[Federal Register Volume 60, Number 170 (Friday, September 1, 1995)]
[Notices]
[Pages 45758-45759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21703]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36158; File No. SR-PSE-95-16]


Self-Regulatory Organizations; Pacific Stock Exchange 
Incorporated; Order Granting Approval To Proposed Rule Change and 
Amendment No. 1 To Proposed Rule Change Relating to Violations of the 
Intermarket Trading System Rules

August 25, 1995.
    On June 8, 1995, the Pacific Stock Exchange Incorporated (``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 (``the Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend its Minor Rule Violation 
Plan (``MRP'') \3\ to include violations of the Intermarket Trading 
System (``ITS'') rules. On June 26, 1995, the Exchange submitted to the 
Commission Amendment No. 1 to the proposed rule change.\4\

    \1\ 15 U.S.C. 78s(b)(1) (1988).
    \2\ 17 CFR 240.19b-4 (1994).
    \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 PSE's Plan was approved by the Commission in 
Securities Exchange Act Release No. 22654 (Nov. 21, 1985), 50 FR 
48853 (Nov. 27, 1985).
    \4\ See letter from Michael Pierson, Senior Attorney, PSE, to 
Jennifer S. Choi, Attorney, SEC, dated June 23, 1995. Amendment No. 
1 withdrew the proposed changes to the Equity Floor Procedure Advice 
2-B because these changes have been approved already by the 
Commission. See Securities Exchange Act Release No. 34760 (Sept. 30, 
1994), 59 FR 50950 (Oct. 6, 1994) (approving File No. SR-PSE-94-13).
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    The proposed rule change and Amendment No. 1 were published for 
comment in Securities Exchange Act Release No. 35959 (July 12, 1995), 
60 FR 36849 (July 18, 1995). No comments were received on the proposal.
    The Exchange's MRP, set forth in PSE Rule 10.13, provides that 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, 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.
    The Exchange proposes to amend its MRP by adding the following 
provision to the MRP as Rule 10.13(i)(9): ``Failure to follow the 
provisions of the rules and regulations governing the use of the 
Intermarket Trading System (ITS) (PSE Rules 5.20-5.23).'' The Exchange 
is also proposing to amend its Recommended Fine Schedule to establish 
the following recommended fines (on a running two-year basis) for 
violations of the ITS rules and regulations: $500 for a first-time 
violation; $1,000 for a second-time violation; and $2,000 for a third-
time violation.\5\

    \5\ For a discussion of the Exchange's Recommended Fine 
Schedule, see Securities Exchange Act Release No. 34322 (July 6, 
1994), 59 FR 35958 (July 14, 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 be appropriately disciplined for 
violations of an exchange's rules and the Act.

    \6\ 15 U.S.C. 78f(b) (1988 & Supp. v 1993).
    Specifically, the Commission believes that an exchange's ability to 
effectively enforce compliance by its members and member organizations 
with the Commission and Exchange rules is central to its self-
regulatory functions. The inclusion of a rule in an exchange's 

[[Page 45759]]
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 the provisions listed above to 
the Exchange's MRP is consistent with Sections 6(b)(5) and 6(b)(6) in 
that the purpose of the Exchange's MRP is to provide for a response to 
a violation of Exchange rules when a meaningful sanction is needed, but 
when initiation of a disciplinary proceeding pursuant to Exchange Rule 
10.3 \7\ is not suitable because such a proceeding would be more costly 
and time-consuming than would be warranted given the 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.\8\

    \7\ PSE Rule 10.3 governs the initiation of disciplinary 
proceedings by the Exchange for violations within the disciplinary 
jurisdiction of the Exchange.
    \8\ The MRP permits any person to contest the Exchange's 
imposition of the fine through submission of a written answer, at 
which time the matter will become a formal disciplinary action.
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    Moreover, the Commission finds that violations of the provision 
being added are objective and technical in nature, and easily 
verifiable, thereby lending themselves to the use of expedited 
proceedings. Noncompliance with the provisions may be determined 
objectively and adjudicated quickly without the complicated factual and 
interpretive inquiries associated with more sophisticated Exchange 
disciplinary proceedings. If, however, 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 Exchange 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 repeated violations).
    Finally, the Commission finds that the imposition of the 
recommended fines for violations of the ITS rules and regulations 
should result in appropriate discipline of members, in a manner that is 
proportionate to the nature of such violations.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-PSE-95-16) is approved.

    \9\ 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.\10\

    \10\ 17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-21703 Filed 8-31-95; 8:45 am]
BILLING CODE 8010-01-M