[Federal Register Volume 59, Number 137 (Tuesday, July 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17429]
[[Page Unknown]]
[Federal Register: July 19, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34358; File No. SR-Amex-93-42]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change Relating to
Disciplinary Jurisdiction and Settlement of Disciplinary Actions
July 12, 1994.
I. Introduction
On December 23, 1993, the American Stock Exchange, Inc. (``Amex''
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 amend its disciplinary rules
relating to the retention of disciplinary jurisdiction and the
settlement of disciplinary actions. On May 11, 1994, the Exchange
notified the Commission that the Constitutional changes had been
approved by the Exchange membership, and that no further Exchange
action was required for the Commission to proceed with the proposed
rule change.\3\
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\1\15 U.S.C. Sec. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\The original 19b-4 filing was filed with the Commission in
December 1993 and noted that the membership had not yet voted on the
proposed rule change to the Amex's Constitution. The Constitutional
change was approved by the Exchange membership at a special meeting
of the regular members held on April 12, 1994. See letter from
Geraldine Brindisi, Corporate Secretary, Amex, to Diana Luka-Hopson,
Branch Chief, SEC, dated May 10, 1994.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 33501 (January 21, 1994), 59 FR 4126 (January
28, 1994). No comments were received on the proposal.
II. Description
Under current Exchange Rule 341.09 member firms must file a
termination notice with the Exchange whenever a registered employee
leaves their employ.\4\ Member firms also are 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.\5\ Currently, Article V, Section 6 of the
Exchange's Constitution and Rule 341.08 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 the Exchange gives them written notice that it
is retaining jurisdiction within one year immediately following its
receipt of the written notice of termination by member firms.
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\4\Amex Rule 341.09 requires that immediate notification to the
Exchange of any termination of employment of a registered employee
or officer be submitted on Form U-5.
\5\Instruction 5 to Form U-5 states that reporting firms have a
continuing obligation to amend and update Form U-5 as it pertains to
disciplinary action against the person or entity and complaints of
possible wrongdoing. This obligation includes reportable matters
which occur or become known after initial submission of Form U-5.
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In an appeal to the Commission last year, a respondent in an Amex
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 the termination notice reporting his voluntary
resignation.\6\ The Commission's decision agreed with the respondent,
stating that the Amex Rule required it to retain jurisdiction within
one year of its receipt of the original termination notice. However,
the Commission indicated that it was sensitive to the Exchange's
position that the one year time period should begin to run only after
the Exchange is notified by the member firm of possible violative
conduct in the amended termination notice, and suggested that the Amex
amend its rules to strengthen its jurisdictional position.
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\6\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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The proposed rule change provides that the Exchange must assert
disciplinary jurisdiction over a person or entity within one year of
the filing of a termination notice or within one year of any amendment
to such notice. By amending the applicable Constitutional and Rule
provisions, the Exchange will be able to retain jurisdiction for one
year after it is notified by the member firm of possible violative
conduct by the registered employee in an amended termination notice.\7\
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\7\As the Commission noted in the Leavitt opinion, the NASD
Rules provide for retention of disciplinary jurisdiction after an
amended notice. Specifically, Article IV, Section 4 of the NASD By-
Laws provides that the NASD may retain disciplinary jurisdiction
within two years after the effective date of termination, provided,
however, that any amendment to a notice of termination that is filed
within two years of the original notice which discloses that such
person may have engaged in conduct actionable under any applicable
statute, rule or regulation, shall operate to recommence the running
of the two-year period.
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The Exchange also is amending its Rules regarding settlement of
disciplinary matters. Article V, Section 1(b)(4) of the Amex's
Constitution and Amex Rule 345 currently require that the Exchange
issue formal charges against persons or entities it believes have
committed serious infractions of the Exchange's Rules or the federal
securities laws. The issuance of formal charges begins a lengthy
process which includes the filing of an answer to the charges, the
exchange of documents, and the scheduling of a disciplinary hearing.
The Amex's present disciplinary procedures do not provide for the
settlement of charges before formal charges are issued. In some
circumstances, however, persons who are the subject of Exchange
investigations may wish to avoid the time and expense of a hearing and
settle the matter by stipulating to certain facts and consenting to a
penalty. The rule change would allow such parties to settle claims
without undergoing the process for formal charges by allowing the party
to proceed directly to the procedures that are currently contained in
Article V, Section 2 of the Amex's Constitution and in Amex Rule 345
for ``Stipulation of Facts and Consent to Penalty.''
The procedures contained in the above provisions provide for a
hearing before a Disciplinary Panel to determine whether the party is
guilty of having committed an offense on the basis of a written
stipulation of facts and consent to a specified penalty entered into
between the party and an officer of the Exchange. The Disciplinary
Panel may fix and impose the penalty agreed to in the stipulation and
consent, or any lesser penalty. If the Disciplinary Panel rejects the
stipulation and consent to a specified penalty, the matter will proceed
as if the stipulation and consent had not been entered into, and the
stipulation and consent will be disregarded in any subsequent
proceeding.
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 Sections 6(b) (5) and (6) of the
Act.\8\ Specifically, Section 6(b)(5) of the Act requires 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. Section 6(b)(6) of the
Act requires that the rules of an exchange provide that its members,
and persons associated with its members, be appropriately disciplined
for violation of the rules of the exchange.
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\8\15 U.S.C. Sec. 78f(b) (5) and (6) (1988).
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The Commission believes that the rule change to provide the
Exchange with disciplinary jurisdiction over persons or entities
suspected of wrongdoing for one year after any amendment to the
termination of employment notice is made will ensure that the Exchange
will retain jurisdiction over persons for a year after it is notified
of possible offenses, and accordingly is consistent with the Exchange's
regulatory responsibilities under Section 6(b)(6) of the Act. The rule
change will enable the Exchange to investigate and conduct disciplinary
hearings pursuant to its established rules and procedures to determine
if a person or entity has committed violations of Exchange rules or the
federal securities laws, and to impose appropriate sanctions thereon.
The rule change also is consistent with Section 6(b)(5) of the Act in
that it serves to protect investors and the public interest by enabling
the Exchange to discipline persons who violate Exchange Rules or the
federal securities laws within a reasonable time after learning of
possible wrongdoing.
The Commission further believes that the rule change to allow
parties to settle claims against them without undergoing a lengthy
formal charging process is consistent with Section 6(b) (5) and (6) of
the Act. The Commission believes that the rule change will save
substantial time and expense for the Exchange and its members, and give
the Exchange more flexibility in negotiating the resolution of
enforcement actions. The rule also will continue to ensure that all
settlements will be reviewed by the Amex's Disciplinary Panel and
continues to give to the panel the ability to reject any settlement as
is appropriate. Accordingly, we believe the change should make the
Amex's enforcement proceedings more efficient without reducing the
effectiveness of its procedures. Furthermore, the Commission finds that
the proposed procedures for settling disciplinary actions are similar
to those of other national securities exchanges.\9\
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\9\See, e.g., New York Stock Exchange Rule 476(g); Chicago Board
Options Exchange Rule 17.8.
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IV. Conclusion
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\10\ that the proposed rule change (SR-Amex-93-42) is approved.
\10\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.\11\
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\11\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17429 Filed 7-18-94; 8:45 am]
BILLING CODE 8010-01-M