[Federal Register Volume 67, Number 29 (Tuesday, February 12, 2002)]
[Notices]
[Pages 6565-6567]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3300]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45404; File No. SR-NYSE-2002-06]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Amending Exchange Rule 351 
Concerning the Reporting of Criminal Offenses by Members and Member 
Organizations to the Exchange

February 6, 2002.
    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 January 9, 2002, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. 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.
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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 NYSE Rule 351 that would narrow the 
scope of reportable criminal offenses reported by members and member 
organizations to incidents, which are more germane to the conduct of a 
securities-related business and would, therefore, minimize the number 
of immaterial filings and maximize the effective use of resources 
committed to fulfilling self-regulatory responsibilities at the 
Exchange. Moreover, the proposed amendment would capture the reporting 
of arrests for which any subsequent conviction would subject the 
individual to a statutory

[[Page 6566]]

disqualification under section 3(a)(39) of the Act.\3\
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    \3\ 15 U.S.C. 78c(a)(39).
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    The text of the proposed rule change appears below. New text is in 
italics; deletions are in brackets.
Reporting Requirements
Rule 351
    (a) (1)--(4) no change.
    (a) (5) is arrested, arraigned, indicted or convicted of, or pleads 
guilty to, pleads no contest to, [any criminal offense (other than 
minor traffic violations)] any felony; or any misdemeanor that involves 
the purchase or sale of any security, the taking of a false oath, the 
making of a false report, bribery, perjury, burglary, larceny, theft, 
robbery, extortion, forgery, counterfeiting, fraudulent concealment, 
embezzlement, fraudulent conversion, or misappropriation of funds, or 
securities, or substantially equivalent activity in a domestic or 
foreign court.

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 proposes to amend NYSE Rule 351(a)(5) with respect to 
the reporting of criminal offenses by members and member organizations 
to the Exchange. According to the Exchange, one of its objectives, as 
provided by the Exchange's Constitution, is to ``maintain high 
standards of commercial honor and integrity among its members, allied 
members, member firms and member corporations.* * *'' To this end, NYSE 
Rule 351(a)(5) requires that members and member organizations promptly 
report to the Exchange whenever a member, member organization, or any 
member, allied member or registered or non-registered employee 
associated with such member or member organization is arrested, 
arraigned, indicted, convicted of, pleads guilty to or pleads no 
contest to, any criminal offense (other than a minor traffic 
violation).
    According to the Exchange, the reporting requirement under NYSE 
Rule 351(a)(5) is intended to assist it ensure that its members, allied 
members and member organizations possess commercial integrity and can 
function in a fiduciary capacity. However, the Exchange believes that 
the definition of a reportable offense under NYSE Rule 351(a)(5) is too 
broad in its current form and departs from the prevailing industry 
disclosure requirements.\4\ The Exchange states that it has required 
member organizations to report a wide range of criminal offenses to the 
Exchange. In fact, the Exchange believes that the majority of offenses 
currently reported to the Exchange do not relate to the commercial 
integrity of the industry. The Exchange states that such reported 
offences are not business-related, such as fraud, embezzlement, theft 
or forgery. More often, the Exchange states, the reported offences 
relate to violations of the motor vehicle code, such as drunk driving 
offenses.
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    \4\ Under the current version of the Form U-4, Question 22A(1) 
reads as follows: ``Have you ever (a) been convicted of or pled 
guilty or nolo contendere (``no contest'') in a domestic, foreign, 
or military court to any felony? (b) been charged with any felony?' 
Question 22B(1) reads as follows: Have you ever (a) been convicted 
of or pled guilty or nolo contendere (``no contest'') in a domestic 
or foreign court to a misdemeanor involving: investments or an 
investment-related business, fraud, false statements or omissions, 
wrongful taking of property, or bribery, forgery, counterfeiting or 
extortion, or a conspiracy to commit any of these offenses? (b) been 
charged with a misdemeanor specified in 23B(1)(a)?
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    As a result, the Exchange believes the overly broad reference to 
``criminal offense'' under NYSE Rule 351(a)(5) currently requires 
applicants to report information that is of no regulatory interest to 
the Exchange, is not in keeping with other industry regulatory 
requirements and places unnecessary demands on Exchange staff since 
they have been required to review these unnecessary filings. For 
example, the Exchange asserts that 95% of the 154 reported arrests in 
the first quarter of 2001 were not felonies or business-related 
offenses. In fact, 50% of the reported arrests involved drunk driving 
offenses. Under the proposed amendment, the Exchange states that these 
types of arrests would not need to be reported to the Exchange.
    According to the Exchange, the proposed rule change would narrow 
the scope of reportable criminal offenses required by members and 
member organizations to incidents, which are more germane to the 
conduct of a securities-related business and would, therefore, minimize 
the number of immaterial filings and maximize the effective use of 
resources committed to fulfilling self-regulatory responsibilities at 
the Exchange. However, the Exchange notes that the proposed rule change 
would still require that every felony be reported to the Exchange, 
while only the proposed enumerated misdemeanors need be reported.\5\ 
Moreover, the Exchange believes that the proposed rule change would 
capture the reporting of arrests for which any subsequent conviction 
would subject the individual to a statutory disqualification under 
Section 3(a)(39) \6\ of the Act.
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    \5\ Telephone conversation between Susan Light, Vice President, 
NYSE, and Katherine England, Assistant Director, Division of Market 
Regulation, Commission, on January 31, 2002.
    \6\ 15 U.S.C. 78c(a)(39).
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    (2) Statutory Basis
    The Exchange believes the basis for the proposed rule change, as 
amended, is the requirement under sections 6(b)(5) \7\ and 6(c)(2) of 
the Act.\8\ Section 6(b)(5) \9\ requires, among other things, that the 
rules of an exchange be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and national market system, and in general, 
to protect investors and the public interest. Section 6(c)(2) \10\ 
permits an exchange to deny membership to a registered broker-dealer or 
bar association of a natural person with a registered broker-dealer who 
is subject to a statutory disqualification.
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    \7\ 15 U.S.C. 78f(b)(5).
    \8\ 15 U.S.C. 78f(c)(2).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(c)(2).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal does not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act.

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

    Comments were neither solicited nor received by the Exchange.

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)

[[Page 6567]]

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 filings will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-NYSE-2002-06 and 
should be submitted by March 5, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-3300 Filed 2-11-02; 8:45 am]
BILLING CODE 8010-01-P