. v 1993).
Specifically, the Commission believes that an exchange's ability to
effectively enforce compliance by its members and member organizations
with the Commission and Exchange rules is central to its self-
regulatory functions. The inclusion of a rule in an exchange's
[[Page 45759]]
minor rule violation plan, therefore, should not be interpreted to mean
that it is not an important rule. On the contrary, the Commission
recognizes that the inclusion of minor violations of particular rules
under a minor rule violation plan may make the exchange's disciplinary
system more efficient in prosecuting more egregious and/or repeated
violations of these rules, thereby furthering its mandates to protect
investors and the public interest.
The Commission believes that adding the provisions listed above to
the Exchange's MRP is consistent with Sections 6(b)(5) and 6(b)(6) in
that the purpose of the Exchange's MRP is to provide for a response to
a violation of Exchange rules when a meaningful sanction is needed, but
when initiation of a disciplinary proceeding pursuant to Exchange Rule
10.3 \7\ is not suitable because such a proceeding would be more costly
and time-consuming than would be warranted given the nature of the
violation. Rule 10.13 provides for an appropriate response to minor
violations of certain Exchange rules while preserving the due process
rights of the party accused through specified required procedures.\8\
\7\ PSE Rule 10.3 governs the initiation of disciplinary
proceedings by the Exchange for violations within the disciplinary
jurisdiction of the Exchange.
\8\ The MRP permits any person to contest the Exchange's
imposition of the fine through submission of a written answer, at
which time the matter will become a formal disciplinary action.
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Moreover, the Commission finds that violations of the provision
being added are objective and technical in nature, and easily
verifiable, thereby lending themselves to the use of expedited
proceedings. Noncompliance with the provisions may be determined
objectively and adjudicated quickly without the complicated factual and
interpretive inquiries associated with more sophisticated Exchange
disciplinary proceedings. If, however, the Exchange determines that a
violation of one of these rules is not minor in nature, the Exchange
retains the discretion to initiate full disciplinary proceedings in
accordance with Exchange Rule 10.3. The Commission expects the PSE to
bring full disciplinary proceedings in appropriate cases (e.g., in
cases where the violation is egregious or where there is a history or
pattern of repeated violations).
Finally, the Commission finds that the imposition of the
recommended fines for violations of the ITS rules and regulations
should result in appropriate discipline of members, in a manner that is
proportionate to the nature of such violations.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-PSE-95-16) is approved.
\9\ 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.\10\
\10\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21703 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M
