[Federal Register Volume 66, Number 10 (Tuesday, January 16, 2001)]
[Notices]
[Pages 3636-3638]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1194]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43817; File No. SR-PCX-00-43]


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

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 an amendment 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 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 Pacific Exchange Equities, 
Inc. (``PCXE'') rule requiring all ETP Holders, Equity ASAP Holders and 
ETP Firms 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 6.17(a). Adherence to Law

    No ETP Holder, Equity ASAP Holder or ETP Firms may engage in 
conduct in violation of the federal securities laws, the Constitution 
or the Rules of the Corporation. Every ETP Holder, Equity ASAP Holder 
or ETP Firm must supervise persons associated with it so as to assure 
compliance therewith.

(b). Supervisory System

    Each ETP Holder, Equity ASAP Holder or ETP Firm for which the 
Corporation is the Designated Examining Authority (``DEA'') must 
establish and maintain a system to supervise the activities of its 
associated persons and the operation of its business. Such system must 
be reasonably designed to ensure compliance with applicable federal 
securities laws and regulations and PCXE Rules. Final responsibility 
for proper supervision will rest with the ETP Holder, Equity ASAP 
Holder or ETP Firm. The ETP Holder's, Equity ASAP Holder's or ETP 
Firm'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 ETP 
Holder, Equity ASAP Holder or ETP Firm.
    (3) The ETP Holder, Equity ASAP Holder or ETP Firm 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 ETP Holder, Equity ASAP Holder or ETP Firm must designate 
and specifically identify to the Corporation one or more persons who 
will be responsible for such supervision.

[[Page 3637]]

(c). Written Procedures

    Each ETP Holder, Equity ASAP Holder or ETP Firm 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 achieve compliance with 
applicable federal securities laws and regulations, and with the PCXE 
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 PCXE rules that relate to supervision of 
firm activity for those PCX member firms and PCXE ETP Holders, Equity 
ASAP Holders and ETP 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 firm and ETP Holder, Equity 
ASAP Holder and ETP Firm, whether conducting a public business or a 
proprietary business, to properly supervise its business and employees. 
The proposed rule clarifies (1) the responsibility of the ETP Holders, 
Equity ASAP Holders and ETP Firms for the acts of its employees; and 
(2) the requirement that each ETP Holder, Equity ASAP Holder and ETP 
Firm 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 and the PCXE. This section also informs ETP Holders, 
Equity ASAP Holders and ETP Firms 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 ETP Holders, Equity ASAP Holders and ETP Firms to 
establish and maintain a system to supervise the activities of their 
employees. The proposed rule states that this system must be reasonably 
designed to achieve compliance with the federal securities laws and 
PCXE rules. The final responsibility for proper supervision rests with 
the ETP Holder, Equity ASAP Holder and ETP Firm. 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 ETP Holder, Equity ASAP Holder and ETP Firm 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 ETP Holder, Equity ASAP 
Holder and ETP Firm must identify to the PCXE the person(s) who will be 
responsible for such supervision.
    Section three of the proposed rule change states that each ETP 
Holder, Equity ASAP Holder and ETP Firm 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 PCXE 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 
aid the Exchange in carrying out its examination, compliance, and 
surveillance functions. Finally, the proposed rule change clarifies ETP 
Holder's, Equity ASAP Holder's and ETP Firm's 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\ 15 U.S.C. 78f(b)(5).
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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

[[Page 3638]]

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-00-43 and should be 
submitted by February 6, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ CFR 200.30-2(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-1194 Filed 1-12-01; 8:45 am]
BILLING CODE 8010-01-M