[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 40056-40058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19466]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37476; File No. SR-NYSE-95-43]


Self-Regulatory Organizations; the New York Stock Exchange, Inc.; 
Order Granting Approval to Proposed Rule Change Relating to Amendments 
to Exchange Rules 27, 476(a)(11), and 477

July 24, 1996.
    On January 5, 1996, the New York Stock Exchange, Inc. (``NYSE'' 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 Exchange Rules 27, 
476(a)(11), and 477 to require persons under Exchange jurisdiction to 
comply with information requests from commodities markets and 
associations and foreign self-regulatory organizations and 
associations.
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    \1\ 15 U.S.C. Sec. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on February 16, 1996.\3\ No comments were received on the 
proposal.
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    \3\ See Securities Exchange Act Release No. 36831 (Feb. 12, 
1996), 61 FR 6279 (Feb. 16, 1996) (notice of File No. SR-NYSE-95-
43).
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    Currently, Rule 27 authorizes the Exchange to enter into 
information sharing agreements with domestic and foreign self-
regulatory organizations or associations,\4\ but does not provide for 
such agreements with commodities regulatory organizations such as 
contract markets and registered futures associations.
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    \4\ The Act defines the term ``self regulatory organization'' as 
any national securities exchange, registered securities association, 
or registered clearing agency, or (solely for purposes of sections 
19(b), 19(c), and 23(b) of the Act) the Municipal Securities 
Rulemaking Board established by section 15B of the Act. 15 U.S.C. 
Sec. 78c(a)(26). Although the Act does not define the term ``foreign 
self-regulatory organization,'' the NYSE interprets it to include 
non-U.S. commodities markets. Letter, infra note 5.
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    Rule 476(a)(11) permits the Exchange to initiate a disciplinary 
proceeding against a member, member organization, allied member, 
approved person, registered or non-registered employee of a member 
organization or a person otherwise subject to the jurisdiction of the 
Exchange, for failure to furnish information to, or appear or testify 
before the Exchange or another domestic self-regulatory organization. 
The rule

[[Page 40057]]

does not authorize the Exchange to initiate such a proceeding when 
someone under Exchange jurisdiction fails to cooperate with a 
commodities market or association or a foreign self-regulatory 
organization or association.
    Rule 477 permits the Exchange to require a member, member 
organization, allied member, approved person or registered or non-
registered employee of a member organization that is terminating his or 
her status as such to comply with a request to appear, testify, submit 
books, records, papers, or objects and to respond to written requests 
and attend hearings in the same manner and to the same extent as if 
such person had maintained his or her status, if, prior to such 
termination, or during the period of one year immediately following the 
receipt by the Exchange of written notice of the termination, the 
Exchange makes such a request in writing. The rule does not require the 
above parties to comply with such requests from commodities markets or 
associations or from foreign self-regulatory organizations or 
associations.
    The Exchange is proposing to amend Rule 27 to add contract markets 
and registered futures associations, as referenced in Rule 476(a)(11), 
to the list of entities with which the Exchange is authorized to enter 
into information sharing agreements.\5\ The extent to which those under 
the Exchange's jurisdiction would be required to cooperate would be 
predicated on the subject matter or scope of the relevant information 
sharing agreement. Rule 476(a)(11) would be amended to require that 
those under its jurisdiction cooperate with information requests from 
domestic commodities markets and associations and foreign self-
regulatory organizations and associations as well as from domestic 
securities markets.\6\ Rule 477 would be amended to require compliance 
with information requests submitted by the organizations specified in 
Rule 476(a)(11).\7\
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    \5\ NYSE Rule 476(a)(11) defines the terms ``contract market'' 
and ``registered futures association'' by reference to Sections 6(a) 
and 17 of the Commodity Exchange Act, respectively. See 7 U.S.C. 
Secs. 7-8. Under Section 6(a), the term contract market refers to a 
board of trade that the Commodity Futures Trading Commission 
(``CFTC'') has designated as such. Id. Under Section 17, the term 
registered futures association refers to an association of persons 
registered as such with the CFTC. Id.
    The Exchange has interpreted the term ``foreign self-regulatory 
organization or association'' to include entities which are non-U.S. 
commodities markets and has relied on this interpretation to enter 
into agreements with foreign self-regulators that are organized as 
commodities markets such as the London International Financial 
Futures and Options Exchange. See Letter from James E. Buck, Senior 
Vice President and Secretary, NYSE, to Ivette Lopez, Assistant 
Director, Division of Market Regulation, SEC dated July 19, 1996.
    \6\ In lieu of commencing disciplinary proceedings pursuant to 
NYSE Rule 476(a)(11), the Exchange could impose a fine not to exceed 
$5,000 pursuant to the terms of its minor rule violation plan as set 
forth in NYSE Rule 476A. See Securities Exchange Act Release No. 
25862 (Jun. 28, 1988), 53 FR 25400 (Jul. 6, 1988) (order approving 
File No. SR-4-284).
    \7\ The NYSE has stated that, in connection with Rules 27, 
476(a)(11), and 477, it is its policy to afford NYSE members the 
same rights and procedural protections that such person or entities 
would have if the Exchange had initiated the request for information 
or testimony. Telephone conversation on February 2, 1996 between 
Donald Siemer, Director, Market Surveillance, NYSE and George A. 
Villasana, Attorney, Division of Market Regulation, SEC. In 
furtherance of this policy, the Exchange will always act as an 
intermediary between another SRO, a contract market or a registered 
futures association and the exchange member, member organization, or 
other designated person under Rule 476(a)(11) from whom information 
or testimony is being sought for any inquiry made pursuant to an 
agreement under Rule 27. Id.
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    The Exchange believes that it is appropriate to expand the scope of 
its disciplinary proceedings to include a failure to cooperate with 
contract markets and registered futures associations and foreign self-
regulatory organizations and associations because of its continued 
commitment to the enhancement of its regulatory efforts and the 
regulatory efforts of other market centers with which the Exchange has 
agreed to share information.
    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).\8\ 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 interest.\9\
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    \8\ 15 U.S.C. Sec. 78f(b).
    \9\ 15 U.S.C. Sec. 78f(b)(5).
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    The Commission believes that the amendment to Rule 27, adding 
contract markets and registered futures associations as referenced in 
Rule 476(a)(11) to the list of entities with which the NYSE may enter 
into information sharing agreements, is appropriate.\10\ As previously 
in effect, Rule 27 limited the NYSE by not providing for such 
agreements with contract markets and registered futures associations. 
By adding these entities as referenced in Rule 476(a)(11), the 
amendment furthers the interest of the public and provides for the 
protection of investors by allowing the Exchange to assist other 
domestic markets to conduct prompt inquiries into possible trading 
violations and other possible misconduct. The Commission believes that 
the exercise of this authority will enhance the NYSE's surveillance 
program and provide the Exchange with sufficient information necessary 
for it to carry out its oversight responsibilities with respect to 
enforcement-related matters in an efficient and expeditious manner.
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    \10\ The Commission understands NYSE Rule 476(a)(11), as 
amended, to encompass contract markets only to the extent that they 
have been designated as such by the CFTC and futures associations 
only to the extent that they have been registered with the CFTC. See 
Release No. 34-36831, supra note 3 (stating that NYSE Rule 27, as in 
effect prior to this amendment, does not authorize the Exchange to 
enter into information sharing agreements with commodities 
regulatory organizations such as contract markets and registered 
futures associations).
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    The Commission also believes that the amendment to Rule 476(a)(11), 
authorizing the Exchange to initiate a disciplinary proceeding when 
those under its jurisdiction fail to cooperate with information 
requests from contract markets as referenced in Section 6(a) of the 
Commodity Exchange Act,\11\ any registered futures association as 
referenced in Section 17 of the Commodity Exchange Act,\12\ or any 
foreign self-regulatory organization or association with which the 
Exchange has entered into an agreement, furthers the interest of the 
public and provides for the protection of investors by allowing the 
Exchange to appropriately discipline those members that are guilty of 
misconduct.
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    \11\ 7 U.S.C. Sec. 8.
    \12\ 7 U.S.C. Sec. 21.
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    Finally, the Commission believes that the amendment to Rule 477, 
expanding the Exchange's authority to require a member, member 
organization, allied member, approved person, or registered or non-
registered employee of a member or member organization to comply with 
any requests of an organization or association included in Rule 
476(a)(11) to appear, testify, submit books, records, papers, or 
tangible objects, respond to written requests, and attend hearings 
subject to certain conditions, will further the interest of the public 
and provides for the protection of investors by allowing certain 
organizations and associations to acquire information necessary to 
ensure that Exchange members are conducting business in conformance 
with the Constitution and Rules of the Exchange.
    The Commission believes that the proposed rule change achieves a 
reasonable balance between the need for regulatory cooperation and 
protection of

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the procedural rights of Exchange members and others from whom 
information or testimony is requested. The rule would provide the 
Exchange with the authority to seek cooperation by certain persons with 
respect to inquiries and investigations resulting from regulatory 
agreements between the Exchange and other self-regulatory organizations 
and associations while explicitly providing any person or entity 
required to furnish information or testimony pursuant to the rule with 
the same procedural rights that they would have if the request was 
pursuant to an Exchange initiated inquiry or investigation.\13\
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    \13\ Telephone conversation, supra note 7.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-95-43) is approved.

    \14\ 15 U.S.C. Sec. 78s(b)(2).
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    For the Commission, by the Division of Market Relation, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 96-19466 Filed 7-30-96; 8:45 am]
BILLING CODE 8010-01-M