[Federal Register Volume 66, Number 10 (Tuesday, January 16, 2001)]
[Notices]
[Pages 3634-3636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1193]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43816; File No. SR-PCX-00-42]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. 
Relating to Supervisory Procedures

January 8, 2001.
    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 December 1, 2000, the Pacific Exchange, Inc. (``PCX'' 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 December 28, 2000, the Exchange filed Amendment No. 1 to 
the proposed rule change.\3\ On January 5, 2001, the Exchange filed 
Amendment No. 2 to the proposed rule change.\4\ The proposed rule 
change, as amended, has become effective on filing pursuant to section 
19(b)(3)(A) of the Act \5\ and rule 19b-4(f)(6) thereunder.\6\ The 
Commission is publishing this notice to solicit

[[Page 3635]]

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-4.
    \3\ See Letter from Hassan Abedi, Attorney, Regulatory Policy, 
PCX, to Nancy J. Sanow, Assistant Director, Division of Market 
Regulation (``Division''), Commission (December 28, 2000) 
(``Amendment No. 1''). Amendment No. 1 corrected typographical 
errors that appeared in the proposed rule text.
    \4\ See Letter from Hassan Abedi, Attorney, Regulatory Policy, 
PCX, to Nancy J. Sanow, Assistant Director, Division, Commission 
(January 5, 2001) (``Amendment No. 2''). Amendment No. 2 further 
corrected typographical errors that appeared in the proposed rule 
text.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(f)(6).
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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 adopt a rule requiring all members to 
adopt and implement a supervisory system and written supervisory 
procedures. Below is the text of the proposed rule change. Additions 
are italicized and deletions are in brackets.

Supervision

* * * * *

Rule 4.25(a). Adherence to Law

    No member or member organization may engage in conduct in 
violation of the federal securities laws, the Constitution or the 
Rules of the Exchange. Every member or member organization must 
supervise persons associated with the member or member organization 
so as to assure compliance therewith.
    (b) Supervisory System
    Each member or member organization for which the Exchange is the 
Designated Examining Authority (``DEA'') must establish and maintain 
a system to supervise the activities of its associated persons and 
the operations of its business. Such system must be reasonably 
designed to ensure compliance with applicable federal securities 
laws and regulations and PCX Rules. Final responsibility for proper 
supervision will rest with the member or member organization. The 
member's or member organization's supervisory system must provide, 
at a minimum, for the following:
    (1) The establishment and maintenance of written procedures as 
required by paragraph (c) of this Rule.
    (2) The designation of a person with authority to reasonably 
discharge his/her duties and obligations in connection with 
supervision and control of the activities of the associated persons 
of the member or member organization.
    (3) The member or member organization must undertake reasonable 
efforts to determine that all supervisory personnel are qualified by 
virtue of experience or training to carry out their assigned 
responsibilities.
    (4) Each member or member organization must designate and 
specifically identify to the Exchange one or more persons who will 
be responsible for such supervision.
    (c) Written Procedures
    Each member or member organization must establish, maintain, and 
enforce written procedures to supervise the business in which it 
engages and to supervise the activities of its associated persons 
that are reasonably designed to ensure compliance with applicable 
federal securities laws and regulations, and with the PCX Rules.

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
    There are some PCX and Pacific Exchange Equities, Inc., (``PCXE'') 
rules that relate to supervision of firm activity for those PCX member 
firms that conduct a public business. these include options rules such 
as, ``Office Supervision''\7\ ``Account Supervision,''\8\ ``Conduct on 
the Floor,''\9\ and equities rules such as, ``Allied Persons & Approved 
Persons,''\10\ ``Office Supervision,''\11\ and ``Account 
Supervision.''\12\ The Exchange, however, does not currently have a 
comprehensive rule that directly addresses the obligation of every 
member or member organization, whether conducting a public business or 
a proprietary business, to properly supervise its business and 
employees. The Exchange believes that the proposed rule clarifies (1) 
the responsibility of the member or member firm for the acts of its 
employees; and (2) the requirement that each member must supervise 
those persons for which it is responsible.
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    \7\ PCX Rule 9.1.
    \8\ PCX Rule 9.2(b).
    \9\ PCX Rule 6.2(b).
    \10\ PCXE Rule 2.14(d).
    \11\ PCXE Rule 9.1(c).
    \12\ PCXE Rule 9.1(d).
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    The proposed rule has three distinct parts. The first section of 
the proposed rule change is a prohibition on engaging in conduct that 
violates the federal securities laws, the Constitution or the Rules of 
the Exchange. This section also informs members that they must 
supervise all associated persons in order to assure compliance.
    Section two of the proposed rule change sets forth the 
responsibility of all members or member organizations to establish and 
maintain a system to supervise the activities of its employees. The 
proposed rule states that this system must be reasonably designed to 
achieve compliance with the federal securities laws and PCX rules. The 
final responsibility for proper supervision rests with the member or 
member organization. The supervisory system must, at a minimum, provide 
(1) the designation of a person responsible for carrying out the firm's 
supervisory obligations; (2) a requirement that the member or member 
organization must undertake reasonable efforts to determine that all 
supervisory personnel are qualified, by virtue of experience and 
training, to carry out their obligations; and (3) a requirement that 
the member or member organization must identify to the Exchange the 
person(s) who will be responsible for such supervision.
    Section three of the proposed rule change states that each member 
or member organization must establish, maintain, and enforce written 
procedures to supervise the business in which it engages and to 
supervise the activities of its employees. These procedures must be 
reasonably designed to achieve compliance with the federal securities 
laws and the PCX rules.
    The Commission approved a similar rule filing by the National 
Association of Securities Dealers, Inc.\13\ The Exchange believes that 
the proposed rule change will serve to significantly strengthen the 
ability of the Exchange to carry out its oversight responsibilities as 
a self-regulatory organization. The proposed rule change should also 
help the Exchange to carry out its examination, compliance, and 
surveillance functions. Finally, the proposed rule change clarifies to 
member or member organizations supervisory obligations.
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    \13\ See National association of Securities Dealers, Rule 3010.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with section 6(b) of the Act,\14\ in general, and furthers 
the objectives of section 6(b)(5) of the Act,\15\ in particular, in 
that it is designed to promote just and equitable principles of trade, 
prevent fraudulent and manipulative acts and practices, and protect 
investors and the public interest by setting forth member supervisory 
obligations.
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    \14\ 15 U.S.C. 78f(b).
    \15\ U.S.C. 78f(b)(5).

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[[Page 3636]]

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.

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 does not (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, and 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, it has become effective pursuant to section 19(b)(3)(A) of the 
Act\16\ and rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(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 appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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, 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 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 
PCX.
    All submissions should refer to File No. SR-PCX-00-42 and should be 
submitted by February 6, 2001.
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    \18\ 17 CFR 200.30-2(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-1193 Filed 1-12-01; 8:45 am]
BILLING CODE 8010-01-M