[Federal Register Volume 65, Number 230 (Wednesday, November 29, 2000)]
[Notices]
[Pages 71150-71151]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30377]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43587; File No. SR-Amex-00-23]


Self Regulatory Organizations; Order Granting Accelerated 
Approval to Proposed Rule Change by the American Stock Exchange LLC 
Relating to Member Firm Transactions with Exchange Employees

November 17, 2000.

I. Introduction

    On April 13, 2000, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend certain Amex rules relating to member 
firm transactions with Amex employees. On September 25, 2000, the Amex 
filed Amendment No. 1 to the proposal.\3\ The proposed rule change was 
published for comment in the Federal Register on October 31, 2000. \4\ 
No comments were received on the proposal. This order approves the 
proposal rule change, as amended, on an accelerated basis.
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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 technical revision to 
the text of Amex Rule 417.
    \4\ Securities Exchange Act Release No. 43468 (October 20, 
2000), 65 FR 65034 (October 31, 2000).
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II. Description of the Proposal

    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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    \5\ The NASD filed a proposed rule change to adopt a new rule 
very similar to new Amex rule 471 (SR-NASD-00-50). See Securities 
Exchange Act Release No. 43580 (November 17, 2000).
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A. Member Loans to Exchange Employees

    The NASD Code of Conduct generally prohibits NASD and Amex 
employees from accepting loans from members, issuers, or any person 
with whom the NASD or Amex transacts 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 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. The Amex also proposes to adopt new Amex Rule 
417(b), which prohibits members from making loans to Exchange employees 
outside of disclosed, routine banking and

[[Page 71151]]

brokerage agreements. Consistent with existing NASD 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.
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    \7\ See Letter from Lori Richards, Director, OCIE, SEC to 
Richard Syron, Chairman and Chief Executive Officer, Amex, November 
6, 1998. The SEC recommendation that the Amex adopt a rule 
prohibiting members from making loans to Exchange employees was made 
as a result of an SEC examination of all SRO conflict of interest 
policies. The SEC staff's recommendation arose from a 1996 incident 
in which an Amex member made a $70,000 loan to an Amex floor 
employee.
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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.\8\ 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
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    \8\ 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 employee 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 requirement 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.

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 such pre-approval 
mechanism, however, under the NASD Code of Conduct.\9\
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    \9\ NASD Code of Conduct, Section IX, Paragraph B.1.
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    To conform Amex rules to the NASD Code of Conduct, Amex Rule 348 
(Gratuities to Employees of Exchange) would be deleted and replaced 
with new Amex Rule 417(c), a provision that parallels the NASD Code of 
Conduct. New Amex Rules 417(c) permits members to give non-cash 
business gifts with an aggregate annual value of $100 to Exchange 
employees when no conflict of interest exists, but prohibits members 
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.

III. Discussion

    The Commission has reviewed carefully the Amex's proposed rule 
change and believes, for the reasons set forth below,\10\ the proposal 
is consistent with the requirements of Section 6 of the Act \11\ and 
the rules and regulations thereunder applicable to a national 
securities exchange. Specifically, the Commission believes the proposal 
is consistent with Section 6(b)(5) of the Act.\12\ Section 6(b)(5) 
requires that the rules of an exchange be designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts and practices, to remove impediments to and perfect the mechanism 
of a free and open market, and, in general, to protect investors and 
the public interest. The proposed rule change is based upon 
recommendations made by SEC staff following an inspection of the 
ethical conduct and conflicts of interest rules, policies, and 
procedures of the Exchange. The amendments to the rules are designed to 
promote a high level of professional and personal ethical conduct by 
Exchange members and employees and to ensure that Exchange members and 
employees do not place their own personal and financial interests above 
the regulatory interests of the Exchange. The proposal also helps to 
bring the Amex's conflict of interest and ethical conduct provisions in 
line with those of the NASD and helps eliminate any confusion regarding 
the application of these provisions to employees of both self-
regulatory organizations.
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    \10\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(5).
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    The Commission finds good cause for approving the proposed rule 
change (SR-Amex-00-23) prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. The Commission 
notes that Amex employees have become subject to the NASD Code of 
Conduct as of October 2000.\13\ The Commission has not received any 
comments in response to the filing of the proposed rule change.
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    \13\ See SR-NASD-00-58.
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposal 
is consistent with the requirements of the Act and rules and 
regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) \14\ of the 
Act, that the proposed rule change (SR-Amex-00-23), as amended, is 
hereby approved on an accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30377 Filed 11-28-00; 8:45 am]
BILLING CODE 8010-01-M