[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56276-56278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28198]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40550; File No. SR-CHX-98-23]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by The Chicago Stock Exchange, 
Inc. Relating to the Submission of Written Statements by Respondents In 
Disciplinary Investigations, or ``Wells Submissions''

October 14, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4(e)(6) thereunder,\2\ notice is hereby 
given that on October 7, 1998, the Chicago Stock Exchange, Incorporated 
(``CHX'' or the ``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 
Exchange. 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\ 17 CFR 240.19b(e)(6).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to add interpretation and policy .01 to Rule 
1 of Article XII of the Exchange's Rules to codify the Exchange's 
practice of permitting, but not requiring, the Exchange staff to notify 
persons that they are the subject of an investigative report and give 
those persons the opportunity to submit a written statement prior to 
the CHX president's review of the investigative report to determine 
whether charges should be brought (a so-called Wells Submission).\3\
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    \3\ The CHX notes that its disciplinary procedures are currently 
being amended to change the person reviewing the report from the CHX 
President to an Initial Determination Panel. See SR-CHX-96-31. Upon 
approval by the Commission, this new interpretation will apply to 
current procedures, as well as procedures existing after the 
approval of SR-CHX-96-31.

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[[Page 56277]]

    The text of the proposed rule change is set forth below (additions 
are italicized):

ARTICLE XII

Discipline and Trial Proceedings

Rule 1
    Interpretations and Policies:
    .01 Notice and Statement. Prior to making a report pursuant to 
paragraph (a) of this Rule 1, the staff may notify the person(s) who is 
(are) the subject of the report (``Subject'') of the general nature of 
the allegations and of the specific provisions of the Exchange Act, 
rules and regulations promulgated thereunder or constitutional 
provisions, by-laws or rules of the Exchange or any interpretation 
thereof or any resolution of the board regulating the conduct of 
business on the Exchange, that appear to have been violated. The 
Subject(s) may, within the time frame set forth in the notice from the 
staff, then submit a written statement to the Exchange setting forth 
their interests and position in regard to the subject matter of the 
investigation. To assist a Subject in preparing such a written 
statement he or she shall, upon request, have access to any documents 
and other materials in the investigative file of the Exchange that were 
furnished by him or her or his or her agents to the Exchange.

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 Exchange 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 Exchange 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 purpose of the proposed rule change is to codify the Exchange's 
practice of permitting Wells Submissions in connection with its 
disciplinary process. Prior to submitting any investigative report in 
which the staff of the Exchange submits that there is a reasonable 
basis to believe a violation within the disciplinary jurisdiction of 
the Exchange has occurred, the staff may, but is not required to, 
notify the person who is the subject of the report (the ``Subject'') of 
the pending investigation. This notice includes the general nature of 
the allegations and the specific rule or by-law that appears to have 
been violated. If the staff provides such notice, the Subject will 
generally then submit a written statement to the staff setting forth 
his or her interests and positions regarding the subject matter of the 
investigation.\4\ This written statement is usually referred to as a 
Wells Submission and is used by the Commission and other self-
regulatory organizations in their enforcement programs. The Exchange 
has, in the past, accepted Wells Submissions and is now merely 
codifying such practice within its rules.\5\ The current policy, as 
codified, gives the Subject notified of a pending disciplinary 
investigation a reasonable period of time, depending on the 
circumstances of the matter, to comment on the notice and proposed 
disciplinary action. The deadline for the responsive Wells Submission 
will be included in the notice to the Subject. If such a response is 
received within the timeframe set forth in the notice, the staff will 
include the Wells Submission with its report to the CHX President (or, 
upon approval of SR-CHX-96-31, to the Initial Determination Panel). The 
staff, of course, reserves the right to amend its report to respond to 
the arguments raised in the Wells Submission.
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    \4\ Several additional non-substantive textual changes were also 
provided by telephone call on October 8, 1998. Telephone call 
between Kirsten M. Carlson, Foley & Lardner, and Anitra T. Cassas, 
Division of Market Regulation, Commission.
    \5\ See Chicago Board Options Exchange Rule 17.2(d), 
Philadelphia Stock Exchange Rule 960.2(e), and proposed Cincinnati 
Stock Exchange Rule 8.2(d) which are all similar to this rule, 
except that those rules require the staff of those exchanges to 
provide notification of pending disciplinary investigations. The 
proposed CHX rule permits, but does not require, the staff to 
provide such notification. The permissive nature of the proposed CHX 
rule is similar to current Commission procedures and is consistent 
with the NASD's policy, as addressed in connection with its recently 
revised disciplinary procedures. See NASD Notice to Members 97-55.
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
Section 6(b) \6\ of the Act, in general, and furthers the objectives of 
Section 6(b)(7),\7\ in particular, by providing a fair procedure for 
the disciplining of members and persons associated with members by 
codifying the existing practice permitting the Exchange to (a) notify 
members and associated persons of their involvement in a disciplinary 
investigation, and (b) permit members and associated persons an 
opportunity to comment upon such notice prior to the commencement of 
enforcement proceedings.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change would 
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

    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

    Because the foregoing proposed rule change: (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days from October 7, 1998, the 
date on which it was filed and, since the Exchange provided the 
Commission with written notice of its intent to file the proposed rule 
change at least five business days prior to the filing date, the 
proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \8\ and subparagraph (e)(6) of Rule 19b-4 
thereunder.\9\
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    \8\ 15 U.S.C. 78s(b)(3)(A).
    \9\ 17 CFR 240.19b-4(e)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appopriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solictation 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, 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

[[Page 56278]]

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 the File 
No. SR-CHX-98-23 and should be submitted by November 12, 1998.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-28198 Filed 10-20-98; 8:45 am]
BILLING CODE 8010-01-M