[Federal Register Volume 65, Number 211 (Tuesday, October 31, 2000)]
[Notices]
[Pages 65034-65037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27860]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43468; File No. SR-Amex-00-23]


Self Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Relating to Member Firm 
Transactions With Exchange Employees

October 20, 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 13, 2000, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission or SEC'') the proposed rule change as described in Items 
I, II, and III below, which Items have been prepared by the Exchange. 
On September 25, 2000, the Amex filed Amendment No. 1 to the 
proposal.\3\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as amended, from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Bruce Ferguson, Associate General Counsel, Legal 
& Regulatory policy, Amex, to Jack Drogin, Assistant Director, 
Division of Market Regulation, Commission, September 25, 2000 
(``Amendment No. 1''). Amendment No. 1 made a revision to the text 
of Amex Rule 417(c) to remove a specific reference to the Code of 
Conduct of the National Association of Securities Dealers, Inc. 
(``NASD'').
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change.

    The Exchange is proposing to amend Amex rules relating to member 
firm transactions with Exchange employees. proposed new language is 
italicized, proposed deletions are in brackets.
* * * * *
Rule 416. [Accounts of Employees of Exchange and Members]

Member Employee Transactions with Another Member Organization

    No member or member organization shall open a cash or margin 
account or execute any transaction in securities or commodities in 
which an employee of [the Exchange or of any corporate subsidiary of 
the Exchange or of any] another is directly or indirectly interested 
without the prior written consent of the employer. Where such prior 
consent has been obtained, duplicate confirmations and account 
statements shall be sent to the employer.
Commentary

[[Page 65035]]

    [.01  Employees of Exchange--An employee of the Exchange, who 
wishes to open a securities or commodities account shall apply for 
permission from the Human Resources Department of the Exchange.]
    [.02] .01  The requirement to send duplicate conformations and 
statements shall be as stated in Commentary .02 to Rule 415.

Amendments.
March 3, 1954.
December 9, 1993.
May 16, 1995.
* * * * *
Rule 15. Loans by [Exchange Officers] Members
    Without the prior approval of the Board of Governors, (i) no 
member, member organization, approved person, employee or any employee 
or any employee pension, retirement or similar plan of any member 
organization (``Member'') shall directly or indirectly make any loan of 
money or securities to, or obtain any such loan from, any member of the 
Board of Governors, any member of any committee of the Exchange, or any 
Trustee of the Gratuity Fund (``Designated Person'') and (ii) no 
[member of the Board of Governors or of any committee of the Exchange, 
no Trustee of the Gratuity Fund and no officer or employee of the 
Exchange] Such Designated Person shall directly or indirectly make any 
such loan [of money or securities] to, or obtain any such loan form, 
any [member, member organization, approved person, employee or any 
employee pension, retirement or similar plan of any member 
organization] Member, unless such loan be:
    (a) Fully secured by readily marketable collateral, or
    (b) Made by a Governor, committee member of Trustee to, or obtained 
by a Governor, committee member or Trustee from, the member 
organization of which he is a member or employee or a member or 
employee therein or a party to a registered joint account in which such 
Governor, committee member or Trustee participates.

Amendments.
September 6, 1962.
June 1, 1970.
* * * * *
[Rule 348. Gratuities to Employees of Exchange]
    [No member or member organization may, without the prior written 
approval of the Exchange, employ or give any compensation or gratuity 
to any employee of the Exchange or any employee of any corporate 
subsidiary of the Exchange.]
[Amendment.
July 29, 1965, effective August 16, 1965.]
[Commentary]

    [.01  Gratuity Defined.--A gratuity is a gift of any nature. 
Pursuant to Exchange policy, however, gratuities valued at $50 or less 
in total to any one person during a calendar year are considered an 
exception to Rule 348, and prior written approval of the Exchange is 
not required.]
    [.02  Records.--Records must be retained by members and member 
organizations as to any gratuity as required by Commentary 2 to Rule 
347 above.]
    [.03  Obtaining Written Approval.--Requests for approval of any 
employment or gratuity under Rule 348 should be directed to the 
Secretary's Office.]
[Amendments.
Adopted July 29, 1965, effective August 16, 1965.
December 14, 1977.]
* * * * *

Rule 417. Transactions Involving Exchange Employees

    (a) When a member or member organization has actual notice that an 
Exchange employee has a financial interest in, or controls trading in, 
an account, the member or member organization shall promptly obtain and 
implement an instruction from the Exchange employee directing that 
duplicate account statements be provided by the member or member 
organization to the Exchange.
    (b) No member or member organization shall directly or indirectly 
make any loan of money or securities to any Exchange employee; 
provided, however, that this prohibition does not apply to loans made 
in the context of disclosed, routine banking and brokerage agreements, 
or loans that are clearly motivated by a personal or family 
relationship.
    (c) No member or member organization shall directly or indirectly 
give, or permit to be given, anything of more than nominal value to any 
Exchange employee who has responsibility for a regulatory matter that 
involves the member or member organization. For purposes of this 
subsection, the term ``regulatory matter'' includes, but is not limited 
to, examinations, disciplinary proceedings, membership applications, 
listing applications, delisting proceedings, and dispute resolution 
proceedings that involve the member or member organization. Members and 
member organizations may not otherwise give business gifts or 
courtesies to Exchange employees other than to the extent Exchange 
employees are permitted to accept such gifts and courtesies under the 
Code of Conduct applicable to Exchange employees. Records of all gifts 
and courtesies shall be kept and retained by the member or member 
organization for the period specified in SEC Rule 17a-4.

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
    In 1998, the Amex completed a transaction pursuant to which it 
joined the family of companies headed by the NASD. The American Stock 
Exchange, Inc. transferred substantially all of its assets and 
liabilities to the American Stock Exchange LLC, a new limited liability 
company controlled by the NASD.\4\ The Exchange therefore proposes to 
amend its rules relating to member firm transactions with Exchange 
employees so that they conform with the NASD Code of Conduct. 
Specifically, the Exchange proposes to amend Amex Rule 15 (Loans by 
Exchange Officers) and Amex rule 416 (Accounts of Employees of Exchange 
and Members), to delete Amex Rule 348 (Gratuities to Employees of 
Exchange), and to add new Amex Rule 417 (Transactions Involving 
Exchange Employees).\5\
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    \4\ See Letter, from James F. Duffy, Executive Vice President 
and General Counsel, Legal and Regulatory Policy, Amex, to Lori 
Richards, Director, Office of Compliance Inspections and 
Examinations (``OCIE''), Commission, February 5, 1999.
    \5\ The NASD has filed a proposed rule change to adopt a new 
rule very similar to new Amex Rule 471 (SR-NASD-00-50).
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    a. Member Loans to Exchange Employees. The NASD and Amex employees 
from accepting loans from members, issuers, or any person with whom the 
NASD or Amex transacts

[[Page 65036]]

business.\6\ Amex Rule 15 also prohibits Exchange employees from 
accepting loans from members without prior written approval of the 
Exchange, but does not specifically prohibit members from making those 
loans to Exchange employees.
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    \6\ NASD Code of Conduct, Section IX, Paragraph C.3.
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    The SEC staff has recommended that the Amex adopt a rule expressly 
prohibiting members from making loans to Amex employees, outside 
routine brokerage or banking relationships.\7\ The SEC's recommendation 
resulted from an OCIE examination of the ethical conduct and conflicts 
of interest rules, policies, and procedures of the Exchange. The SEC 
staff report noted a 1996 incident in which an Amex member made a 
$70,000 loan to an Amex floor employee. When the Amex through its own 
internal procedures became aware of the loan, it promptly terminated 
the employees for violating its conflict of interest policies in 
accepting the loan. The SEC staff has stated that rules of self-
regulatory organizations (``SROs'') should explicitly prohibit SRO 
members from extending loans to SRO employees.\8\
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    \7\ See Letter from Lori Richards, Director, OCIE, Commission, 
to Richard Syron, Chairman and Chief Executive Officer, Amex, 
November 6, 1998.
    \8\ Id.
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    The Amex therefore proposes to amend Amex Rule 15 to expressly 
provide that no member shall make a loan to an Exchange employee 
without prior approval of the Amex Board of Governors. Paragraph (b) of 
new Amex Rule 417(b) would prohibit members from making loans to 
Exchange employees outside of disclosed, routine banking and brokerage 
agreements. Consistent with existing Code of Conduct provisions, the 
prohibition on member loans to Exchange employees in new Amex Rule 
417(b) would not apply to loans that are clearly motivated by a family 
or personal relationship. Thus, for example, a registered 
representative would not be precluded from making a personal loan to an 
adult child who works at the Amex.
    b. Brokerage Accounts of Exchange Employees. The NASD Code of 
conduct requires disclosure of all security and commodity accounts that 
an employee maintains and accounts in which an employee has a financial 
interest or controls trading.\9\ Employees are required to instruct the 
institutions where such accounts are maintained to provide duplicate 
account statements (but not confirmations) to the NASD Office of 
General Counsel, which records transaction information in a database. 
The database can generate certain types of exception reports (i.e., 
reports of apparent Code violations). These reports are forwarded to 
department heads for follow-up action.
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    \9\ NASD Code of Conduct, Section VIII, Paragraph C.
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    Commentary .01 to Amex Rule 416 currently requires members to 
obtain the Exchange's prior written approval before opening an account 
for an Exchange employees and to provide duplicate confirmations and 
statements to the Exchange. To conform Amex rules to the NASD Code of 
Conduct, the Exchange approval requirement for the opening of accounts 
and the requirement to furnish duplicate confirmations are being 
deleted. The requirements to provide duplicate statements to the 
Exchange is being retained. The Amex also proposes to adopt new Amex 
Rule 417(a), which provides that when a member has actual notice that 
an Exchange employee has a financial interest in an account or controls 
trading in an account, duplicate account statements shall be provided 
by the member to the Exchange.
    The Amex believes that the elimination of the Amex approval 
requirement for the opening of employee accounts will substantially 
lessen the NASD's administrative burden with respect to these accounts. 
The Amex represents that the proposed rule change will simply require 
employees to obtain a duplicate instruction form (available on OASIS, 
the NASD's Intranet), complete and sign the form, and provide it to the 
broker/dealer at which the employee has, or wishes to open, an account. 
The provision of duplicate statements by the member would allow the 
NASD to then properly monitor trading in employee accounts.
    c. Member Gifts to Exchange Employees. Currently under Amex Rule 
348, Amex members must obtain approval from the Corporate Secretary's 
Office before giving an Exchange employee gifts valued at over $50 per 
year. The Secretary's Office does not approve gifts that exceed the $50 
threshold for employees in the Exchange's Member Firm Regulation area.
    There is no pre-approval mechanism under the NASD Code of 
Conduct.\10\ Employees are prohibited from accepting any business 
gifts, including cash or cash equivalents (e.g., gift certificates) and 
gifts of tickets (e.g., tickets to a sporting event), from any NASD or 
Amex member, Nasdaq or Amex issuer, or any person or entities that are 
involved in any matter in which the employee is involved.\11\ Where 
gifts are permissible, they may not exceed $100 in aggregate value from 
a single source during a calendar year. All gifts, regardless of value, 
must be reported.\12\ At least once each quarter, department heads are 
required to review all gifts reported by their staffs.\13\
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    \10\ NASD Code of Conduct, Section IX, Paragraph B.1.
    \11\ NASD Code of Conduct, Section IX, Paragraph C.
    \12\ NASD Code of Conduct, Section IX, Paragraph B.1.
    \13\ NASD Code of Conduction, Section IX, Interpretation 3.
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    To conform Amex rules to the NASD Code of Conduct, Amex Rule 348 
(Gratuities to Employees of Exchange) will be deleted and replaced with 
new Amex Rule 417(c), a provision that parallels the NASD Code of 
Conduct. Under paragraph (c) of new Amex Rule 417, members are 
permitted to give non-cash business gifts with an aggregate annual 
value of $100 to Exchange employees when no conflict of interest 
exists, but members are prohibited from giving business gifts or 
courtesies of more than nominal value to any Exchange employee who has 
responsibility for a specific regulatory matter that involves the 
member. A ``regulatory matter'' would include such matters as 
examinations, disciplinary proceedings, membership applications, 
listing applications, delisting proceedings, and dispute resolution 
proceedings involving the member. The proposed rule would permit 
members to give items of nominal value to employees responsible for 
regulatory matters affecting the member. The Amex represents that, for 
example, a member would be permitted to offer minor refreshments, such 
as a soft drink or coffee, to Amex employees conducting an on-site 
examination.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with section 6(b) of the Act \14\ in general, and furthers the 
objectives of section 6(b)(5) \15\ in particular, in that it is 
designed to prevent fraudulent and manipulative acts and practices.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden or Competition

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

    The Exchange did not solicit or receive written comments on the 
proposed rule change.

[[Page 65037]]

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 Exchange 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, as amended, 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 20549-0609. 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 will also be available for inspection and 
copying at the principal office of the Exchange. All submissions should 
refer to File No. SR-Amex-00-23 and should be submitted by November 21, 
2000.
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    \1\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \16\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27860 Filed 10-30-00; 8:45 am]
BILLING CODE 8010-01-M