[Federal Register Volume 65, Number 28 (Thursday, February 10, 2000)]
[Notices]
[Pages 6675-6680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-3087]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42384; File No. SR-PCX-99-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. Amending Its Disciplinary 
Procedures

February 3, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``ACT'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 2, 1999, the Pacific Exchange, Inc. (``PCX'' 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 PCX. On June 25, 1999, the PCX filed 
with the Commission Amendment No. 1 to the proposed rule change.\3\ On 
January 18, 2000, the PCX filed with the Commission Amendment No. 2 to 
the proposed rule change.\4\ On January 19, 2000, the PCX filed with 
the Commission Amendment No. 3 to the proposed rule change.\5\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Michael D. Pierson, Director, Regulatory 
Policy, PCX, to Michael A. Walinskas, Associate Director, Division 
of Market Regulation, Commission, dated June 24, 1999 (``Amendment 
No. 1''). In Amendment No. 1, the Exchange withdrew proposed PCX 
Rule 10.8, Hearing Panels, and renumbered two of the proposed rules.
    \4\ See letter from Michael D. Pierson, Director, Regulatory 
Policy, PCX, to Jennifer Colihan, Attorney, Division of Market 
Regulation, Commission, dated January 7, 2000 (``Amendment No. 2''). 
In Amendment No. 2, the Exchange proposed to delete PCX Rule 10.4(f) 
among other things.
    \5\ See letter from Michael D. Pierson, Director, Regulatory 
Policy, PCX, to Kelly Riley, Attorney, Division of Market 
Regulation, Commission, dated January 14, 2000 (``Amendment No. 
3''). In Amendment No. 3, the Exchange proposed to make minor word 
change and change the heading for proposed Rule 10.4(c) from 
``Summary Proceedings'' to ``Summary Determinations'' among other 
things.
---------------------------------------------------------------------------

1. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The PCX is proposing to amend its rules on disciplinary proceedings 
at the Exchange,\6\ and in particular, to add new rules to codify the 
independent function of PCX Regulatory Staff; to clarify what 
communications are improper in the context of pending investigations or 
disciplinary proceedings; to provide PCX Regulatory Staff with the 
ability to issue formal complaints for the alleged violation of 
Exchange rules; to permit qualified persons who are not members to 
serve on hearing panels; and otherwise to codify procedures relating to 
hearing panelists' conflicts of interest. Below is the text of the 
proposed rule change. Proposed new language is in italics; proposed 
deletions are in [brackets].
---------------------------------------------------------------------------

    \6\ The Commission notes that the Exchange has proposed a 
similar disciplinary structure and procedures for the Pacific 
Equities, Inc. See Exchange Act Release No. 42178 (Nov. 24, 1999) 64 
FR 68136 (Dec. 6, 1999) (File No. SR-PCX-99-39).
---------------------------------------------------------------------------

* * * * *

Rule 10

Disciplinary Jurisdiction and Appeals

para.6061  Disciplinary Jurisidiction

    Rule 10.1--No change.

para.6067  Investigations and Regulatory Cooperation

    Rule 10.2(a). The Exchange Regulatory Staff will function 
independently of the commercial interests of the Exchange members and 
will have the sole discretion to investigate, and will [shall] 
investigate, possible violations within the disciplinary jurisdiction 
of the Exchange. [upon order of the Board of Governors, the Executive 
Committee, the Ethics and Business Conduct Committee, or the Floor 
Trading Committees or upon receipt of a complaint alleging such 
violations filed by a member or by any other person.] No member of the 
Board of Governors or the Executive Committee or non-Regulatory Staff 
may interfere with or attempt to influence the process or resolution of 
any pending investigation or disciplinary proceeding. [All such 
complaints should specify in reasonable detail the facts constituting 
the violation, including the specific statutes, Exchange Constitutional 
provisions, Rules, commentaries, resolutions, policies or procedures 
allegedly violated. A member or person associated with a member is 
entitled to be represented by counsel during any Exchange 
investigation.
    (b) 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.]
    (b) Any person, any Exchange committee, the Board of Governors or 
the Executive Committee may submit for investigation a complaint 
alleging possible violations. Each complaint must specify in reasonable 
detail the facts constituting the violation and any specific federal 
statute, rule, regulation or Exchange constitutional provision, rule, 
commentary, resolution, policy or procedure allegedly violated.
    [(c) A member or member organization shall submit such trade data 
elements specified in Commentary .01 below in such automated format as 
may be prescribed by the Exchange from time to time, in regard to such 
transaction or transactions as may be the subject of a particular 
request for information made by the Exchange. Failure to submit such 
data in the required format shall be considered obstructive of an 
Exchange inquiry or investigation and subject to formal disciplinary 
action.]
    (c) A member, member organization or associated person is entitled 
to be represented by counsel during any Exchange investigation.
    [(b)] (d) No member, member organization, [or person associated 
with a member] associated person or other person or entity over whom 
the Exchange has jurisdiction pursuant to Rule 10.1(b) may [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] will be

[[Page 6676]]

considered obstructive of an Exchange inquiry or investigation and 
subject to formal disciplinary action.
    [(c)] (e) A member or member organization [shall] must submit such 
trade data elements specified in Commentary .01 below in such automated 
format as may be prescribed by the Exchange from time to time, in 
regard to such transaction or transactions as may be the subject of a 
particular request for information made by the Exchange. Failure to 
submit such data in the required format [shall] will be considered 
obstructive of an Exchange inquiry or investigation and subject to 
formal disciplinary action.

Commentary:

    .01--No change.

[Regulatory Cooperation]

    [(d)] (f) No member, member organization, associated person [person 
associated with a member or member organization], or other person or 
entity over whom the Exchange has jurisdiction pursuant to Rule 
10.1(b), [shall] may refuse to appear and testify before another 
exchange or self-regulatory organization in connection with a 
regulatory investigation, examination, or disciplinary proceeding or 
refuse to furnish documentary materials or other information or 
otherwise impede or delay such investigation, examination or 
disciplinary proceeding if the Exchange requests such information or 
testimony in connection with any inquiry resulting from an agreement 
entered into by the Exchange pursuant to Rule 14.1 The requirements of 
this Rule [10.2(d)] 10.2(f) [shall] will apply regardless of whether 
the Exchange has initiated an investigation pursuant to Rule 10.2(a) or 
a disciplinary proceeding pursuant to Rule [10.3] 10.5.

Commentary:

    .01  The terms ``exchange'' and ``self-regulatory organization,'' 
as used in Rule [10.2(d)] 10.2(f), [shall] will include, but are not 
limited to, any member or affiliate member of the Intermarket 
Surveillance Group.
    .02  Any person or entity required to furnish information or 
testimony pursuant to Rule [10.2(d)] 10.2(f) [shall] will be afforded 
the same rights and procedural protections as that person or entity 
would have if the Exchange had initiated the request for information or 
testimony.

Ex Parte Communications

    10.3(a) Prohibited Communications. Unless on adequate notice and 
reasonable opportunity for all parties to participate:
    (1) No person who is a subject of a pending Exchange investigation 
(``Subject'') or a Respondent in a pending disciplinary proceeding, or 
counsel for or a representative of the Subject or the Respondent, with 
knowledge of a pending Exchange invesgitation or disciplinary 
proceeding, may make or knowlingly cause to be made an ex parte 
communication, as defined below, relevant to the facts or allegations 
of the investigation or the disciplinary proceeding to: (a) a member of 
the Board of Governors; (b) a member of the Executive Committee; (c) a 
person who advises the Board of Governors or the Executive Committee; 
(d) any member or Exchange Regulatory Staff that is not participating 
in the resolution of the investigation or the disciplinary proceeding; 
or (e) a member of a Hearing Panel or the disciplinary committee with 
jurisdiction over the investigation or disciplinary proceeding.
    (2) No person who is a member of a Hearing Panel or the 
disciplinary committee with jurisdiction over an investigation or 
disciplinary proceeding, with knowledge of a pending investigation or 
disciplinary proceeding, may make or knowingly cause to be made an ex 
parte communication, as defined below, relevant to the facts or 
allegations of the investigation or the disciplinary proceeding to: (a) 
a member of the Board of Governors; (b) a member of the Executive 
Committee; (c) a person who advises the Board of Governors or the 
Executive Committee; (d) any member of Exchange Regulatory Staff; or 
(e) the Subject of a pending Exchange investigation or a Respondent in 
a pending disciplinary proceeding, or counsel for or a representative 
of the Subject or the Respondent.
    (3) No person who is a member of the Board of Governors or the 
Executive Committee, or any person who advises the Board of Governors 
or the Executive Committee, with knowledge of a pending investigation 
or disciplinary proceeding, may knowingly make or cause to be made an 
ex parte communication, as defined below, relevant to the facts or 
allegations of the investigation or the disciplinary proceeding to: (a) 
any member of Exchange Regulatory Staff; (b) the Subject of a pending 
Exchange investigation or a Respondent in a pending disciplinary 
proceeding, or counsel for or a representative of the Subject or the 
Respondent; or (c) a member of a Hearing Panel or the disciplinary 
committee with jurisdiction over the investigation or disciplinary 
proceeding.
    (b) Disclosure of Prohibited Communications. Any person who 
receives, makes or knowingly causes to be made a communication 
prohibited by this Rule must promptly submit to Exchange Regulatory 
Staff for inclusion in the record of the investigation or disciplinary 
proceeding:
    (1) All such written communications;
    (2) Memoranda stating the substance of all such oral 
communications; and
    (3) All written responses and memoranda stating the substance of 
any oral responses to such communications.
    (c) Remedies. Any member, member organization or associated person 
who made or knowingly caused to be made a communication prohibited by 
subsection (a) will be subject to disciplinary action. Furthermore, an 
Exchange disciplinary committee, to the extent consistent with the 
interests of justice, may issue to the member, member organization or 
associated person responsible for the communication or who benefited 
from the communication an order to show cause why the claim, defense or 
interest of the member, member organization or associated person should 
not be adversely affected by reason of such ex parte communication, 
including but not limited to the entry of an adverse summary decision. 
All parties to a disciplinary proceeding and Exchange Regulatory Staff 
will be provided with adequate notice and a reasonable opportunity to 
respond to any allegations or contentions contained in the prohibited 
communication and any responses will be included in the record of the 
investigation or disciplinary proceeding.
    (d) Permitted Communications. Nothing in this Rule prohibits the 
members of a disciplinary committee or Exchange Regulatory Staff from 
discussing a pending investigation or disciplinary proceeding at a 
meeting of the committee in connection with: (1) The adjudication of 
the investigation pursuant to the Minor Rule Plan; (2) the 
determination of whether to impose informal discipline; (3) the 
determination of whether to authorize a complaint or take no further 
action; or (4) the determination of whether to accept an offer of 
settlement. Commentary:
    .01  ``Ex parte communication'' means an oral or written 
communication made without notice to all parties, i.e., Exchange 
Regulatory Staff and the Subjects of investigations or Respondents in 
disciplinary proceedings. A written communication is ex parte unless a 
copy has been previously or simultaneously delivered to all interested 
parties. An oral

[[Page 6677]]

communication is ex parte unless it is made in the presence of all 
interested parties except those who, on adequate prior notice, declined 
to be present.
    .02  A disciplinary proceeding will be considered to be pending 
from the date that a Complaint has been issued pursuant to Rule 10.5 
until the proceeding, including any appeals, becomes final.

para.6073  Complaints [and Answers]

    [Rule 10.4] (Note--Rule 10.4 has been renumbered as Rule 10.5)
    Rule [10.3]10.4(a) [Whenever it shall appear to the Board of 
Governors, the Executive Committee, or any standing committee 
designated by the Board of Governors to review disciplinary proceedings 
that] Any standing committee designated by the Board of Governors to 
review disciplinary proceedings, and Exchange Regulatory Staff 
designated by the Exchange, has the authority to determine whether 
there is probable cause for finding that a violation within the 
disciplinary jurisdiction of the Exchange has occurred and that further 
proceedings are warranted[, the]. If the Exchange (``the Complainant'') 
determines that further proceedings are warranted, then the Exchange 
[shall] will initiate a formal disciplinary action by preparing a 
statement of charges (``the Complaint'') against [the] any [person or] 
member, member organization or associated person alleged to have 
committed a violation (``the Respondent'') specifying the acts in which 
the Respondent is [charged] alleged to have engaged in, or which the 
Respondent is alleged to have omitted, and [setting forth] alleging the 
specific provisions of the Securities Exchange Act of 1934, as amended, 
rules and regulations promulgated thereunder, Exchange constitutional 
provisions, rules, commentaries, resolutions, policies or procedures, 
of which such acts or omissions are alleged to be in violation.
    (b) At any time prior to service of the written answer to the 
Complaint, the Complaint may be amended to allege new matters of fact 
or law. After service of the written answer, the hearing panel may 
allow amendment of the Complaint upon submission of a written motion by 
the Exchange and a showing of good cause.
    The Respondent shall have fifteen business days after service of 
the charges to file a written answer thereto. The answer shall 
specifically admit or deny each allegation contained in the charges, 
and the Respondent shall be deemed to have admitted any allegation not 
specifically denied. The answer may also contain any defense which the 
Respondent wishes to submit and may be accompanied by documents in 
support of his answer or defense. In the event the Respondent fails to 
file an answer, the charges shall be considered to be admitted.
    The time period to file any answer may be extended for such further 
periods as may be granted by the Exchange, if such request for 
extension of the filing period is received by the Exchange within five 
business days prior to the date on which the answer is due.

Summary Determinations

    (c) [Rule 10.5] Notwithstanding the provisions of Rule 10.5, the 
disciplinary committee with jurisdiction over the proceeding may make a 
determination without a hearing and may impose a penalty as to such 
charges which the Respondent has admitted or has failed to answer or 
which otherwise do not appear to be in dispute. Notice of such summary 
determination, specifying the violations and penalty, shall be served 
upon the Respondent.

Commentary:

    .01  The term ``probable cause'' means that facts and circumstances 
establish a reasonable likelihood that the person committed the 
violation in issue.

Hearing

    [Rule 10.5] (Note: Rule 10.5 has been renumbered as Rule 10.4(c))
    [Rule 10.4] Rule 10.5(a) Upon Respondent's filing an answer, the 
Respondent may request a hearing. An appropriate Committee of the 
Exchange (``the Hearing Committee'') shall appoint one or more members 
to hear the matter (``the Panel''). Parties shall be given at least 15 
calendar days notice of the time and place of the hearing and a 
statement of the matters to be considered therein.
    (b) Prior to the hearing, the Parties shall be notified of the 
composition of the Panel. Any objection to the composition of the Panel 
must be submitted to the Hearing Administrator within five business 
days of receipt of the notification regarding the composition of the 
Panel.
    (c) At least five business days prior to the hearing the parties 
shall submit to the Hearing Administrator a list of witnesses and any 
documentary evidence or other materials to be presented at the hearing. 
The Hearing Administrator shall immediately furnish such list of 
witnesses, documentary evidence or other materials to the other 
parties.
    (d) At the hearing, both the Complainant and the Respondent shall 
be entitled to be heard in person and to present any relevant matter. 
Any witnesses, testimony or evidence offered by the Complainant or the 
Respondent shall be subject to cross-examination by the other party. 
The Panel shall determine all questions concerning the admissibility of 
evidence and shall otherwise regulate the conduct of the hearing. 
Formal rules of evidence shall not apply. The charges shall be 
presented by one or more representatives of the Exchange, who along 
with Respondent and any other party, may present evidence and produce 
witnesses who shall testify under oath and are subject to being 
questioned by the Panel and other parties. The Panel, upon its own 
motion or the motion of the Complainant or Respondent, may request the 
production of documentary materials and witnesses. No member or person 
associated with a member shall refuse to furnish relevant testimony, 
documentary materials or other information requested by the Panel 
during the course of the hearing. The Respondent and intervening 
parties are entitled to be represented by counsel who may participate 
fully in the hearing. A transcript for the hearing shall be made and 
shall become part of the record.
    (e) Any person not otherwise a party may intervene as a party to 
the hearing upon demonstrating to the satisfaction of the Panel that he 
has an interest in the subject of the hearing and that the disposition 
of the matter may, as a practical matter, impair or impede his ability 
to protect that interest. Also, the Panel may in its discretion permit 
a person to intervene as a party to the hearing when the person's claim 
or defense and the main action have questions of law or fact in common. 
Any person wishing to intervene as a party to a hearing shall file with 
the Panel a notice requesting the right to intervene, stating the 
grounds therefor, and setting forth the claim or defense for which 
intervention is sought. The Panel, in exercising its discretion 
concerning intervention, shall take into consideration whether the 
intervention will unduly delay or prejudice the adjudication of the 
rights of the original parties.
    [(f) Except in writing, with copies to the other parties, neither 
the Complainant, the Respondent, nor any interested party may discuss 
with the Panel any matter concerning the facts or allegations in the 
complaint unless the other parties to the action are given

[[Page 6678]]

sufficient notice and an opportunity to be heard.]
    Rules 10.6-10.14--No change.
* * * * *

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 PCX 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 PCX 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
    Independence of Regulatory Staff. The Exchange is proposing to 
modify PCX Rule 10.2 so that it will include new provisions on the 
independence of PCX Regulatory Staff and its separation from the 
Exchange's commercial interests. Specifically, the rule is being 
modified to state that the Exchange's Regulatory Staff will function 
independently of the commercial interests of the Exchange members and 
will have the sole discretion to investigate, and will investigate, 
possible violations within the disciplinary jurisdiction of the 
Exchange. The proposed rule further states specifically that no member 
of the Board of Governors or the Executive Committee or non-Regulatory 
Staff may interfere within or attempt to influence the process or 
resolution of any pending investigation or disciplinary proceeding.
    Investigations. The Exchange is proposing to reorganize the 
provisions on Exchange investigations and to make various technical and 
housekeeping changes to the text of PCX Rule 10.2, which will now cover 
both Exchange investigations and regulatory cooperation.\7\
---------------------------------------------------------------------------

    \7\ The current provisions on regulatory cooperation are set 
forth in PCX Rule 10.2(d).
---------------------------------------------------------------------------

    Ex Parte Communications. The Exchange is proposing to adopt new PCX 
Rule 10.3 to codify specific provisions on ex parte communications.\8\ 
This rule change codifies what communications regarding pending 
investigations and disciplinary proceedings are improper. The Exchange 
believes that this rule change will serve to assure that the integrity 
and independence of the Exchange's regulatory function will be 
protected.
---------------------------------------------------------------------------

    \8\ These provisions were, in large part, adapted from the NASD 
Manual--Code of Procedure (``NASD Code of Proc.'') Rule 9143, Ex 
Parte Communications.
---------------------------------------------------------------------------

    More specifically, proposed Exchange Rule 10.3(a)(1) provides that 
unless on adequate notice and reasonable opportunity for all parties to 
participate, no person who is a subject of a pending Exchange 
investigation (``Subject'') or a Respondent in a pending disciplinary 
proceeding, or counsel for or a representative of the Subject or the 
Respondent, with knowledge of a pending Exchange investigation or 
disciplinary proceeding, may make or knowingly cause to be made an ex 
parte communication, as defined below, relevant to the facts or 
allegations of the investigation or the disciplinary proceeding to: (a) 
a member of the Board of Governors; (b) a member of the Executive 
Committee; (c) a person who advises the Board of Governors or the 
Executive Committee; (d) any member of Exchange Regulatory Staff that 
is not participating in the resolution of the investigation or the 
disciplinary proceeding; or (e) a member of a Hearing Panel or the 
disciplinary committee with jurisdiction over the investigation or 
disciplinary proceeding.\9\
---------------------------------------------------------------------------

    \9\ Cf. NASD Code of Proc. Rule 9143(a)(1).
---------------------------------------------------------------------------

    Proposed PCX Rule 10.3(a)(2) provides that unless on adequate 
notice and reasonable opportunity for all parties to participate, no 
person who is a member of a Hearing Panel or the disciplinary committee 
with jurisdiction over an investigation or disciplinary proceeding, 
with knowledge of a pending investigation or disciplinary proceeding, 
may make or knowingly cause to be made an ex parte communication, as 
defined below, relevant to the facts or allegations of the 
investigation or the disciplinary proceeding to: (a) A member of the 
Board of Governors; (b) a member of the Executive Committee; (c) a 
person who advises the Board of Governors or the Executive Committee; 
(d) any member of Exchange Regulatory Staff; or (e) the Subject of a 
pending Exchange investigation or a Respondent in a pending 
disciplinary proceeding, or counsel for or a representative of the 
Subject or the Respondent.\10\
---------------------------------------------------------------------------

    \10\ Cf. NASD Code of Proc. Rule 9143(a)(2).
---------------------------------------------------------------------------

    Proposed Rule 10.3(a)(3) provides that unless on adequate notice 
and reasonable opportunity for all parties to participate, no person 
who is a member of the Board of Governors or the Executive Committee, 
or any person who advises the Board of Governors or the Executive 
Committee, with knowledge of a pending investigation or disciplinary 
proceeding, may knowingly make or cause to be made an ex parte 
communication, as defined below, relevant to the facts or allegations 
of the investigation or the disciplinary proceeding to: (a) Any member 
of Exchange Regulatory Staff; (b) the Subject of a pending Exchange 
investigation or a Respondent in a pending disciplinary proceeding, or 
counsel for or a representative of the Subject or the Respondent; or 
(c) a member of a Hearing Panel or the disciplinary committee with 
jurisdiction over the investigation or disciplinary proceeding.\11\
---------------------------------------------------------------------------

    \11\ Cf. NASD Code of Proc. Rule 9143(a)(1)-1(2)
---------------------------------------------------------------------------

    With respect to the disclosure of prohibited communications, 
proposed PCX Rule 10.3(b) provides that any person who receives, makes 
or knowingly causes to be made a communication prohibited by this Rule 
must promptly submit to Exchange Regulatory Staff for inclusion in the 
record of the investigation or disciplinary proceeding: (1) All such 
written communications; (2) memoranda stating the substance of all such 
oral communications; and (3) all written responses and memoranda 
stating the substance of any oral responses to such communications.\12\
---------------------------------------------------------------------------

    \12\ Cf. NASD Code of Proc. Rule 9143(b).
---------------------------------------------------------------------------

    Proposed Exchange Rule 10.3(c) sets forth remedies applicable to 
situations in which prohibited communications have been made. 
Specifically, the rule provides that any member, member organization or 
associated person who made or knowingly caused to be made a 
communication prohibited by subsection (a) will be subject to 
disciplinary action. The rule further provides that an Exchange 
disciplinary committee, to the extent consistent with the interests of 
justice, may issue to the member organization or associated person 
responsible for the communication or who benefited from the 
communication an order to show cause why the claim, defense or interest 
of the member, member organization or associated person should not be 
adversely affected by reason of such ex parte communication, including 
but not limited to the entry of an adverse summary decision. The rule 
further provides that all parties to a disciplinary proceeding and 
Exchange Regulatory Staff will be provided with adequate notice and a 
reasonable opportunity to respond to any allegations or contentions 
contained in the prohibited communication and any responses will be 
included in the record of the

[[Page 6679]]

investigation or disciplinary proceeding.\13\
---------------------------------------------------------------------------

    \13\ Cf. NASD Code of Proc. Rule 9143(c).
---------------------------------------------------------------------------

    Proposed PCX Rule 10.3(d) clarifies that nothing in the rule on ex 
parte communications prohibits the members of a disciplinary committee 
or Exchange Regulatory Staff from discussing a pending investigation or 
disciplinary proceeding at a meeting of the committee in connection 
with: (1) The adjudication of the investigation pursuant to the Minor 
Rule Plan; (2) the determination of whether to impose informal 
discipline; (3) the determination of whether to authorize a complaint 
or take no further action; or (4) the determination of whether to 
accept an offer of settlement.
    Proposed Commentary .01 to Exchange Rule 10.3 defines an ``ex parte 
communication'' as an oral or written communication made without notice 
to all parties, i.e., Exchange Regulatory Staff and the Subjects of 
investigations or Respondents in disciplinary proceedings. The 
Commentary further states that a written communication is ex parte 
unless a copy has been previously or simultaneously delivered to all 
interested parties. It further provides that an oral communication is 
ex parte unless it is made in the presence of all interested parties 
except those who, on adequate prior notice, declined to be present.\14\
---------------------------------------------------------------------------

    \14\ Cf. Chicago Board Options Exchange (``CBOE'') Rule 17.4, 
Interpretation and Policy .01.
---------------------------------------------------------------------------

    Finally, proposed Commentary .02 to PCX Rule 10.3 states that a 
disciplinary proceeding will be considered to be pending from the date 
that a Complaint has been issued pursuant to Rule 10.5 until the 
proceeding, including any appeals, becomes final. This provision will 
serve to clarify the scope of statements prohibited by PCX Rule 
10.3.\15\
---------------------------------------------------------------------------

    \15\ See, e.g., proposed PCX Rule 10.3(a)(1) (``No person who is 
* * * a Respondent in a pending disciplinary proceeding, may make * 
* * and ex parte communication. * * *'' (emphasis added)). Cf. CBOE 
Rule 17.14, Interpretation and Policy .01(i).
---------------------------------------------------------------------------

    Complaints. PCX Rule 10.3, which the PCX proposes to renumber as 
Rule 10.4, currently provides that formal complaints for alleged 
violations of Exchange rules (and other provisions) may be authorized 
by the PCX Board of Governors, by the Executive Committee of the 
Exchange, or by any standing committee designated by the Board of 
Governors to review disciplinary proceedings. The Exchange is proposing 
to modify that provision so that only Exchange Regulatory Staff 
designated by the Exchange and any standing committee designated by the 
Board of Governors to review disciplinary proceedings has the authority 
to determine whether there is probable cause to issue a formal 
complaint, i.e., probable cause for finding that a violation within the 
disciplinary jurisdiction of the Exchange has occurred and that further 
proceedings are warranted. The PCX also proposes to make certain 
technical changes to the text of current Exchange Rule 10.3 for 
clarification purposes, e.g., changing the term ``charged'' to 
``alleged.''
    With regard to amending outstanding Complaints, proposed PCX Rule 
10.4(b) provides that at any time prior to service of the written 
answer to the Complaint, the Complaint may be amended to allege new 
matters of fact or law. It further provides that after service of the 
written answer, the hearing panel may allow amendment of the Complaint 
upon submission of a written motion by the Exchange and a showing of 
good cause.
    Finally, the Exchange is proposing to adopt new Commentary .01 to 
new PCX Rule 10.4 to provide that the term ``probable cause'' means 
that facts and circumstances establish a reasonable likelihood that the 
person committed the violation in issue.
    Summary Determinations. The Exchange proposes to renumber PCX Rule 
10.5 to Rule 10.4(c).
2. Statutory Basis
    The PCX believes the proposed rule change is consistent with 
Section 6(b) \16\ of the Act, in general, and furthers the objectives 
of Section 6(b)(5),\17\ in particular, in that it is designed to 
promote just and equitable principles of trade and to protect investors 
and the public interest. The PCX also believes that the proposal is 
consistent with Section 6(b)(6) \18\ of the Act in that it is designed 
to assure that Exchange members and persons associated with Exchange 
members are appropriately disciplined for violations of the Act, the 
rules and regulations thereunder, and the rules of the Exchange.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f(b).
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(6).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule 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

    Written comments on the proposed rule change were neither solicited 
nor 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 (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, 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-
0609. 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 Room. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
PCX.
    All submissions should refer to File No. SR-PCX-99-10 and should be 
submitted by March 2, 2000.

[[Page 6680]]

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-3087 Filed 2-9-00; 9:45 am]
BILLING CODE 8010-01-M