[Federal Register Volume 59, Number 30 (Monday, February 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-3319]


[[Page Unknown]]

[Federal Register: February 14, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33587; File No. SR-BSE-93-19]

 

Self-Regulatory Organizations; Filing of Proposed Rule Change by 
the Boston Stock Exchange, Inc. Relating to the Insider Trading and 
Securities Fraud Enforcement Act of 1988

February 7, 1994
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 8, 1993, the 
Boston Stock Exchange, Inc. (``BSE'' 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. On January 13, 1994, the 
BSE submitted to the Commission Amendment No. 1 to the proposal.\2\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1).
    \2\See letter from Karen A. Aluise, Assistant Vice President, 
BSE to Sandra Sciole, Branch Chief, Exchange Regulation, Division of 
Market Regulation, Commission, dated January 13, 1994. The BSE 
submitted a letter to the Commission adding language to the proposal 
and its corresponding exhibits which clarifies that the BSE's 
insider trading rules are designed to require members and associated 
persons to attempt to detect securities transactions which they 
reasonably believe may have involved the misuse of material, non-
public information. In this regard, this letter amendment makes nine 
changes to the proposal and its exhibits. This letter amendment 
deleted the last sentence in paragraph 1 of Exhibit 4 which stated, 
``This list shall be updated as associated persons leave or join the 
firm.'' It also added ``trade confirmations and'' after the word 
``duplicate'' in the first sentence in Exhibit 4, paragraph 1a, and 
it changed the date in Exhibit 3, the Sample Membership Bulletin, 
from March 31, 1994 to April 30, 1994.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The BSE seeks to amend its rules to supplement the provisions of 
the Insider Trading and Securities Fraud Enforcement Act of 1988 
(``ITSFEA'').

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

    The purpose of the proposed rule change is to supplement section 
15(f) of the Securities Exchange Act of 1934 (``Act'') and the ITSFEA, 
by requiring every member organization of the Exchange to establish 
maintain and enforce written policies and procedures reasonably 
designed to prevent the misuse of material, non-public information by 
such member and any person associated with the member. In addition, it 
requires that all members who are required to file SEC Form X-17A-5 
(``FOCUS Reports'') with the Exchange on an annual basis must submit 
with their FOCUS Reports a signed statement of compliance with this 
rule. Finally, it establishes minimum standards for compliance with the 
record-keeping requirements of this rule, and requires disclosure by 
members and associated persons to the Exchange's Surveillance 
Department of any securities transaction that the firm reasonably 
believes may have involved the misuse of material, non-public 
information.
    Supplementary Material .02 defines conduct that would constitute 
the misuse of material, non-public information, including, but not 
limited to, (1) trading in any securities, or in any related 
securities, options or other derivative securities of a corporation 
while in possession of material non-public information concerning that 
corporation; (2) trading in any underlying security or related options 
or other derivative securities concerning imminent transactions in the 
underlying security or related securities; and (3) disclosing to 
another person or entity information described in (1) or (2) above for 
the purpose of facilitating the misuse of such material, non-public 
information.
    The scope of the aforementioned definition is intended to be 
consistent with the goal of section 15(f) of the Act and ITSFEA to 
prevent the misuse of material, non-public information. This definition 
should be broad enough to encompass frontrunning, trading on the basis 
of material corporate inside information, tipping and misappropriating 
material corporate inside information.
    Supplementary Material .02 defines the term ``associated person'' 
or ``person associated with a member'' as any partner, officer, 
director, or branch manager of a member (or any person occupying a 
similar status or performing similar functions), any person directly or 
indirectly controlling, controlled by, or under common control with a 
member, or any employee of a member.
    Supplementary Material .03 requires members to establish, maintain 
and enforce certain policies and procedures pursuant to this rule. 
Specifically, members would be required to (1) advise all associated 
persons in writing of the prohibition against the misuse of material, 
non-public information; (2) maintain for at least three years, the 
first two years in an easily accessible place, signed statements from 
the member and all associated persons of the member, affirming their 
awareness of and agreement to abide by the above mentioned 
prohibitions; (3) maintain for at least three years, the first two 
years in an easily accessible place, account statements of all 
brokerage accounts (excluding mutual fund and money market accounts) in 
which an associated person either has a direct or indirect interest or 
makes investment decisions; (4) periodically review all such brokerage 
accounts for the purpose of detecting those securities transactions 
that the firm reasonably believes may have involved the misuse of 
material, non-public information; and (5) identify and document 
business dealings the member may have with publicly traded corporations 
that may result in the member receiving material, non-public 
information.
    The standards contained in .03 are intended to be minimum standards 
for compliance with the record-keeping requirements of the Act and this 
rule. Adherence to these standards will not necessarily constitute 
compliance with the Act and the rule for all members. The adequacy of 
any one member's policies and procedures will depend on the nature of 
that member's business.
    Supplementary Material .04 and the member bulletin (see Exhibit 3) 
describe a set of forms, denominated as the ``Sample ITSFEA Compliance 
Procedures,'' which may be used by ``eligible members'' to satisfy the 
record-keeping and filing requirements of the Act and this rule. 
``Eligible members,'' are member organizations and sole Exchange 
members that do not carry or introduce customer accounts and for whom 
the Exchange is the designated examining authority (``DEA'').
    Specifically, the Sample ITSFEA Compliance Procedures require: (1) 
All associated persons to disclose each securities account in which 
they have a direct or indirect financial interest, or make investment 
decisions; (2) all associated persons to disclose whether they are an 
officer, director or 10% shareholder in a company whose shares are 
publicly traded: (3) acknowledgement by all associated persons that 
they understand and will abide by the prohibition against the misuse of 
material, non-public information; (4) written statement by a senior 
officer, partner or sole proprietor that such person ensures that all 
of the ITSFEA compliance procedures are being followed, including the 
periodic review of all accounts and trading activities of associated 
persons.
    The Sample ITSFEA Compliance Procedures are intended to constitute 
the minimum policies and procedures required by the Act and this rule; 
their use does not ensure compliance with the record-keeping and filing 
requirements.
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that it is designed to promote just and equitable principles of 
trade through the prevention of fraudulent and manipulative acts and 
practices.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    The Exchange has neither solicited nor received comments on the 
proposed rule.

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 Section, 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 BSE. All 
submissions should refer to File No. SR-BSE-93-19 and should be 
submitted by March 7, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-3319 Filed 2-11-94; 8:45 am]
BILLING CODE 8010-01-M