[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 641-642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-146]


[[Page Unknown]]

[Federal Register: January 5, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33403; File No. SR-NYSE-93-35]

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Granting Approval of Proposed Rule Change Relating to Additions 
of Market-at-the-Close Orders to the ``List of Exchange Rule Violations 
and Fines Applicable Thereto Pursuant to Rule 476A'' and Amending Minor 
Rule Violation Enforcement and Reporting Plan

December 28, 1993.
    On October 7, 1993 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 revise the Rule 476A 
Violations List for imposition of fines for minor violations of rules 
and/or policies by adding to the list Exchange procedures with respect 
to entry and cancellation of market-at-the-close (``MOC'') orders on 
expiration days (i.e., expiration Fridays or the day on which Quarterly 
Index options expire). The NYSE also requested approval, under Rule 
19d-1(c)(2), to amend its Rule 19d-1 Minor Rule Violation Enforcement 
and Reporting Plan to include the MOC procedures.\3\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1991).
    \3\See letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Sharon Lawson, Assistant Director, Exchange and 
Options Regulation, Division of Market Regulation, Commission, dated 
October 5, 1993.
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 33161 (November 5, 1993), 58 FR 60078 
(November 12, 1993). No comments were received on the proposal.

Description and Background

    In 1984, the Commission adopted amendments to paragraph (c) of 
Securities Exchange Act Rule 19d-1 to allow SROs to submit, for 
Commission approval, plans for the abbreviated reporting of minor rule 
violations.\4\ Subsequently, in 1985, the Commission approved an NYSE 
Plan for the abbreviated reporting of minor rule violations pursuant to 
Rule 19d-1(c) under the Act. The Plan relieves the NYSE of the current 
reporting requirements imposed under section 19(d)(1) of the Act for 
violations listed in NYSE Rule 476A. The NYSE Plan, as embodied in NYSE 
Rule 476A, provides that the Exchange may designate violations of 
certain rules as minor rule violations. The Exchange may impose a fine, 
not to exceed $5,000, on any member, member organization, allied 
member, approved person, or registered or non-registered employee of a 
member or member organization for a violation of the delineated rules 
by issuing a citation with a specific penalty.\5\ Such person can 
either accept the penalty, or opt for a full disciplinary hearing on 
the matter. Fines assessed pursuant to NYSE Rule 476A in excess of 
$2,500 are not considered pursuant to the Plan and must be reported in 
a manner consistent with the current reporting requirement of section 
19(d)(1) of the Act. The Exchange also retains the option of bringing 
violations of rules included under NYSE Rule 476A to full disciplinary 
proceedings, and the Commission expects the Exchange to do so for 
egregious or repeat violations.
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    \4\See Securities Exchange Act Release No. 21013 (June 1, 1984), 
49 FR 23828 (June 8, 1984). Pursuant to paragraph (c)(1) of Rule 
19d-1, an SRO is required to file promptly with the Commission 
notice of any ``final'' disciplinary action taken by the SRO. 
Pursuant to paragraph (c)(2) of Rule 19d-1, any disciplinary action 
taken by an SRO for a violation of an SRO rule that has been 
designated a minor rule violation pursuant to the Plan shall not be 
considered ``final'' for purposes of section 19(d)(1) of the Act if 
the sanction imposed consists of a fine not exceeding $2,500 and the 
sanctioned person has not sought an adjudication, including a 
hearing, or otherwise exhausted his or her administrative remedies. 
By deeming unadjudicated minor violations as not final, the 
Commission permits the SRO to report violations on a periodic, as 
opposed to immediate, basis.
    \5\The List if contained under Supplementary Material to 
Exchange Rule 476A. As discussed in note 4 supra, only those fines 
imposed that are not in excess of $2,500 are subject to periodic 
reporting. Fines imposed pursuant to Rule 476A in excess of $2,500 
are deemed final and therefore are subject to immediate reporting to 
the Commission.
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    In adopting Rule 19d-1, the Commission noted that the Rule was an 
attempt to balance the informational needs of the Commission against 
the reporting burdens of the SROs.\6\ In promulgating paragraph (c) of 
the Rule, the Commission was attempting further to reduce those 
reporting burdens by permitting, where immediate reporting was 
unnecessary, quarterly reporting of minor rule violations. The Rule is 
intended to be limited to rules which can be adjudicated quickly and 
objectively.
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    \6\See Securities Exchange Act Release No. 13762 (July 8, 1977), 
42 FR 35411 (July 14, 1977).
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    The NYSE currently is adding its procedures with respect to entry 
and cancellation of MOC orders on expiration days to the list of minor 
rule violations subject to the Rule 476A minor rule violation plan. The 
MOC order entry and cancellation procedures require, for example, that 
MOC orders be entered on the Exchange by 3:40 p.m. on expiration days 
if they are related to a strategy including any stock index future, 
stock index option or option on stock index future in expiring 
contracts, and that no cancellations of such orders be effected after 
3:40 p.m. Violations of these policies could include late entry of MOC 
orders, entry of MOC orders which do not offset a published imbalance 
of 50,000 shares or more in a pilot stock or an improper cancellation 
of an MOC order. These procedures are announced to members and member 
organizations through an Information Memo issued approximately one week 
before each expiration day.

Discussion

    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 sections 6(b)(1), (6) and (7), 
6(d)(1) and 19(d) of the Act.\7\ The proposal is consistent with the 
section 6(b)(6) requirement that the rules of an exchange provide that 
its members and persons associated with its members shall be 
appropriately disciplined for violations of rules of the exchange. In 
this regard, the proposal provides an efficient procedure for 
appropriate disciplining of members for a rule violation that is 
technical and objective in nature. Moreover, because the Plan provides 
procedural rights to the person fined and permits a disciplined person 
to request a full hearing on the matter, the proposal provides a fair 
procedure for the disciplining of members and persons associated with 
members, consistent with sections 6(b)(7) and 6(d)(1) of the Act.
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    \7\15 U.S.C. 78f(b)(1), (6) and (7), 78f(d)(1) and 78s(d) 
(1988).
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    The Commission also believes that the proposal provides an 
alternate means by which to deter violations of the NYSE rules included 
in the Plan, thus furthering the purposes of section 6(b)(1) of the 
Act. An exchange's ability to effectively enforce compliance by its 
members and member organizations with Commission and Exchange rules is 
central to its self-regulatory functions. Inclusion of a rule in an 
exchange's minor rule violation plan should not be interpreted to mean 
it is an unimportant rule. On the contrary, the Commission recognizes 
that inclusion of rules under a minor rule violation plan may not only 
reduce reporting burdens on an SRO but also may make its disciplinary 
system more efficient in prosecuting violations of these rules.
    In addition, because the NYSE retains the discretion to bring a 
full disciplinary proceeding for any violation included on the List, 
the Commission believes that adding the procedures for entry and 
cancellation of MOC orders on expiration days to the List will enhance, 
rather than reduce, the NYSE's enforcement capabilities of these 
Exchange procedures.
    As described above, MOC procedures are subject to change on a 
monthly basis and are outlined in an Information Memo disseminated to 
the members and member organizations prior to each expiration day. The 
Commission believes that whether a member or member organization has 
followed such specifically outlined procedures is amenable to quick, 
objective determinations of compliance with respect to activity on each 
expiration day. The quick and efficient resolution of questions of 
compliance with such procedures would facilitate the Exchange's ability 
to induce continued compliance without being hindered by the additional 
time and cost associated with more sophisticated Exchange disciplinary 
actions.
    Finally, the Commission believes that the inclusion of the MOC 
procedural rules will prove to be an effective alternate response to a 
violation when the initiation of a full disciplinary proceeding is 
unsuitable because such a proceeding may be more costly and time-
consuming in view of the minor nature of the particular violation. This 
is further reinforced by the nature of the monthly dissemination of 
these procedures to the members and their potential for change each 
month in response to the instruments affected on the expiration day and 
the surrounding circumstances at that time. By including the MOC 
procedures in the Rule 476A Minor Rule Violation List, the NYSE can 
quickly respond to violations, thereby deterring similar infractions 
the following month.
    It is therefore ordered, Pursuant to section 19(b)(2) and Rule 19d-
1(c)(2) under the Act,\8\ that the proposed rule change (SR-NYSE-93-35) 
is approved.

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    \8\15 U.S.C. 78s(b)(2) (1988) and 17 CFR 240.19d-1(c)(2) (1991).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-146 Filed 1-4-94; 8:45 am]
BILLING CODE 8010-01-M