[Federal Register Volume 63, Number 95 (Monday, May 18, 1998)]
[Notices]
[Pages 27339-27340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13098]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34 39980; File No. SR-NYSE-98-02]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. To Include Rules 392, 
460.30, 80A(b), 79A.15 and 105 in Its Minor Disciplinary Fine System 
under Exchange Rule 476A

May 8, 1998.
    Pursuaant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act''),\1\ notice is hereby given that on January 20, 1998, the 
New York Stock Exchange, Inc. (``NYSE'' 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 NYSE. On March 11, 1998, the Exchange 
filed Amendment No. 1,\2\ and on April 16, 1998, the Exchange filed 
Amendment No. 2.\3\ 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\ Amendment No. 1 corrects errors in exhibits to the 
Exchange's filing. See Letter from James E. Buck, Senior Vice 
President and Secretary, Exchange, to Michael Walinskas, Senior 
Special Counsel, Division of Market Regulation, Commission, dated 
March 10, 1998.
    \3\ Amendment No. 2 clarifies that the Exchange, in those 
instances in which an Exchange disciplinary action is not warranted, 
will issue a summary fine instead of a cautionary letter as its 
first regulatory action against a specialist organization. Such fine 
will be issued against the specialist member organization, which, 
according to the schedule of fines contained in Rule 476A, would be 
result in a fine of $1,000; the second and third regulatory actions 
within a rolling 12-month period would result in fines of $2,500 and 
$5,000 respectively. If a specialist member organization is issued a 
fine relating to Rule 79A.15 twice within a rolling 12-month period, 
the Exchange will pursue formal disciplinary proceedings under Rule 
476 when continued poor performance during that rolling 12-month 
period warrants such action. See letter from Robert J. McSweeny, 
Senior Vice President, Market Surveillance, NYSE, to Katherine A. 
England, Division of Market Regulation, SEC, dated April 16, 1998.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change would revise the ``List of Exchange Rule 
Violations and Fines Applicable Thereto Pursuant to Rule 476A'' by 
adding the failure to comply with the provisions of Rules 392,460.30, 
80A(b), 79A.15 and 105. The Exchange believes it is appropriate to make 
the failure to comply with the provisions of the above-named rules 
subject to the possible imposition of a fine under Rule 476A 
procedures.\4\
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    \4\ Concurrently with the proposed rule change, the Exchange is 
seeking to amend its Rule 19d-1 reporting plan for Rule 476A 
violations to include the items proposed for addition to the list of 
rules subject to Rule 467A. See letter from James E. Buck, Senior 
Vice President and Secretary, NYSE, to Michael Walinskas, Senior 
Special Counsel, Division of Market Regulation, SEC, dated January 
16, 1998.
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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 NYSE 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 NYSE 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
    Rule 476A provides that the Exchange may impose a fine, not to 
exceed $5,000, or any member, member organization, allied member, 
approved person, or registered or non-registered employee of a member 
or member organization for a minor violation of certain specified 
Exchange rules.
    The purpose of the Rule 476A procedure is to provide for a 
meaningful sanction for a rule violation when the initiation of a 
disciplinary proceeding under Rule 476 would be more costly and time-
consuming than would be warranted given the minor nature of the 
violation, or when the violation calls for a stronger regulatory 
response than a cautionary letter would convey. Rule 476A preserves due 
process rights; identifies those rule violations which may be the 
subject of summary fines; and includes a schedule of fines.
    In SR-NYSE-84-27, which initially set forth the provisions and 
procedures of Rule 476A, the Exchange indicated in would amend the list 
of rules from time to time, as it considered appropriate, in order to 
phase-in the implementation of Rule 476A as experience with it was 
gained.
    The Exchange is presently seeking approval to add to the List of 
Rules subject to possible imposition of fines under Rules 476A 
procedures, failure by members or member organizations to comply with 
the provisions of: (1) Rule 392 and Rule 460.30 which require 
notification to the Exchange by member organizations when they are 
participating in or engaging in certain activities related to an 
offering of securities listed on the Exchange; (2) Rule 80-A(b) which 
prohibits entry of stop orders for the remainder of any trading day on 
which `'sidecar'' procedures have been invoked; (3) Rule 79A.15 on 
specialists' publishing bids or offers upon receipt of limit orders; 
and (4) Rule 105 and its Guidelines with respect to specialists' 
specialty stock options transactions and the reporting of such 
transactions.
    The purpose of the proposed change to Rule 476A is to facilitate 
the Exchange's ability to induce compliance with all aspects of the 
above-cited rules. The Exchange believes failure to comply with the 
requirments of these rules should be addressed with an appropriate 
sanction and seeks Commission approval to add violations of these 
requirements to the Rule 476A List so as to have a board range of 
regulatory responses available. The Exchange believes that this would 
more effectively encourage compliance by enabling a prompt, meaningful 
and heightened regulatory response (e.g., the issuance of a fine rather 
than a cautionary letter) to a minor violation of a rule.
    The Exchange wishes to emphasize the importance it places upon 
compliance with the above-named rules and, in particular, Rule 79A.15, 
which it adopted to reflect the provisions and certain interpretations 
of SEC Rule 11Ac1-4 under the Act. The Exchange recognizes that 
violations of Rule 79A.15 would likely result in violations of a 
Commission rule and, therefore, proposes, when a full disciplinary 
action is not warranted, to issue a summary fine instead of a 
cautionary letter as its first regulatory action against a specialist 
organization. While the Exchange, upon investigation, may determine 
that a violation of any of these rules is a minor violation of the type 
which is properly addressed by the procedures adopted under Rule 476A, 
in those instances where investigation reveals a more serious violation 
of the above-described rules, the Exchange will provide an appropriate 
regulatory response. This includes the full disciplinary procedures 
available under Rule 476.

[[Page 27340]]

2. Statutory Basis
    The proposed rule change will advance the objectives of Section 
6(b)(6) of the Act in that it will provide a procedure whereby member 
organizations can be ``appropriately disciplined'' in those instances 
when a rule violation is minor in nature, but a sanction more serious 
than a warning or cautionary letter is appropriate. The proposed rule 
change provides a fair procedure of imposing such sanctions, in 
accordance with the requirements of Sections 6(b)(7) and 6(d)(1) of the 
Act.

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

    The Exchange does not believe that the proposed rules change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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:
    A. By order approve such 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, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
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 
NYSE. All submissions should refer to the File No. SR-NYSE-98-02 and 
should be submitted by June 8, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13098 Filed 5-15-98; 8:45 am]
BILLING CODE 8010-01-M