[Federal Register Volume 59, Number 118 (Tuesday, June 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15043]


[[Page Unknown]]

[Federal Register: June 21, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34215; File No. SR-CSE-94-04]

 

Self-Regulatory Organizations; Cincinnati Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Concerning Chinese Wall 
Procedures for Designated Dealers

June 15, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on March 17, 
1994, the Cincinnati Stock Exchange, Incorporated (``CSE 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 CSE. 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 Cincinnati Stock Exchange, Inc. proposes to adopt Chinese Wall 
procedures relating to the activity of the Exchange's Designated 
Dealers (``specialists''). The text of the proposal follows; the 
proposed additions are italicized.

The Cincinnati Stock Exchange, Incorporated

Chapter V
Supervision

Rule 5.5. Chinese Wall Procedures

    (a) An Exchange Designated Dealer (``specialist'') must establish a 
functional separation (``Chinese Wall'') between the specialist 
operation and any associated or affiliated persons as appropriate to 
its operation and further establish, maintain and enforce written 
procedures reasonably designed to prevent the misuse of material, non-
public information, which includes review of employee and proprietary 
trading, memorialization and documentation of procedures, substantive 
supervision of inter-departmental communications by the Exchange 
specialist firm's Compliance Department and procedures concerning 
proprietary trading when the firm is in possession of material, non-
public information. The Exchange specialist firm must obtain the prior 
written approval of the Exchange that it has complied with the 
requirements above in establishing functional separation as appropriate 
to the operation and that it has established proper compliance and 
audit procedures to ensure the maintenance of the functional 
separation. A copy of these Chinese Wall procedures, and any amendments 
thereto, must be filed with the Exchange's Surveillance Department.
    (b) The following are the minimum procedural and maintenance 
requirements:
    (1) The associate or affiliated person can have no influence on 
specific specialist trading decisions.
    (2) Material, non-public corporate or market information obtained 
by the associated or affiliated person from the issuer may not be made 
available to the specialist.
    (3) Clearing and margin financing information regarding the 
specialist may be routed only to employees engaged in such work and 
managerial employees engaged in overseeing operations of the affiliated 
or associated persons and specialist entities.
    (c) Information that may be made available to others:
    (1) A broker affiliated with an associated or affiliated person may 
make available to the specialist only the market information that he 
would make available to an unaffiliated specialist in the normal course 
of his trading and ``market probing'' activity.
    (2) A specialist may make known to a broker affiliated with an 
affiliated or associated person only the information about market 
conditions in specialty stocks that he would make available in the 
normal course of specializing to any other broker and in the same 
manner as it would make such information available to any other broker.
    (3) An affiliated or associated person can popularize a specialty 
stock provided it makes adequate disclosure about the existence of 
possible conflicts of interest.
    (d) A specialist who becomes privy to material, non-public 
information must communicate that fact promptly to his firm's 
compliance officer or other designated official. The specialist shall 
seek guidance from the compliance officer or other designated official 
as to what procedures the specialist should follow after receipt of 
such information or such other action that should be taken. Appropriate 
records shall be maintained by the compliance officer or other 
designated official. The record should include a summary of the 
information received by the specialist and a description of the action 
taken by the compliance officer or other designated official.
    (e) The Exchange has established the following procedures to 
monitor compliance with this rule:
    (1) Examination of the Chinese Wall procedures established by 
Exchange specialist firms.
    (2) Surveillance of proprietary trades effected by an affiliated or 
associate person and its affiliated or associated specialist 
(``designated dealer'') firm.
    Accordingly, the Exchange will conduct periodic examinations of the 
specialist firm's Chinese Wall procedures to ensure that a functional 
separation between the associated or affiliated person and the 
specialist has been created and thereafter maintained. The Exchange 
will also monitor the trading activities of affiliated or associated 
persons and affiliated or associated specialists in the specialist 
firms' specialty stocks in order to monitor the possible trading while 
in possession of material, non-public information through the periodic 
review of trade and comparison reports generated by the Exchange.

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 CSE 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 CSE has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant parts of such 
statements.

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

(1) Purpose
    The purpose of the proposed new rule is to require specialists to 
establish the appropriate functional separation to their operations 
while maintaining and enforcing written procedures reasonably designed 
to prevent the misuse of material, non-public information by employee, 
affiliated individual and proprietary accounts. The proposed rule 
further requires that a copy of such procedures be provided to the 
Exchange for review and approval, and sets forth specific guidelines 
for designated dealers to follow in adopting, maintaining and enforcing 
Chinese Wall procedures.
(2) Basis
    The proposed rule change is consistent with section 6(b) of the Act 
in general and furthers the objectives of section 6(b)(5) in particular 
in that it promotes just and equitable principals of trade and protects 
investors and the public interest.

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

    The CSE does not believe that the proposed rule change will impose 
any inappropriate 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 date of publication of this notice in the 
Federal Register or within such longer 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 such 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 in the 
Commission's Public Reference Room. Copies of the filing will also be 
available for inspection and copying at the principal office of the 
CSE. All submissions should refer to File No. SR-CSE-94-04 and should 
be submitted by July 12, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-15043 Filed 6-20-94; 8:45 am]
BILLING CODE 8010-01-M