[Federal Register Volume 59, Number 63 (Friday, April 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7764]


[[Page Unknown]]

[Federal Register: April 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33816; File No. SR-NYSE-93-27]

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Notice of Filing and Order 
Granting Accelerated Approval to Amendment No. 3 to Proposed Rule 
Change Relating to the Addition of Rules 72(b) and 410A to the ``List 
of Exchange Rule Violations and Fines Applicable Thereto Pursuant to 
Rule 476A'' and Amending Minor Rule Violation Enforcement and Reporting 
Plan

March 25, 1994.

I. Introduction

    On May 27, 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 List of Exchange 
Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A by 
adding to the list violations of the agency provisions of Rule 72(b) 
and Rule 410A.\3\ On June 9, 1993, the NYSE submitted to the Commission 
Amendment No. 1 to the proposed rule change.\4\ On January 3, 1994, the 
Commission received from the NYSE Amendment No. 2 to the proposed rule 
change.\5\ On February 18, 1994, the NYSE submitted to the Commission 
Amendment No. 3 to the proposed rule change.\6\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1992).
    \3\The NYSE also has requested approval, under Rule 19d-1(c)(2), 
17 CFR 240.19d-1(c)(2), to amend its Rule 19d-1 Minor Rule Violation 
Enforcement and Reporting Plan (``Plan'') to include Rules 72(b), 
401 and 410A. 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 May 26, 1993. Subsequent to this request, the Exchange amended 
the proposal to withdraw Rule 401 from the list of minor rule 
violations and to clarify that violations of Rule 72(b) involving 
instances of proprietary participation with the cross would be added 
to the list of minor rules. See Amendment No. 2, infra note 5.
    \4\See letter from Donald Siemer, Director, Market Surveillance, 
NYSE, to Diana Luka-Hopson, Branch Chief, Commission, submitted on 
June 9, 1993, by which the NYSE made corrections to its current Rule 
476A Violation List.
    \5\See letter from Robert J. McSweeney, Senior Vice President, 
Market Surveillance, to Sandra Sciole, Special Counsel, Commission, 
dated December 23, 1993. Amendment No. 2 withdrew Rule 401 from the 
list of proposed additions to the Rule 476A list of minor rule 
violations and limited the violations of Rule 72(b) that would be 
eligible to be fined under Rule 476A to instances of proprietary 
participation with the cross.
    \6\See letter from Brian M. McNamara, Managing Director, Market 
Surveillance, NYSE, to Sandra Sciole, Special Counsel, Commission, 
dated February 11, 1994. Amendment No. 3 amended the text of the 
List of Exchange Rule Violations and Fines Applicable Thereto 
Pursuant To Rule 476A to replace the words ``Rule 72(b)'' with 
``violation of the agency provisions of Rule 72(b).''
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    The proposed rule change, together with Amendment Nos. 1 and 2, was 
noticed in Securities Exchange Act Release No. 33564 (February 1, 
1994), 59 FR 5793 (February 8, 1994). No comments were received on the 
proposal. This order approves the proposed rule change, including 
Amendment No. 3 on an accelerated basis.

II. Description of the Proposal

    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.\7\ Subsequently, in 1985, the Commission approved an NYSE 
Plan (``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) 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.\8\ 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 repeat violations.
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    \7\See Securities Exchange Act Release No. 21013 (June 1, 1984), 
49 FR 23838 (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.
    \8\The List is contained under Supplementary Material to 
Exchange Rule 476A. As discussed in note 7, 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.\9\ 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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    \9\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 violations of Rule 410A and the agency 
provisions of Rule 72(b) to the list of minor rule violations subject 
to the Rule 476A minor rule violation plan. As amended, the minor rule 
list includes only violations of the agency provisions of Rule 
72(b).\10\ In addition, the list includes the Rule 410A requirements 
for automated submission of trading data.\11\
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    \10\NYSE Rule 72(b) states that when a member has an order to 
buy and an order to sell an equivalent amount of the same security, 
and both orders are for 25,000 shares or more and are for the 
accounts of persons who are not members or member organizations, the 
member may ``cross'' those orders at a price at or within the 
prevailing quotation. The member's bid or offer shall be entitled to 
priority at such cross price, irrespective of pre-existing bids or 
offers at that price. The member shall follow the crossing 
procedures of Rule 76, and another member may trade with either the 
bid or offer side of the cross transaction only to provide a price 
which is better than the cross price as to all or part of such bid 
or offer. A member who is providing a better price to one side of 
the cross transaction must trade with all other market interest 
having priority at that price before trading with any part of the 
cross transaction. No member may break up the proposed cross 
transaction, in whole or in part, at the cross price.
    \11\NYSE Rule 410A requires members and member organizations to 
submit certain information concerning transactions in an automated 
format as requested by the Exchange. See NYSE Rule 410A for the list 
of trade data elements required to be submitted to the NYSE under 
this Rule.
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    The Exchange states that the purpose of the proposed rule change is 
to facilitate the Exchange's ability to induce compliance with all 
aspects of the above-name Rules. Additionally, the NYSE states that the 
proposed rule change is consistent with section 6(b)(6) of the Act in 
that it will provide a procedure whereby member organizations can be 
``appropriately disciplined'' in those instances when a rule violation 
is minor in nature, but a sanction more serious than a warning or 
cautionary letter is appropriate. In addition, the Exchange states that 
the proposed rule change provides a fair procedure for imposing such 
sanctions, in accordance with the requirements of sections 6(b)(7) and 
6(d)(1) of the Act.

III. 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 section 6(b)(1), (6) and (7), 
6(d)(1) and 19(d).\12\ 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 
which is consistent with section 6(b)(7) and 6(d)(1) of the Act.
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    \12\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 requirements of 
Rules 410A and 72(b),\13\ 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.
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    \13\As noted above, the minor rule list would include only the 
section of Rule 72(b) which prohibits instances of proprietary 
participation with the cross transaction. See Amendment No. 2, supra 
note 5.
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    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 Rule 410A and the proprietary 
participation prohibition in Rule 72(b) to the List will enhance, 
rather than reduce, the NYSE's enforcement capabilities regarding this 
Exchange Rule. Indeed, the Commission expects the NYSE to bring full 
disciplinary proceedings for violations of Rule 410A or 72(b) where the 
violation is egregious or where there is a history or pattern of repeat 
violations.
    Finally, the Commission believes that the inclusion of Rules 410A 
and 72(b) on the List 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.
    The Commission finds good cause for accelerated approval of 
Amendment No. 3 to the proposed rule change prior to the thirtieth day 
after publication of notice of filing thereof. The NYSE's proposed rule 
change was published in the Federal Register for the full statutory 
period and no comments were received.\14\ Amendment No. 3 merely amends 
the list of minor rule violations to indicate that the list would 
include only the section of Rule 72(b) which prohibits instances of 
proprietary participation with the cross transaction. The Commission 
finds that accelerated approval of Amendment No. 3 is necessary in 
order for the NYSE to be able to effectuate its new amendments to Rule 
476A in a timely manner upon approval.
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    \14\See Securities Exchange Act Release No. 33564 (February 1, 
1994), 59 FR 5793 (February 8, 1994).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 3. 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 Room, 450 Fifth Street 
NW., Washington, DC 20549. Copies of the filing will also be available 
for inspection and copying at the principal office of the NYSE. All 
submissions should refer to File No. SR-NYSE-93-27 and should be 
submitted by April 22, 1994.
    It is therefore ordered, pursuant to section 19(b)(2) and Rule 19d-
1(c)(2) under the Act,\15\ that the proposed rule change (SR-NYSE-93-
27) is approved, including Amendment No. 3 on an accelerated basis.

    \15\15 U.S.C. 78s(b)(2) (1988) and 17 CFR 240.19d-1(c)(2) 
(1991).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-7764 Filed 3-31-94; 8:45 am]
BILLING CODE 8010-01-M