[Federal Register Volume 59, Number 193 (Thursday, October 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24798]


[[Page Unknown]]

[Federal Register: October 6, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34760; File No. SR-PSE-94-13]

 

Self-Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to the Fine 
Schedule for the Rule on Dissemination of Quotations in Local Issues

September 30, 1994.
    On May 24, 1994, the Pacific Stock Exchange, Inc. (``PSE'' 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 fine schedule 
relating to the dissemination of quotations in local issues and to 
amend its Minor Rule Plan (``MRP'').\3\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\Rule 19d-1(c)(2) under the Act, 17 CFR 240.19d-1(c)(2), 
authorizes national securities exchanges to adopt minor rule 
violation plans for the summary discipline and abbreviated reporting 
of minor rule violations by exchange members and member 
organizations. The Exchange's MRP initially was approved by the 
Commission in 1985. See Securities Exchange Act Release No. 22654 
(November 21, 1985), 50 FR 48853 (November 27, 1985).
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    The proposed rule change was published for comment in Securities 
Exchange Act Release No. 34320 (July 6, 1994), 59 FR 35545 (July 12, 
1994). No comments were received on the proposal.
    Pursuant to Equity Floor Procedure Advice (``EFPA'') 2-B, 
specialists are required to disseminate a quote prior to one-half hour 
after the PSE opening. If a specialist fails to satisfy this 
requirement, he currently is subject to a fine of $25 for each 
violation beginning with the sixth violation.\4\ The rule change will 
raise the fine for each violation to $100 beginning with the third 
violation.
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    \4\The number of violations is calculated on a rotating 
quarterly basis.
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    In addition, the rule change will add violations of EFPA 2-B to 
Exchange Rule 10.13 and the Exchange's MRP.\5\ PSE Rule 10.13(a) 
authorizes certain PSE Committees to impose a fine not to exceed $5,000 
on any member, member organization, or person association with a member 
or member organization for any violation of an Exchange rule that has 
been deemed to be minor in nature and approved by the Commission for 
inclusion in the MRP. Rule 10.13 includes a list of rule violations 
that are eligible for the expedited disciplinary procedure under the 
MRP and that may be the subject of fines, in accordance with the 
Recommended Fine Schedule.
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    \5\This change was included in Exhibit A to the rule filing. See 
also letter from Kenneth J. Marcus, Director of Equity Surveillance/
Compliance, PSE, to Katherine Simmons, SEC, dated September 29, 
1994.
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    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).\6\ In particular, 
the Commission believes the proposal is consistent with the Section 
6(b)(5) 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, and with the Section 6(b)(6) requirement that the rules of an 
exchange provide that its members are appropriately disciplined for 
violations of the exchange's rules and the Act.
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    \6\15 U.S.C. 78f(b) (1988).
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    Specifically, the Commission believes that an exchange's ability to 
effectively enforce compliance by its members and member organization 
with Commission and Exchange rules is central to its self-regulatory 
functions. The inclusion of a rule in an exchange's minor rule 
violation plan, therefore, should not be interpreted to mean that it is 
not an important rule. On the contrary, the Commission recognizes that 
the inclusion of minor violations of particular rules under a minor 
rule violation plan may make the exchange's disciplinary system more 
efficient in prosecuting more egregious and/or repeated violations of 
these rules, thereby furthering its mandates to protect investors and 
the public interest.
    The Commission believes that adding EFPA 2-B to PSE Rule 10.13 and 
the Exchange's MRP is consistent with Sections 6(b)(5) and 6(b)(6) in 
that the purpose of Rule 10.13 is to provide for a response to a rule 
violation when a meaningful sanction is needed, but when initiation of 
a disciplinary proceeding under PSE Rule 10.3\7\ is not suitable 
because such a proceeding would be more costly and time-consuming than 
would be warranted given the minor nature of the violation. Rule 10.13 
provides for an appropriate response to minor violations of certain 
Exchange rules, while preserving the due process rights of the party 
accused through specified, required procedures.
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    \7\PSE Rule 10.3 governs the initiation of disciplinary 
proceedings by the Exchange for violations within the disciplinary 
jurisdiction of the Exchange.
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    Furthermore, the Commission finds that violations of EFPA 2-B are 
objective and technical in nature, and are easily verifiable, thereby 
lending themselves to the use of expedited proceedings. Noncompliance 
with the requirement to disseminate quotations in local issue prior to 
one-half hour after the opening time for trading on the PSE may be 
determined objectively and adjudicated quickly without the complicated 
factual and interpretive inquiries associated with more sophisticated 
Exchange disciplinary proceedings. If the Exchange determines that a 
violation of one of these rules is not minor in nature, the Exchange 
retains the discretion to initiate full disciplinary proceedings in 
accordance with PSE Rule 10.3. The Commission expects the PSE to bring 
full disciplinary proceedings in appropriate cases (e.g., in cases 
where the violation is egregious or where there is a history or pattern 
of repeat violations).
    In addition, the Commission finds that the increase in the fine 
from $25 per violation starting with the sixth violation, to $100 per 
violation starting with the third violation should result in 
appropriate discipline of members, in a manner that is proportionate to 
the nature of such violations. The Commission believes that calculating 
the fines on a rotating quarterly basis is an equitable approach that 
accounts for the possibility that a substantial period of time may 
elapse between violations.
    It Is Therefore Ordered, pursuant to Section 19(b)()2 of the 
Act,\8\ that the proposed rule change (SR-PSE-94-13) is approved.

    \8\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.\9\
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    \9\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24798 Filed 10-5-94; 8:45 am]
BILLING CODE 8010-01-M