[Federal Register Volume 66, Number 53 (Monday, March 19, 2001)]
[Notices]
[Pages 15511-15513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-6664]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44066; File No. SR-Amex-00-48]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC and Amendment Nos. 1 and 2 To 
Amend Amex Rule 590, Minor Rule Violation Fine Systems

March 12, 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 August 17, 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. The Amex amended the proposal on December 7, 2000.\3\ On 
January 29, 2001, the Amex again amended the proposal.\4\ 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\ See December 1, 2000 letter from William Floyd-Jones, Jr., 
Esq., Assistant General counsel, Amex, to Katherine A. England, 
Assistant Director, Division of Market Regulation (``Division''), 
SEC and attachments (``Amendment No. 1''). In Amendment No. 1, the 
Amex made technical changes to the proposed rule language to clarify 
which language was added and which language was rearranged.
    \4\ See January 26, 2001 letter from William Floyd-Jones, Jr., 
Esq. to Nancy J. Sanow, Assistant Director, Division, SEC and 
attachments (``Amendment No. 2''). While the cover letter indicates 
that Amendment No. 2 replaces and supersedes the original filing, 
Amendment No. 2 only replaces and supersedes the proposed rule 
language provided in the original proposal and Amendment No. 1. 
Telephone conversation March 12, 2001 between William Floyd-Jones, 
Jr., Esq., Assistant General Counsel, Amex, and Joseph P. Morra, 
Special Counsel, Division, SEC.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 590, Minor Rule Violation 
Fine Systems. The text of the proposed rule change is available at the 
Amex and at the Commission.

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
    The Exchange has had a Minor Rule Violation Fine Plan (``Plan'') 
since 1976 that provides a simplified procedure for the resolution of 
minor violations of certain rules. Codified in Amex Rule 590, the plan 
has three distinct sections: Part 1 (``General Rule Violations''), 
which covers more substantive matters, the violation of which are 
nonetheless deemed ``minor;'' Part 2 (``Floor Decorum''), which covers 
floor decorum and operational matters; and Part 3 (``Reporting 
Violations''), which covers the late submission of routine reports.
    The Exchange's Enforcement Department and its Minor Floor Violation 
Disciplinary Committee (``Committee'') \5\ divide responsibility for 
administering Part 1 of Amex Rule 590. The Enforcement Department 
enforces those rules enumerated in paragraph (g) of Part 1 of Amex Rule 
590, and the Committee enforces the rules enumerated in paragraph (h). 
Part 1 of Amex Rule 590 allows the Enforcement Department and the 
Committee to issue abbreviated ``written statements'' to persons who 
may have violated the specified rules identifying the rules violated, 
the act or omission constituting the violation, and the amount of the 
fine.
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    \5\ The Exchange established the Committee in 1993. See 
Securities Exchange Act Release No. 32989 (September 29, 1993), 58 
FR 52122 (October 6, 1993) (SR-Amex-92-11). Originally, the 
Committee had authority to issue fines for the following violations: 
(1) failure to comply with SEC Rule 11Ac1-4, commonly referred to as 
the ``Firm Quote'' rule, and honoring a ten-up market for customer 
option orders; (2) failure to quote options markets within the 
maximum quote spread differentials; (3) failure to comply with 
option solicitation procedures; (4) violation of the off-floor 
trading prohibition; (5) failure to comply with the Exchange's Auto-
Ex policy relating to signing on and off the Auto-Ex system; (6) 
failure to properly mark, identify and represent floor orders as 
required under Exchange rules; and (7) violation of the Exchange's 
delayed opening policy. Over time, the following violations were 
added to the list of rules enforced by the Committee: (8) violation 
of the ``2, 1 and \1/2\ Point Rule,'' (9) failure to comply with 
stop order procedures and approval requirements; (10) failure to 
obtain Floor Official approval when establishing, increasing, or 
liquidating a position; (11) violation of ITS rules relating to pre-
opening applications, and the Trade Through, Locked Markets, and 
Block Trade policies; (12) failure to comply with requirements 
relating to agency crosses; (13) failure to submit properly 
completed Specialist Floor Broker Questionnaires; and (14) failure 
to obtain Exchange approval for proprietary electronic devices.
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    The issuance of a ``written statement'' by the Enforcement 
Department of the Committee does not constitute a finding of guilt. 
Persons receiving a written statement may plead ``no contest'' and 
return the statement to the Exchange with the specified fine. In the 
alternative, persons who are charged under the plan may contest the 
fine and receive a hearing before an Exchange Disciplinary Panel 
(``Panel''). The Panel that hears contested Committee matters currently 
is composed of a hearing officer and two members of the Committee that 
did not participate in the decision to issue the fine.

[[Page 15512]]

    The Exchange believes that the proposed changes to Amex Rule 590 
will make the Plan more efficient and timely. Under the proposal, the 
size and composition of the Committee would be changed from ten 
persons, all Floor members, to six persons consisting of two Amex 
staff, three Floor members, and one representative of an ``upstairs'' 
member firm. As is currently the case with the Committee, the Amex 
Board would appoint the persons that are eligible to serve on the 
Committee.
    As a result of the change in the composition of the Committee, the 
Panel that hears contested fines would no longer include two members of 
the Committee in addition to the professional hearing officer. Instead, 
the Panel would be selected in accordance with Article V, Section 
1(b)(4) of the Exchange Constitution or Amex Rule 345 as appropriate.
    As described below, the Exchange proposes to add five violations to 
the list of rules under the Enforcement Department's jurisdiction in 
Part 1 of Amex Rule 590. The Exchange also seeks to transfer 
responsibility for enforcing three rules from the Committee to the 
Enforcement Department and move certain routine reports from Part 1 to 
Part 3 where the Exchange believes they more properly belong.
    The proposed changes would transfer to the Enforcement Department 
rule violations pertaining to the SEC's Firm Quote rule, \6\ 
specialists trading with orders on the limit order ``book,'' and the 
improper taking or supplying of securities to fill customer orders. The 
proposed revisions also would add five violations that previously were 
not included in Part 1 to the list of rules under the Enforcement 
Department's jurisdiction \7\ and would rephrase and reorder a number 
of the violations enforced by the Committee and the Enforcement 
Department under Part 1.\8\
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    \6\ 17 CFR 240.11 Ac1-1.
    \7\ The five new rules are: (1) violation of the Exchange's 
short sale borrowing policies; (2) violation of SEC Rule 11 Ac1-4 
(commonly referred to as the ``Limit Order Display Rule,'' 17 CFR 
240.11 Ac1-4); (3) violation of the Exchange's rules regarding the 
deactivation of Quote Assist; (4) failure to liquidate positions as 
directed by the Exchange that are over applicable position limits; 
and (5) failure to comply with Exchange restrictions on transactions 
and exercises.
    \8\ Currently, ``Failure to properly mark or identify and 
represent Floor orders as required under Exchange rules. (Rules 108, 
109, 111, 114, 150-157, 950(a)-(d), 958, Commentary .09, and 
958A(b))'' is listed as a single entry in Part 1 of the Plan. 
Because the rules cited under this violation cover some of the 
Exchange's principal requirements for trading equities and options, 
and since responsibility for enforcing these rules under the Plan 
will be divided between the Enforcement Department and the Committee 
or removed entirely from the Plan, the existing single entry will be 
divided into multiple entries reflecting its constituent rules. 
Thus, while the proposed list of rules enforced under Part 1 may 
appear much longer than it is currently, only five new violations 
are being added to the Plan.
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    Under the proposal, routine filings that are currently under the 
jurisdiction of the Committee (e.g., the Specialist Floor Broker 
Questionnaire) would be shifted to Part 3, and would be enforced by the 
Trading Analysis Department. In addition, a failure by a Registered 
Equity Market Maker to file certain reports would be shifted from the 
Enforcement Department's jurisdiction to the Trading Analysis 
Department's jurisdiction under Part 3. Further, since the rule 
requiring members and member firms to timely file Form U-5s (Uniform 
Termination Notices) was recently added to the Membership Department's 
jurisdiction under Part 3,\9\ the Exchange proposes to delete this rule 
from Part 1.
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    \9\ See Securities Exchange Act Release No. 41735 (August 12, 
1999), 64 FR 45294 (August 19, 1999) (SR-Amex-99-24).
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    The Exchange proposes to remove three rule violations from Amex 
Rule 590 altogether: (1) Members trading ahead of customer orders (Amex 
Rule 150); (2) leaving orders with more than one broker (Amex Rule 
157), and (3) off-Floor trading (Amex Rule 958(g)).
    Part 1 currently has graduated fine schedules for individuals and 
member organizations with progressively higher fines for second, third, 
and subsequent offenses occurring within a ``rolling'' 12-month 
period.\10\ The Plan further provides that the Enforcement Department 
and the Committee may impose fines for a second or subsequent offense 
in the case of a first or second offense if the circumstances warrant a 
more substantial penalty than called for by the schedule. For example, 
if the Committee finds that a particular violation is more serious than 
the norm, the Committee may impose the maximum fine, notwithstanding 
the fact that the violation may be a first offense within the rolling 
12-month period.
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    \10\ Violations that occur outside the 12-month rolling review 
period are not counted in determining whether a particular violation 
is a second, third or subsequent offense.
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    The Exchange has determined that most violations covered under the 
Plan could be included in an expanded 24-month review period. In 
addition, certain rules that may be violated more frequently, such as 
the Firm Quote rule or rules requiring the submission of audit trail 
data, are best enforced using a ``patterns and practices'' approach, 
where market participants are evaluated both in terms of their overall 
performance and relative to their peers. For these types of rules, 
using a ``patterns and practices'' approach, the Exchange believes that 
extending the time period is also appropriate.
    The Exchange believes that an extension of the rolling time period 
is appropriate only if it is coupled with explicit authority to combine 
separate violations into a single offense under the Plan, where 
appropriate. The Exchange, therefore, proposes that Amex Rule 590(e) be 
amended to clarify the authority of the staff and the Committee to 
combine violations under paragraphs (g) and (h) of Amex Rule 590. The 
staff and Committee would be permitted to aggregate violations when the 
number of violations is determined based upon a program of 
comprehensive surveillance, thereby enabling the staff or Committee to 
analyze large amounts of regulatory data and craft appropriate 
remedies, including minor fines, without being held to rigid schedules 
or being compelled to bring formal disciplinary action based on a 
minimal number of surveillance breaks. The staff and Committee also 
would be permitted to aggregate similar violations generally if the 
conduct was unintentional or negligent, if there was no injury to 
public investors, or if the violations resulted from a single systemic 
problem or cause that has since been corrected.
2. Statutory Basis
    The Amex believes that the proposed rule change is consistent with 
Section 6(b) of the Act \11\ in general and furthers the objectives of 
Sections 6(b)(1),\12\ 6(b)(6),\13\ and 6(b)(7) \14\ in particular, in 
that it is designed to enhance the ability of the Exchange to enforce 
compliance by its members and persons associated with its members with 
the provisions of the Act, the rules and regulations thereunder, and 
the rules of the Exchange. The Exchange believes the proposal will help 
ensure that members and persons associated with members are 
appropriately disciplined for violations of the Act, the rules and 
regulations thereunder, and the rules of the Exchange. The Exchange 
also believes the proposal will provide a fair procedure for the 
disciplining of members and persons associated with members.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(1).
    \13\ 15 U.S.C. 78f(b)(6).
    \14\ 15 U.S.C. 78f(b)(7).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change will impose no 
burden on competition.

[[Page 15513]]

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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 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 
Amex. All submissions should refer to file number SR-Amex-00-48 and 
should be submitted by April 9, 2001.

    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. 01-6664 Filed 3-16-01; 8:45 am]
BILLING CODE 8010-01-M