[Federal Register Volume 59, Number 250 (Friday, December 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-32154]


[[Page Unknown]]

[Federal Register: December 30, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35144; File No. SR-PSE-94-29]

 

Self-Regulatory Organizations; Pacific Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to Amendment of its Minor 
Rule Plan and Recommended Fine Schedule With Respect to Options Floor 
Decorum and Other Minor Trading Rule Violations

December 23, 1994.

I. Introduction

    On October 14, 1994, the Pacific Stock Exchange, Inc. (``PSE'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposal to amend PSE Rule 10.13(h) of its Minor Rule Plan (``MRP''): 
Options Floor Decorum and Other Minor Trading Rule Violations, and to 
revise its Recommended Fine Schedule relating to Options Floor Decorum 
and Minor Trading Rule Violations.\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.
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    The proposed rule change was published for comment in the Federal 
Register on November 14, 1994.\4\ No comments were received on the 
proposed rule change.
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    \4\See Securities Exchange Act Release No. 34944 (November 4, 
1994), 59 FR 56563.
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II. Description of the Proposal

    The Exchange's proposal effects three changes to the MRP. First, 
references in Rules 10.13(h)(10) and (11) to ``ten-up'' and ``Ten-Up 
Rule'' are eliminated because such references no longer are applicable 
in light of two recently approved rule changes.\5\ Second, the proposal 
adds a reference to the MRP that addresses violations of Rule 
6.82(c)(2), which requires Lead Market Makers to honor their guaranteed 
markets. The Exchange believes that violations of Rule 6.82(c)(2) 
already are provided for in the MRP by cross-reference, and this change 
merely serves to eliminate any ambiguity. Third, the proposal amends 
the MRP to add a reference to new Rule 6.66(c), which provides for the 
identification of broker-dealer orders on the Options Floor.\6\ The 
Exchange believes that such a disclosure requirement is similar to that 
of Rule 6.86, also referred to in the MRP.
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    \5\See Securities Exchange Act Release Nos. 34891 (October 25, 
1994), 59 FR 54653 (approving 20-up rule); and 34946 (November 7, 
1994), 59 FR 59265 (expanding Auto-Ex system capacity to 20 
contracts).
    \6\See Securities Exchange Act Release No. 34426 (July 21, 
1994), 59 FR 38497 (approving Rule 6.66(c)).
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    The Exchange's proposal also increases the recommended fines found 
in the Recommended Fine Schedule for Option Floor Decorum and Minor 
Trading Rule Violations.\7\ These infractions currently are listed in 
the Exchange's MRP, codified as PSE Rule 10.13. Specifically, the 
Exchange proposes to increase the recommended fines for the violations 
specified in the following rules: 10.13(h)(2)--(4), (h)(7)--(9), 
(h)(11), (h)(13)--(23), and (h)(26).\8\ The Commission has previously 
approved these rules for inclusion in the MRP.\9\
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    \7\PSE Rule 10.13(f) states that the Exchange shall maintain a 
Recommended Fine Schedule setting forth the recommended fines for 
each rule listed in the MRP, and that any changes to the Recommended 
Fine Schedule shall be subject to the approval of the Commission.
    \8\These rules denote the following Exchange Rule violations 
with respect to options trading: failing to properly record the time 
of receipt, change in limit, or increase in size of an order 
[(h)(2)]; improper execution of a cross transaction [(h)(3)]; 
violation of procedures concerning a Market Maker's use of a Floor 
Broker to effect transactions [(h)(4)]; failure to give up the name 
of a clearing member by public outcry when requesting a quote and 
size of the market or after effecting a trade [(h)(7)]; 
inadvertently placing a non-public order in the book [(h)(8)]; 
failing to remain for a specified amount of time after trade 
processing [(h)(9)]; failure to honor a guaranteed market [(h)(10)]; 
failure to identify an order as for a broker-dealer [(h)[11)]; 
improper communication by use of hand signals or other means or 
devices [(h)(12)]; improper vocalization of a trade [(h)(13)]' 
violating a standard of conduct or dress [(h)(14)]; disruptive 
action [(h)(15)]; disruptive action involving physical contact 
[(h)(16)]; failing to act in a professional manner [(h)(17)]; use of 
abusive language [(h)(18)]; time stamping [(h)(19)]; position and 
exercise limit violations [(h)(20)-(21)]; acting as both Floor 
Broker and Market Maker and trading in excess of 100 contracts per 
month as a Market Maker [(h)(22)]; failing to request a market to be 
removed from the screen when leaving a trading crowd [(h)(23)]; and 
unauthorized use of telephones in trading post areas [(h)(26)].
    \9\See Securities Exchange Act Release Nos. 22654 (November 21, 
1985), 50 FR 48853; 32510 (June 24, 1993), 58 FR 35491; and 34322 
(July 6, 1994), 59 FR 35958.
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    The Exchange's proposal also increases the current fine levels for 
such violations. Thus, the lowest fine on the schedule is raised from 
$50 to $100, while the highest fine remains $2,500.\10\ For most of the 
fine increases, the Exchange is increasing the fine levels from $100, 
$250, and $500, for first-, second-, and third-time violations,\11\ 
respectively, to $250, $500, and $750, respectively, for such 
violations. In addition, the Exchange is proposing to increase the 
minimum fine for position and exercise limit violations as follows: for 
between one and three violations (during a running two-year period), 
the minimum fine would be increased from $100 to $250;\12\ for between 
four and six violations during such a period, the minimum fine would be 
increased from $100 to $500; and for seven or more violations during 
such a period, the minimum fine would be increased from $100 to $750.
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    \10\Pursuant to the MRP, the Exchange may impose a fine not to 
exceed $5,000 on any member, member organization, or person 
associated with a member or member organization. See PSE Rule 
10.13(a). In appropriate circumstances (e.g., where aggravating or 
mitigating circumstances are present), the Exchange may impose a 
higher or lower fine than that set forth in the Recommended Fine 
Schedule. In addition, the Exchange may, at its discretion, proceed 
with formal disciplinary action if it determines that a given 
violation is not minor in nature. See PSE Rule 10.13(f).
    \11\Fines for multiple violations of Options Floor Decorum and 
Minor Trading Rules are calculated on a running two-year basis.
    \12\In addition, the provision for an informal letter of caution 
for such violations is being eliminated.
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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, the requirements of Section 6(b)(5)\13\ 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. In addition, the Commission finds 
that the Exchange's proposal is consistent with the requirements of 
Section 6(b)(6) of the Act that the rules of an exchange provide that 
its members are appropriately disciplined for violations of the Act, 
its rules and the rules of the exchange.
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    \13\15 U.S.C. 78f(b)(5) (1988).
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    The Commission believes that the Exchange's ability to effectively 
enforce compliance with Commission and Exchange rules by its members 
and member organizations is central to its self-regulatory functions. 
The inclusion of a rule in the Exchange's MRP 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 repeated violations of these rules, thereby furthering 
its mandates to protect investors and the public interest.
    The proposed additions to the MRP are either objective or technical 
in nature and are easily verifiable, thereby lending themselves to the 
use of expedited proceedings. The fine level increases will enhance the 
Exchange's ability to enforce compliance with its rules through the 
appropriate discipline of members and member organizations in a manner 
that is proportionate to the minor nature of such violations. The 
Exchange has represented that its membership will be informed of the 
amended Recommended Fine Schedule via a regulatory bulletin. In 
addition, the Recommended Fine Schedule will be recirculated 
periodically (approximately yearly) pursuant to PSE Rule 10.13(f).\14\
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    \14\Telephone conversation between Michael D. Pierson, Senior 
Attorney, Market Regulation, PSE, and Francois Mazur, Attorney, 
Division of Market Regulation, Commission, on November 15, 1994.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-PSE-94-29) is approved.

    \15\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.\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. 94-32154 Filed 12-29-94; 8:45 am]
BILLING CODE 8010-01-M