[Federal Register Volume 60, Number 221 (Thursday, November 16, 1995)]
[Notices]
[Pages 57611-57613]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28318]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36474; File No. SR-PSE-95-27]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Stock Exchange, Incorporated Relating to the 
Amendment of its Minor Rule Plan To Include Certain Rules on Financial 
Reporting and Cooperation in Exchange Investigations and the 
Establishment of a Charge for the Late Filing of Periodic FOCUS Reports

November 9, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on October 
17, 1995, the Pacific Stock Exchange, Incorporated (``PSE'' 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 self-regulatory 
organization. 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 Exchange is proposed to amend its Minor Rule Plan to include 
certain rules on financial reporting and cooperation in Exchange 
investigations. The Exchange is also proposing to amend its rules to 
establish an administrative charge for the late filing of quarterly 
FOCUS Reports. The text of the proposed rule change is as follows [new 
text is italicized]:

Minor Rule Plan

    Rule 10.13(a)-(i)--No change.
    (j) Minor Rule Plan: Record Keeping and Other Minor Rule 
Violations.
    (j)(1)-(j)(4)--No change.
    (j)(5) Failure to file a financial report or financial 
information in the type, form, manner and time prescribed by the 
Exchange. (Rule 2.12(a))
    (j)(6) Delaying, impeding or failing to cooperate in an Exchange 
investigation. (Rule 10.2(b))
* * * * *

Minor Rule Plan Recommended Fine Schedule (Pursuant to Rule 10.13(f))

    Rule 10.13(j).

                                                                        

[[Page 57612]]
             Record Keeping and Other Minor Rule Violations             
------------------------------------------------------------------------
                                    1st                          3rd    
                                 violation    2nd violation   violation 
------------------------------------------------------------------------
1-4--No change:                                                         
    5. Failure to file a                                                
     financial report or                                                
     financial information in                                           
     the type, form, manner                                             
     and time prescribed by                                             
     the Exchange. (Rule                                                
     2.12(a)).................         $100            $250         $500
    6. Delaying, impeding or                                            
     failing to cooperate in                                            
     an Exchange                                                        
     investigation. (Rule                                               
     10.2(b)).................          100             250          500
------------------------------------------------------------------------


* * * * *

Financial Reports

    Rule 2.12(b)(1). Each member organization shall file with the 
Exchange a Report of Financial Condition on SEC Form X-17A-5 as 
required by Securities and Exchange Commission Rules 17a-5 and 17a-
10. Any member who fails to file such Report of Financial Condition 
in a timely manner shall be subject to late filing charges as 
follows:

------------------------------------------------------------------------
                                                              Amount of 
                    Number of days late                         charge  
------------------------------------------------------------------------
1-30.......................................................      $200.00
31-60......................................................       400.00
61-90......................................................       800.00
------------------------------------------------------------------------

    Repeated or aggravated failure to file such Report of Financial 
Condition or failure to file such report for more than ninety days 
will be referred to the Ethics and Business Conduct Committee for 
appropriate disciplinary action.

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 self-regulatory organization 
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 self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

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

1. Purpose
    The Exchange's Minor Rule Plan (``MRP''),\1\ 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. PSE Rule 10.13, subsections (h)-
(j), sets forth the specific Exchange rules deemed to be minor in 
nature.

    \1\ The MRP was initially approved by the Commission in 1985. 
See Securities Exchange Act Release No. 22654 (Nov. 21, 1985), 50 FR 
48853 (Nov. 27, 1985). Since 1985, the MRP has been amended several 
times. See, e.g., Securities Exchange Act Release No. 36158 (August 
25, 1995), 60 FR 45758 (September 1, 1995).
---------------------------------------------------------------------------

    The Exchange is proposing to add the following provision to the MRP 
as PSE Rule 10.13(j)(5): ``Failure to file a financial report or 
financial information in the type, form, manner and time prescribed by 
the Exchange. (Rule 2.12(a)).'' \2\ The Exchange is also proposing to 
amend its Recommended Fine Schedule to establish the following 
recommended fines for violations of PSE Rule 2.12(a): $100 for a first-
time violation; $250 for a second-time violation; and $500 for a third-
time violation.\3\

    \2\ PSE Rule 2.12(a) states: ``Every member organization which 
is not a member of another national securities exchange or 
registered national securities association which is the Designated 
Examining Authority for that member organization shall file with the 
Exchange answers to Financial Questionnaires, Reports of Income and 
Expenses and additional financial information in the type, form, 
manner and time prescribed by the Exchange.''
    \3\ 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).
---------------------------------------------------------------------------

    The Exchange is also proposing to add the following provision to 
the MRP as PSE Rule 10.13(j)(6): ``Delaying, impeding or failing to 
cooperate in an Exchange investigation. (Rule 10.2(b)).'' \4\ The 
Exchange is also proposing to amend its Recommended Fine Schedule to 
establish the following recommended fines for violations of PSE Rule 
10.2(b): $100 for a first-time violation; $250 for a second-time 
violation; and $500 for a third-time violation.

    \4\ PSE Rule 10.2(b) states: ``No member or person associated 
with a member shall impede or delay an Exchange investigation with 
respect to possible violations within the disciplinary jurisdiction 
of the Exchange nor refuse to furnish testimony, documentary 
materials or other information requested by the Exchange during the 
course of its investigation. Failure to furnish such testimony, 
documentary materials or other information requested by the Exchange 
pursuant to this Rule on the date or within the time period required 
by the Exchange shall be considered obstructive of an Exchange 
inquiry or investigation and subject to formal disciplinary 
action.''
---------------------------------------------------------------------------

    The Exchange believes that the rules proposed to be added to the 
MRP are either objective or technical in nature and are easily 
verifiable, thereby lending themselves to the use of expedited 
proceedings. The Exchange further believes that violations of such 
rules may require sanctions more severe than a warning or cautionary 
letter, but that full disciplinary proceedings (pursuant to PSE Rule 
10.3) would, in general, be unsuitable because they would be costly and 
time consuming in view of the minor nature of the violations. 
Nevertheless, the Exchange notes that if a rule violation is 
particularly egregious or if the individual situation warrants such 
action, the Exchange may proceed with formal disciplinary action 
pursuant to PSE Rule 10.3, rather than with the MRP procedures under 
PSE Rule 10.13.
    In addition, the Exchange is proposing to amend PSE Rule 2.12(b)(1) 
to establish an administrative charge for member organizations that are 
late in filing their periodic FOCUS Reports with the Exchange.\5\ The 
proposed rule change would add a reference to Rule 17a-5 to the text of 
PSE Rule 2.12(b)(1), making the late filing of periodic FOCUS Reports 
subject to the same ``late charge'' schedule that currently applies to 
the late filing of annual FOCUS Reports required by Rule 17a-10 under 
the Act.\6\

    \5\ The Exchange's plan filed pursuant to Rule 17a-5(a)(4) under 
the Act require PSE member organizations that are not exempt from 
Rule 15c3-1 under the Act (``Net Capital Rule'') to file periodic 
FOCUS Reports with the Exchange if the PSE is their designated 
examining authority (``DEA''). See 17 CFR 17a-5(a)(4); Securities 
Exchange Act Release No. 11935 (December 17, 1975), 40 FR 59706 
(December 30, 1975) (order approving the PSE's plan pursuant to Rule 
17a-5). In 1993, the SEC approved certain changes to the Net Capital 
Rule, including the elimination of an exemption for certain equity 
exchange specialists, effective as of April 1, 1994. See Securities 
Exchange Act Release No. 32737 (August 11, 1993), 58 FR 43555 
(August 17, 1993). Consequently, as of April 1, 1994, a number of 
Exchange specialists became obligated to file FOCUS reports with the 
Exchange. Prior to April 1994, no PSE member organizations were 
required to file such reports with the Exchange.
    \6\ 17 CFR 17a-10.
---------------------------------------------------------------------------

2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\7\ 

[[Page 57613]]
in general, and Sections 6(b)(5) and 6(b)(6), in particular, in that it 
is designed to promote just and equitable principles of trade, to 
protect investors and the public interest, and to provide that members 
of the Exchange are appropriately disciplined for violations of 
Exchange rules.

    \7\ 15 U.S.C. 78f(b).
---------------------------------------------------------------------------

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

    The Exchange 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 either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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 the 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 at the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-PSE-95-27 and should be 
submitted by December 7, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28318 Filed 11-15-95; 8:45 am]
BILLING CODE 8010-01-M