[Federal Register Volume 59, Number 19 (Friday, January 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-1812]


[Federal Register: January 28, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33501; File No. SR-Amex-93-42]


Self-Regulatory Organizations; Filing of Proposed Rule Change by 
American Stock Exchange, Inc. Relating to Disciplinary Rules

January 21, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on December 
23, 1993, the American Stock Exchange, Inc. (``Amex'' 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 self-regulatory organization. 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 American Stock Exchange is proposing to amend its disciplinary 
rules relating to the retention of disciplinary jurisdiction and the 
settlement of disciplinary actions.

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 self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Retention of disciplinary jurisdiction. Under the Act, the Exchange 
is required to investigate possible wrongdoing by persons and entities 
subject to its jurisdiction and, if warranted, initiate appropriate 
disciplinary action. The Exchange's disciplinary jurisdiction extends 
to its members, member organizations, and their registered employees. 
Article V, Section 6 of the Exchange Constitution and Rule 341 permit 
the Exchange to retain disciplinary jurisdiction even after the 
termination of a person's or an entity's status as a member, member 
organization, or registered employee, provided that it gives them 
written notice that it is retaining jurisdiction within one year 
immediately following its receipt of written notice of their 
termination.
    Member firms are required to file a termination notice with the 
Exchange whenever a registered employee leaves their employ. In most 
cases, these reflect voluntary resignations. However, member firms are 
also required to file amended termination notices, subsequent to the 
registered employee's departure, if they become aware of customer 
complaints or other possible wrongdoing by the employee. The Exchange 
has always taken the position that the one year period to retain 
jurisdiction under its rules begins to run only after it is notified by 
the member firm of possible violative conduct by the registered 
employee. We believe that this is a logical position since the Exchange 
would have no reason to retain jurisdiction and initiate an 
investigation unless it had reason to believe a violation may have been 
committed.
    Recently, in an appeal to the SEC, a respondent in an Exchange 
disciplinary proceeding asserted that the Exchange lacked jurisdiction 
over him because it failed to notify him within one year from the time 
his former firm filed a termination notice reporting his voluntary 
resignation.\1\ In that case, the Exchange retained jurisdiction within 
one year of receiving an amended termination notice reporting a 
customer complaint against the registered representative. The SEC 
agreed with the respondent, adopting the more narrow, literal reading 
of our jurisdictional provision, requiring the Exchange to retain 
jurisdiction within one year of its receipt of a termination notice, 
regardless of whether such notice contains any indication of actionable 
conduct. However, the Commission in its decision indicated that it was 
sensitive to the Exchange's position and would be receptive to the 
Exchange amending its rules to expressly provide that the one year time 
period begins upon receipt of the original termination notice or any 
subsequent amendment of such notice, whichever is later.
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    \1\In re Leavitt, Securities Exchange Act Release No. 32441, 
1993 Sec Lexis 1427 (June 10, 1993) (Admin. Proc. File No. 3-7836).
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    By so amending the applicable Constitutional and rule provisions, 
the Exchange will close an existing gap in its disciplinary process 
which permits possible wrongdoers to escape investigation by the 
Exchange into potentially serious misconduct. It should be noted that 
the CBOE and the NASD have rule provisions relating to retention of 
discipolinary jurisdiction comparable to the changes we are proposing.
    Settlement of disciplinary actions. The Exchange's Enforcement 
Department is charged with the responsibility of issuing disciplinary 
charges if, following an investigation, it is determined that persons 
or entities within the Exchange's jurisdiction committed serious 
infractions of the exchange's rules or the Federal securities laws. The 
issuance of formal charges begins a rather lengthy process involving 
the filing of an answer to the charges, the exchange of documents, and 
the scheduling of a disciplinary hearing. Very often, however, persons 
who are the subject of Exchange investigations wish to settle the 
matter before formal charges are issued by stipulating to certain facts 
and consenting to a penalty. At present, Article V, section 1(b)(4) of 
the Constitution and Rule 345(c) require the issuance of formal charges 
before a disciplinary matter can be settled. In contrast, the 
comparable rules at the NYSE, NASD, and CBOE permit potential 
respondents to settle disciplinary proceedings without the service of 
formal charges.
    It is proposed that the Exchange conform its procedures for 
settling disciplinary actions to those now in effect at all the other 
major self-regulatory organizations. There would be several advantages 
to amending the procedures in the manner proposed. First, it would save 
the substantial time and expense that is now devoted to the formal 
charging process in settled cases. Second, it would give the Exchange 
more flexibility in negotiating the resolution of enforcement actions. 
Third, conforming the Exchange's settlement procedures to those in 
place at the other principal self-regulatory organizations would serve 
the interests of regulatory uniformity and simplicity. Finally, 
potential respondents would still retain the option of following the 
current disciplinary procedures if they are so inclined.
2. Statutory Basis
    The proposed rule change is consistent with section 6(b) of the Act 
in general and furthers the objectives of section 6(b)(6) in particular 
in that it is intended to assure that members, member firms, and member 
firm employees are disciplined for rule violations.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no 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 publication of this notice in the Federal 
Register or within such other 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 the 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 at the 
Commission's Public Reference Station, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the Amex. All 
submissions should refer to File No. SR-Amex-93-42 and should be 
submitted by February 18, 1994.


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-1812 Filed 1-27-94; 8:45 am]
BILLING CODE 8010-01-M