[Federal Register Volume 63, Number 62 (Wednesday, April 1, 1998)]
[Notices]
[Pages 15906-15908]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-8478]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39804; File No. SR-CHX-98-06]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 to the Proposed Rule Change by the Chicago 
Stock Exchange, Inc. Relating to Registration Requirements

March 25, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on February 18, 1998, the 
Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the CHX.\2\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\15 U.S.C. 78s(b)(1).
    \2\On March 18, 1998, the CHX amended its proposal to clarify 
the text of CHX Article VI, Rule 2. See Letter from Patricia L. 
Levy, Senior Vice President and General Counsel, CHX, to Katherine 
A. England, Division of Market Regulation (``Division''), 
Commission, dated March 17, 1998 (``Amendment No. 11''). 
Specifically, Amendment No. 1 revises the CHX's proposal to state 
that registered persons, as defined in CHX Article VI, Rule 2(b), 
must register with the CHX.
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I. Self Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CHX proposes to replace the current text of CHX Article VI, 
``Restrictions and Requirements,'' Rule 2, ``Registration and Approval 
of Member and Member Organization Personnel,'' with a new Article VI, 
Rule 2 that will clarify which associated persons are required to 
register with, or be acceptable to, the CHX.
    Copies of the proposed rule change are available at the CHX and at 
the Commission.

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 CHX 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 CHX has prepared summaries, set forth in Section 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
    CHX Article VI, Rule 2 governs the registration and approval of 
member and member organization personnel and other associated persons. 
The proposed rule change is intended to clarify those persons who are 
required to register with the Exchange and those persons associated 
with a member or member organization that must be acceptable to the 
CHX. In this regard, the CHX's proposal retains a provision currently 
found in CHX Article VI, Rule 2 which states that every other employee 
(in addition to registered persons) and persons associated with a 
member or member organization must also be acceptable to the Exchange.

[[Page 15907]]

    The proposed rule change creates a defined term, ``registered 
persons,'' and requires that all persons within the definition register 
with the Exchange.\3\ Proposed CHX Article VI, Rule 2(b), ``Definition 
of Registered Persons,'' defines the term ``registered persons'' as all 
persons associated with a member or member organization who are engaged 
or will be engaged in the securities business of a member or member 
organization, or the management of such securities business, including 
those persons whose functions include supervision, solicitation, 
conduct of business and training of other persons associated with the 
member or member organization for any of these functions.
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    \3\See Amendment No. 1, supra note 2.
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    In addition to the general definition, proposed CHX Article VI, 
Rule 2(b) also enumerates, without limitation, specific persons who are 
within the definition of registered persons. These persons include: (i) 
sole proprietors; (ii) officers; (iii) partners; (iv) principal 
stockholders (as defined in CHX Article II, Rule 4); (v) directors; 
(vi) branch office managers; (vii) nominees; (viii) representatives 
(including any persons performing the duties customarily performed by a 
salesperson or registered representative); (ix) persons whose functions 
include (a) underwriting, trading or sales of securities; (b) research 
or investment advice, other than general economic information or 
advice, with respect to the activities described in the preceding 
clause (a); and (c) activities other than those specifically mentioned 
that involve communication, directly of indirectly, with public 
investors in securities in connection with the activities described in 
the preceding clauses (a) and (b); and (x) persons listed on Schedule 
A, B, or C of a member's or member organization's Form BD.
    Despite this broad definition of registered person, proposed CHX 
Article VI, Rule 2(c), ``Persons Exempt from Registration,'' carves out 
an exception from registration for those persons associated with a 
member or member organization (i) whose functions are solely and 
exclusively ministerial; or (ii) who are not actively engaged in the 
securities business.\4\
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    \4\Persons in this category may include, for example, senior 
officers in a division of a broker-dealer that does not participate 
in the member's securities business. Telephone conversation between 
Patricia L. Levy, Senior Vice President and General Counsel, CHX, 
and Yvonne Fraticelli, Attorney, Division, Commission, on March 13, 
1998.
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    With regard to independent contractors associates with members and 
member organizations, the CHX notes that it has been the long-standing 
policy of the Commission to characterize and treat independent 
contractors whose actions are controlled by a member or member 
organization as employees for purposes of the Act.\5\ This 
characterization and treatment applies irrespective of whether such 
persons might be deemed employees in an unrelated statutory context 
(e.g., for purposes of IRS regulations). As such, an independent 
contractor, as well as any other person associated with a member or 
member organization, is required to register with the CHX if he or she 
falls within the definition of registered person.
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    \5\See Letter from Douglas Scarff, Director, Division, 
Commission, to Gordon S. Macklin, President, National Association of 
Securities Dealers, Inc., Dated June 18, 1982.
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    The CHX also proposes to amend its rule by including in proposed 
CHX Article VI, Rule 2(d), ``Other Registration Requirements,'' a 
provision prohibiting members from making application for the 
registration of any associated person where there is no intent to 
employ such person in the member's securities business.\6\ The CHX also 
proposes to amend Interpretation and Policy .01 to CHX Article VI, Rule 
2 to state that revised Forms U-4 and BD must be forwarded promptly 
(i.e., within 30 days) whenever information on those forms becomes 
inaccurate or incomplete.
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    \6\The current version of CHX Article VI, Rule 2 contains the 
other requirements listed in proposed CHX Article VI, Rule 2(d). In 
general, these provisions include the requirements that members: (1) 
terminate their relationship with an associated person for whom the 
CHX has withdrawn or withheld registration or approval; (2) obtain 
CHX approval before allowing a person subject to a statutory 
disqualification to become associated with the member; (3) take 
reasonable care to determine the existence of a statutory 
disqualification prior to employing an associated person; and (4) 
promptly notify the CHX if an associated person becomes subject to a 
statutory disqualification.
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    The CHX acknowledges that there may be additional CHX rules which 
are meant to apply to persons associated with the member or member 
organization without explicit reference thereto. The Exchange currently 
is considering amendments to those rules.
2. Statutory Basis
    The CHX believes that the proposed rule change is consistent with 
Section 6(b)(5) of the Act in that it is designed to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating securities transactions, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.

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

    The CHX believes that no burden will be placed on competition as a 
result of the proposed rule change.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received.

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

    Within 35 days of the date of 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 by 
order approve such proposed rule change, or 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, including whether the proposed rule 
change is consistent with the Act. Persons making written submission 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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 in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
CHX. All submissions should refer to File No. SR-CHX-98-06 and should 
be submitted by April 22, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\17 CFR 200.30-3(a)(12).

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[[Page 15908]]

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-8478 Filed 3-31-98; 8:45 am]
BILLING CODE 8010-01-M