[Federal Register Volume 59, Number 67 (Thursday, April 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8280]


[[Page Unknown]]

[Federal Register: April 7, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33844; File No. SR-NYSE-94-11]

 

Self-Regulatory Organizations; Filing and Order Granting 
Accelerated Approval to Proposed Rule Change by New York Stock 
Exchange, Inc., Relating to Resolutions of the Exchange Board of 
Directors Authorizing the Exchange To Provide Information Concerning 
Pending Formal Exchange Disciplinary Proceedings to the Central 
Registration Depository for Disclosure to the Public

March 31, 1994.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 17, 1994, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the self-
regulatory organization. The NYSE has requested accelerated approval of 
the proposal. 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) (1988).
    \2\17 CFR 240.19b-4 (1991).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange Board of Directors (``Board'') has adopted the two 
resolutions shown below:
    Resolved That each pending formal disciplinary proceeding initiated 
by the Division of Enforcement of the Exchange shall be reported to the 
Central Registration Depository system (``CRD'') operated by the 
National Association of Securities Dealers, Inc. (``NASD''); and it is 
Further resolved That significant changes in the status of a pending 
formal disciplinary proceeding shall also be reported to the CRD during 
the pendency of such a proceeding including the issuance of a decision 
by an Exchange hearing panel, the filing of an appeal to the Exchange 
Board of Directors, and the issuance of a decision by the Exchange 
Board of Directors.

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 III 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
    The proposed rule change authorizes the Exchange to provide 
information to the CRD\3\ concerning pending formal NYSE disciplinary 
proceedings, for disclosure to the public. A formal disciplinary 
proceeding is considered to be pending from the time an executed 
stipulation is filed\4\ or charges are issued\5\ until the proceeding 
is completed. Currently, the NYSE discloses information only on final 
NYSE disciplinary actions to the CRD.
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    \3\The CRD is an automated industry database containing 
employment and disciplinary history of members and associated 
persons registered with self-regulatory organizations (``SROs'') and 
state securities agencies. The CRD is operated by the NASD with 
input on policy and other matters from federal and state agencies 
and other SROs, including the NYSE.
    \4\See NYSE Rule 476(g).
    \5\See NYSE Rule 476(d).
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    Information concerning final disciplinary actions taken by the 
NYSE, NASD and other self-regulatory and regulatory organizations, as 
well as information concerning certain criminal convictions contained 
in the CRD, has been disclosed to the public pursuant to the NASD's 800 
number service since October 1991.\6\
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    \6\The Commission subsequently approved the NASD's procedures 
for operating its 800 number service in Securities Exchange Act 
Release No. 30629 (April 23, 1992), 57 FR 18535 (April 30, 1992) 
(File No. SR-NASD-91-39) (``800 Number Service Plan Approval 
Order'').
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    On July 1, 1993, the SEC approved an NASD rule change to make more 
information available to the general public regarding pending 
disciplinary proceedings or actions taken by federal or state 
securities agencies and SROs that relate to securities or commodities 
transactions, and regarding criminal indictments and information.\7\
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    \7\See Securities Exchange Act Release No. 32568 (July 1, 1993), 
58 FR 36723 (July 8, 1993) (File No. SR-NASD-93-26) (``Pending Event 
Disclosure Approval Order'').
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    Information on pending formal SRO disciplinary proceedings, among 
other events, is currently in the CRD, to the extent that reports are 
made by members, member organizations and associated persons pursuant 
to their reporting obligations on the Uniform Application for 
Securities Industry Registration or Transfer (Form U-4) and Form BD, 
the uniform application form for broker-dealer registration. However, 
the NYSE does not currently report such pending events to the CRD.
    The submission of information concerning pending formal 
disciplinary proceedings directly by the NYSE would enhance the CRD 
database, since the CRD would not have to rely solely on reports from 
members, member organizations and associated persons.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b)(5) in that it will protect investors and the public 
interest as the increased disclosure will enhance the access of members 
of the public to information regarding NYSE members, member 
organizations or any associated persons thereof.

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

    The Exchange believes that the proposed rule change will impose no 
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 not solicited, and does not intend to solicit, 
comments regarding the proposed rule change. The Exchange has not 
received any unsolicited written comments from members or other 
interested parties.

III. 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 NYSE. All 
submissions should refer to File No. SR-NYSE-94-11 and should be 
submitted by April 28, 1994.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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).\8\ In particular, 
the Commission believes the proposal is consistent with the section 
6(b)(5)\9\ 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 interest.
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    \8\15 U.S.C. 78f (1988).
    \9\15 U.S.C. 78f(b)(5) (1988).
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    In the Securities Enforcement Remedies and Penny Stock Reform Act 
of 1990 (``Penny Stock Reform Act''), Congress mandated that the NASD 
establish a toll-free telephone number (``800 number service'') for the 
purpose of receiving and responding to inquiries from the public 
regarding the background of NASD members and their associated persons. 
The NASD began operating its 800 number service on October 1, 1991. 
Upon the request of a caller, the NASD may disclose, in the form of a 
written report, the following information contained in the CRD:\10\ 
past and present employment history of NASD members and their 
associated persons; all final disciplinary actions,\11\ taken by 
federal and state regulatory agencies and SROs, that relate to 
securities or commodities transactions; and all criminal convictions 
reported on Form BD or Form U-4.
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    \10\Under NASD procedures, the 800 number service operator does 
not provide any information over the telephone. Instead, a written 
copy of the information requested is sent to the caller and to the 
NASD member and/or associated person who is the subject of the 
inquiry. The identity of the caller remains confidential. See 800 
Number Service Plan Approval Order, supra, note 6.
    \11\The NASD's 800 number service plan does not define the term 
``disciplinary action.'' According to the NASD, however, the term 
includes, but is not limited to, information provided in response to 
question 7 on Form BD and question 22 on Form U-4. See Pending Event 
Disclosure Approval Order, supra, note 7.
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    In 1993, the Commission approved a rule change by the NASD to 
expand the scope of information that is reportable through its 800 
number service.\12\ Thus, in addition to the information set forth 
above, the NASD may disclose to the public such events as pending 
formal disciplinary actions initiated by federal and state regulatory 
agencies and SROs; criminal indictments or informations; civil 
judgments; and certain arbitration awards in securities and commodities 
disputes involving public customers. Currently, the NASD relies on 
members and associated persons to report these events to the CRD on 
Form BD or Form U-4, respectively.\13\ Because this represents the only 
means by which the NASD can obtain data about pending disciplinary 
actions (other than its own), the quality of the CRD database, and thus 
of the 800 number service, depends on complete and timely reporting by 
members and associated persons.
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    \12\See Pending Event Disclosure Approval Order, supra, note 7. 
The Commission notes that, in 1992, Congress requested that the 
General Accounting Office (``GAO'') conduct a review of various 
aspects of the Penny Stock Reform Act, including the NASD's 800 
number service. Among other things, the GAO recommended that 
information about final arbitration awards be reported. Accordingly, 
the NASD submitted, and the Commission approved, a rule change 
authorizing the NASD to disclose certain arbitration awards, as well 
as pending formal disciplinary actions, through its 800 number 
service. In this context, the Commission notes that it ah requested 
all SROs to coordinate with the NASD the transfer of information 
about awards rendered in each exchange's arbitration program.
    \13\See supra, note 11.
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    In the Commission's opinion, the resolutions adopted by the Board 
should help fill a potential gap in the NASD's 800 number service, by 
authorizing the Exchange to report the initiation of a formal NYSE 
disciplinary proceeding\14\ involving an Exchange member, member 
organization or associated person, and significant changes in the 
status thereof,\15\ directly to the CRD. As a result, that information 
will be available to the public whether or not it is voluntarily 
reported by the member or associated person. The Commission therefore 
finds that the proposed rule change should enhance the fairness and 
accuracy of the CRD database and, accordingly, of information released 
to the public through the 800 number service.
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    \14\For purposes of reporting to the CRD, the NYSE considers a 
formal disciplinary proceeding to be pending if an executed 
stipulation has been filed or charges have been issued. See supra, 
notes 4-5 and accompanying text.
    \15\The NYSE provides the following examples of reportable 
changes in the status of a pending formal disciplinary proceeding: 
The issuance of a decision by a hearing panel; the filing of an 
appeal to the Board; and the issuance of a decision by the Board.
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    The Commission has long believed that investors need access to 
reliable information in order to protect themselves against potential 
fraud and abuse. In this respect, the NYSE proposal should help 
customers make an informed decision about whether they should conduct 
or continue to conduct business with particular securities 
professionals. In sum, the Commission has concluded that the proposed 
rule change should increase the flow of information to the public and 
thus should ultimately strengthen investor protection.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The NYSE proposal 
will enable the Exchange to report and the NASD to disclose certain 
information about the disciplinary history of securities professionals 
that currently may not be available to the public. Accelerated approval 
thereof will allow investors to benefit from the implementation of 
these procedures as soon as possible. Further, the substance of the 
proposed resolutions is similar to an NASD proposal that was published 
in the Federal Register for the full comment period and was approved by 
the Commission.\16\
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    \16\No comments were received in connection with the proposed 
rule change which expanded the scope of the 800 number service to 
include pending formal disciplinary actions. See Pending Event 
Disclosure Approval Order, supra, note 7.
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    It is therefore ordered, Pursuant to section 19(b)(2)\17\ that the 
proposed rule change (SR-NYSE-94-11) is hereby approved.

    \17\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.\18\
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    \18\17 CFR 200.30-3(a)(12) (1991).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-8280 Filed 4-6-94; 8:45 am]
BILLING CODE 8010-01-M